Why mortgage access eludes many adult Africans
There are many reasons access to mortgage will continue to elude many adult Africans. Poverty is one of such reasons. There are others reasons which, experts argue, are as profound as poverty working against majority of the black continent population.
With low gross asset value of its real estate estimated at just €113 billion, Africa is said to be economically underweight with high-level poverty among its people, and this is in spite of its large population size. High level poverty is reason for the low standard of living and sub-human conditions in which some of the people live.
The continent’s €113 billion gross asset value of real estate represents only 1 percent of the world’s total value, pushing it very low relative to other continents. In Nigeria, for instance, the situation is bad. Only 5 percent of the country’s housing stock estimated at 13 million units are in formal mortgage.
The remaining 95 percent are said to be ‘dead assets’. But analysts see positive upsides in this because, according to them, this has made the continent an attractive prospect for investible funds in real estate.
Home ownership in most parts of Africa is almost a luxury because houses are available and are inaccessible and unaffordable to many people because of their high prices. These prices can only be afforded by a few who have the means.
The World Bank estimates that only 3 percent of the African population, about 15 percent of the world’s 7.3 billion population, has income viable enough to qualify them for a mortgage, underscoring the level of poverty in the black continent where some households live below poverty line.
Nigeria is the continent’s most populous nation and is touted as its largest economy, yet about 70 percent of its 170 million people lives below poverty line, which explains the low home ownership level in the country which is a little above 10 percent of the entire population.
It is also estimated that about 90 percent of houses in Nigeria are self-built with less than 5 percent of them in possession of formal title registration. Mortgage loans and advances in the country stand at 0.5 percent to GDP in contrast to 30-40 percent in emerging economies and 60-80 percent in advanced economies.
Major obstacles to mortgage finance also include dearth of long-term funds, absence of a secondary mortgage market, inadequate branch network of Primary Mortgage Banks (PMBs), among others which is why a great deal of work remains to be done to grow housing finance in the country.
The growth of housing finance in Nigeria, according to Guillaume Roux of Lafarge Africa Group, needs the support of the small micro-finance institutions in their efforts to expand and diversify their offering, adding that the growth would also come from the large commercial banks which are becoming more and more attracted by the low to medium income segment of the housing market.
Roux’s argument was that both the micro-finance institutions and commercial banks need support to develop housing products and build up projects which would positively affect the low income segment, urging organization and institutions to help one another to achieve these goals.
Nigeria needs to grow housing finance through such initiatives as ‘Housing Micro-finance Academy’ which Lafarge launched in 2014 in partnership with International Finance Corporation (IFC) and African Finance Development (AFD).
Training sessions need to be organized to promote housing micro-finance and develops the capabilities of banks in that field. Roux sees governments as critical stakeholders required to create the regulatory framework that would make the housing market work for the low income segment, noting that the setting up of the Nigerian Mortgage Refinance Company (NMRC) and the institutions for housing finance, including micro-finance and mass housing financing, with the support of the World Bank, is a good example of a platform which would facilitate the growth of initiatives there.
“This will progressively enable a decrease in interest rates in the mortgage industry. However, more support from the government is needed to lower the interest rates for the funding of affordable housing and social housing projects. Today, they represent a cost of up to 30 to 40 percent of the construction, which is borne by the end user”, Roux said.
It needs to be stated that there is a need to improve the affordability of construction itself in which case social housing projects should be setting the stage by showcasing new construction techniques that could improve quality, deliver faster and reduce the cost of construction.
African governments need to creatively innovate in order to improve the living standard of their people through the provision of affordable and mortgage-backed housing programmes. Also, the mortgage system has to be improved to make it not only accessible but also affordable.