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By Palash Ghosh - Nigeria, the largest country in West Africa, is a huge oil producer but faces many problems associated with developing countries fighting to become a stable and flourishing democracy. One of the major issues for its growing populace is a lack of adequate housing to meet mostly the needs of urban dwellers. The housing deficit currently stands at 17 million units with additional 2 million units added each year.
The Nigerian President Dr. Goodluck Jonathan reckons that at least 56 trillion Naira (about $350 billion) is needed to alleviate the deficit while the World Bank put the estimate at 59.5 trillion Naira. As the country enters its 54th year as an independent nation, the government is taking the bull by the horn by creating the Mortgage Refinance Company of Nigeria (NMRC), an institution designed to bridge the funding cost of residential mortgages by promoting the availability and affordability of good housing through increased access to liquidity and longer-terms funds in the mortgage market.
Speaking to an assembly of the Nigerian Institute of Architects (NIA) in Abuja in November 2013, President Jonathan said if the program is successful, it would significantly improve the country’s home ownership rate – currently at about 25 percent. “Housing associated facilities are grossly inadequate and millions of citizens live in substandard environments or slums plagued by squalor and lacking basic amenities of life,” Jonathan told the gathering. “To reverse this trend, my government recently announced plans to establish the [NMRC]. This corporation is intended to provide funding for the housing and construction sector.”
The Nigerian government’s cost estimate is based on a rather conservative assumption of 3.5 million Naira per housing unit. And analysts believe that the colossal amount needed to solve the problem cannot be funded only through government, but also through the injection of private funds.
Perhaps, it is for this reason that the NMRC is a government idea that is going to be led by the private sector. During the launch of the NMRC last Thursday, the Nigerian Minister of Finance and Coordinating Minister for the Economy whose office has been working on the initiative noted that “it is a public-private sector led initiative set to address the key barrier of finance to developing accessible to affordable housing.” The project is a collaboration between the public sector (states, ministries of land, justice, finance, regulations – Central Bank of Nigeria, Security and Exchange Commission) and the private sector – financial institutions, bilateral and multilateral institutions.
The need for private funding is supported by the Managing Director of Federal Mortgage Bank of Nigeria (FMBN), Gimba Ya’u Kumo, who told the Nigerian media that the mortgage market in the country “requires urgent injection of funds from both the government and the private sector.”
To help kick-start the process, the Minister disclosed that her office successfully negotiated a US$300 million financing agreement between the Federal Government of Nigeria and the International Development Association (IDA) on very concessional terms, zero interest rate, 40-year tenor with 10 years of grace. When the NMRC becomes fully operational in about three or four months, US$250 million will be disbursed in installments to NMRC as Tier 2 Capital based on performance indicators; US$25 million will be for the establishment of a Mortgage Guarantee Facility for lower income borrowers and US$25 million will support the development and piloting of Housing Finance Microfinance Products including support to the Federal Mortgage Bank of Nigeria to restructure and strengthen its program of mass housing.
According to information made available by the Special Adviser Media to the Nigerian Minister of Finance, Constance C. Ikokwu, loans can be accessed from mortgage and commercial banks at longer tenors and affordable rates with this program.
One of the obstacles to increase home ownership in the country lies with the onerous Land Use Act of 1978, which, among other things, specified that land belongs to states. A complex and cumbersome registration process also precludes home ownership for many Nigerians. Ikokwu stated that the NMRC is set to tackle these issues by working with 14 pilot states in the country. Land registries are expected to provide access to these rights at a low cost and within a few months rather than years, in addition to enforcing foreclosures.
Nigerian officials hope the NMRC will enable the country to develop a robust property and mortgage industry, in addition to creating jobs. Specifically, NMRC expects to deliver more than 75,000 new homes per year and generate 300,000 direct and 488,000 indirect jobs during the initial phase of the program. Under the program, ordinary Nigerians will be able to access up to 20-year loans from a mortgage or commercial bank at “reasonable” interest rates.
But there are other problems associated with Nigerian housing – some building materials, particularly cement are expensive. The government says it is working to manage this. Also, the United Nations estimates that the country’s population will reach 289 million by year 2050, making housing an urgent issue and Nigeria the eighth most populous state on earth. Indeed, Nigeria is the most rapidly urbanizing nation in Africa, placing immense pressure on the government to provide housing.
To discuss some aspects of the NMRC, International Business Times sent a Q&A to the Ministry of Finance. Below are the responses signed by Constance C. Ikokwu.
IB TIMES: Is home ownership in Nigeria currently restricted to the very wealthy?
MINISTRY OF FINANCE: Home ownership is not restricted to the very wealthy. However, the absence of a functioning mortgage system large enough to meet demands makes it more challenging for families to own homes. To solve this problem, the government has set up the NMRC.
IB TIMES: Do most residents of Nigeria own their homes, or do they rent?
MINISTRY OF FINANCE: In Nigeria, it is common for residents in urban areas to rent and for families in the rural areas to own their homes.
IB TIMES: Does not Nigeria need to construct a huge number of homes for its people before the government starts handing out mortgages?
MINISTRY OF FINANCE: The mortgage program has three components, and will be most effective if a coordinated approach to all parts of the value chain is implemented. The main areas are: a) land and legal framework, b) access to affordable housing finance, and c) housing development and construction. NMRC is being established with the primary aim of resolving access to affordable housing finance, and importantly, as a focal point for creating an enabling environment for housing finance by playing a strong developmental role in supporting the improvement of land and legal framework and housing development and construction.
IB TIMES: Is this program designed primarily to help urban Nigerians, and not people in the rural areas?
MINISTRY OF FINANCE: This initiative is for the benefit of all Nigerians in the long term. Beginning from the first phase of operations, average Nigerians with sustainable and verifiable level of income can access mortgage loans easier and faster from participating mortgage lenders. These institutions will be better equipped to provide long term loans having refinanced from NMRC. It will enable developers to build homes faster and allow these homes to be purchased at an affordable cost, and hence save more household disposable income for other investments.
IB TIMES: How will you prevent the kind of mortgage collapse that the US witnessed a few years ago?
MINISTRY OF FINANCE: NMRC is a company that will sit as a financial intermediary between the Nigerian capital market and financial institutions that provide mortgage loans to average working Nigerian citizens. NMRC will access the capital market by issuing long-term bonds, and will on-lend the proceeds of the bonds issued to these mortgage lending institutions by providing loan facilities secured by the mortgage pool created according to an agreed underwriting standard. It will also have oversight functions to ensure that laid down rules are strictly adhered to.