Mortgage financing for affordable housing

Developers are critical stakeholders in the housing sector, but they need adequate finance to provide affordable housing for Nigerians. To achieve this, the Federal Ministry of Finance introduced the Family Homes Fund to provide long tenor mortgages at single digit interest rates to qualifying first time home buyers. Since affordable housing provision requires huge capital outlay, developers are expected to seize the opportunity presented by the Fund to bridge the massive housing gap in the country, writes COLLINS NWEZE.

Adequate and affordable housing provision has over the years engaged the attention of most countries, especially the developing ones, given that it is one of the three most important basic needs of mankind–others being food and clothing.

But at the centre of providing affordable housing are developers, who need adequate finance to execute housing projects. However, a major area of concern has been mortgage financing, which has often been fingered as one of the most formidable constraints in the housing sector.

But the introduction of Family Homes Fund by the Federal Ministry of Finance was expected to help the country wriggle out of rising housing deficits. The fund, an innovative private sector- driven financing solution was meant to bridge the rising housing deficits in the country.

According to the Fund, there is an estimated housing deficit of 17 million, which rises by 900,000 per annum.

Mortgages under the scheme will be provided through Primary Mortgage Institutions and refinanced by the Nigeria Mortgage Refinance Company (NMRC). Interest rate of 9.99 per cent is applicable to the first N2.5 million only.

The scheme has a target to achieve at least 40 per cent of its total housing stock at N7.5 million or less and will bridge the affordability gap by providing long tenor mortgages at single digit rates of interest to qualifying first time home buyers within targeted household income thresholds.

“The aim of the programme is to channel funds from savers to borrowers, so that builders have the required capital to construct and prospective buyers can access credit to purchase homes. Ultimately, the Fund aims to accelerate the development of the domestic mortgage industry such that the scheme will become entirely private sector driven in the medium to long term. The Fund will also actively promote local content, thereby supporting the extensive value chain across the local construction industry and creating jobs,” a report on the Fund’s website said.

The Fund operates as a Public Private Partnership (PPP) and targets to raise N1 trillion, starting with N500 billion. It will be structured as a Real Estate Investment Trust (REIT) and will be professionally managed to stimulate funds from the private sector, pension funds, insurance funds, multilateral agencies, and impact investors. The blended pool of long term funds will be channelled towards providing financing for affordable housing development and mortgages to Nigerians.

Besides, the Fund aims to enable developers deliver family homes priced from N2.5 million, extending up to N18 million, delivered in a ‘ready to occupy’ condition, with essential services such as water and power connected.

The Fund will equally attract low cost local and international capital, including domestic pension and insurance funds, to complement Federal Government funding. The blended pool of funds will be channelled towards lending to qualifying private sector developers and equity participation in developments.

How it works

The programme is being executed in partnership with state governments that will contribute suitable land for development. Benefiting from reduced cost of capital and economies of scale, the qualifying developers will utilise the financing and land provided by the Fund to deliver affordable housing aimed at families within the targeted income brackets.

“The Fund will use the returns earned from lending to developers and its equity participation in developments to bridge the mortgage affordability gap by providing long tenor mortgages at single digit interest rates to qualifying first time home buyers,” the report said.

Besides, the programme will be centrally managed and marketed through the Fund. The initial delivery target is up to 100,000 units, rising to 500,000 units per year within three years. By actively promoting local content, indigenous small and medium enterprises (SMEs) will benefit as suppliers of housing products and components across the construction value chain.

The Fund aims to enable the creation of 200,000 new jobs per year in the initial year, rising to one million jobs per year from year five onward. For the first time, home buyers, both home and abroad, who meet the eligibility criteria will benefit from mortgages of up to 20-year tenor starting from 9.99 per cent interest rate. It however comes with buyer deposit of as low as 10 per cent.

Statistics showed that Nigeria is a peculiar country where mortgage finance as a share of Gross Domestic Product (GDP) is extremely low. At a paltry 0.5 per cent, compared with 80 per cent (United Kingdom), 77 per cent (United States), 31 per cent (South Africa) and two per cent (Ghana), it is a huge joke. The housing and construction sector accounts for only 3.1 per cent of Nigeria’s rebased GDP. Housing production is at approximately 100,000 units per year while 800,000 units are needed yearly.

As a result of this lack of a robust mortgage financing system, Nigeria’s rate of home ownership is one of the lowest in Africa at 25 per cent. Statistics showed that Nigeria’s home ownership rate is much lower than countries like Singapore (90 per cent), Indonesia (84 per cent), Kenya (73 per cent), USA (70 per cent), Benin Republic (63 per cent) and South Africa (56 per cent).

Besides, the Nigerian Sovereign Investment Authority (NSIA) recently signed a major agreement with Old Mutual Investment Group to establish two new funds to invest in Nigeria’s real estate and agriculture sectors.

New investments in housing sector

Last week, the Federal Mortgage Bank of Nigeria (FMBN), Shelter Afrique and Real Estate Developers Association of Nigeria (REDAN), signed a $2 billion Memorandum of Understanding (MoU) to provide affordable housing for Nigerians.

FMBN Acting Managing Director, Richard Esin, said the MoU was the first critical journey aimed at providing affordable housing for Nigerians, adding that the move was in line with the Federal Government’s agenda to encourage home ownership in the sector.

Signing the MoU in Abuja, Esin said the bank had been able to create 734 mortgages, using about N5.4 billion. He said the FMBN, Shelter Afrique and REDAN met to explore the opportunity that would come with the launch of the National Housing Model.

“In the meeting, we agreed that we needed to bring in Shelter Afrique to work in partnership with the Real Estate Developers Association of Nigeria to make available some funds over the next 10 years to give impetus to the national housing model; by providing other members with the necessary construction finance that will be required to drive the national housing model,” he said.

According to Esin, the housing design and pricing has been agreed on and further disclosed that the Nigerian market would not require anything less than $200 million annually over the next 10 years for this purpose.

Stakeholders speak

The immediate past President/ Chairman of Council, the Chartered Institute of Bankers of Nigeria (CIBN), Mrs. ‘Debola Osibogun, said a developed mortgage finance sector impacts on country’s economic growth and development.

In her valedictory speech titled: “Rethinking Nigeria’s Mortgage Financing Policies for Sustainable Development and Global Competitiveness”, she said the mortgage industry could help in cutting interest rate on loans, which will boost housing affordability.

“The obvious outcome is that there is a gradual shift from the perspective that housing finance is mainly concerned about mobilising short-term household deposit for long-term mortgage financing to a perspective that housing finance is more closely integrated with broader capital market developments,” she said.

However, she noted that against the background of the challenges of delivering affordable houses to Nigerians, there was need for a rethink of the approaches used hitherto to achieve the objectives of the housing policy.

“Looking at the past, analysing the present and projecting into the future, there is the compelling need to take a second look at what we have done as a nation to promote housing delivery, ensure better development, and global competiveness so as to make Nigeria an investment destination for housing delivery,” she said.

She said the Nigerian housing policy has always emphasised that housing must be seen in the context of overall national development, which include social development, the generation of employment opportunities, the geographical distribution of the population and the location of industrial, commercial and agricultural activities.

Bemoaning challenges confronting the industry, a developer, Michael Abiodun, lamented a situation where a developer after completing an estate, has to provide key infrastructure such as power and build roads to service the estate.

According to him, these factors add up to the cost of owning homes in the country, because developers usually transfer such costs to buyers. Abiodun said another major problem of developers is huge interest rate being charged by banks, pointing out that mortgage facilities are not readily available and where you have them, they go for double digits, which is not what is applicable in other countries of the world.

The Chief Executive Officer, Skyfield Property Development Limited, Emeka Ekeh, urged the Federal Government to make the National Housing Fund (NHF) more effective and accessible to the generality of Nigerians.

For him, the government should assist mortgage operators by providing credit support to them, given that real estate business remains capital intensive.

He said: “Real estate is capital intensive and anyone that needs to invest in the sector must have huge financial muscles. The government should partner the private sector to ensure that the dream of every Nigerian to own a house is realised. It has to make the National Housing Fund more effective, and provide shorter period for people to access the fund. The government should assist by providing the enabling environment finance-wise.”

Source: The Nation