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The Nigerian housing sector has an affordability challenge. Housing delivery is targeted mainly at the middle high income segment of the population that can either pay cash or access mortgage finance from the banks.

The sheer size of the low income population, however, suggests a crucial growth opportunity for developers and financiers if they are sufficiently innovative. The affordability parameters inherent in the mortgage instrument limit access by the low income population.

These parameters include 20% – 30% equity contribution, maximum tenures of only 10 –15 years, high interest rate of 22%, etc. Opportunities to address this market are limited by expensive building materials and the lack of local capacity to produce the supply chain components like doors, door knobs, windows, etc. The non – availability of long term funding for housing development also compels builders of residential accommodation to recover their capital within the shortest possible time. It is in this area that the development of non-mortgage housing finance products, such as housing microfinance, could be very usefully explored. Some of the other challenges to the development of the Nigerian housing market include:


Inflation: Inflation in Nigeria is still in double digits. Investors, lenders and borrowers prefer a stable economy where decisions can be taken without trepidation. Apart from inflation, other macroeconomic indices should be kept stable and must continue to improve if the mortgage market is to thrive and become vibrant.

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Land Use Act:  The Land Use Act of 1978 has become an obstacle to making land available for housing. The Act has been blamed for the prolonged bureaucratic process of obtaining the Certificate of Occupancy, the document that confers ownership of the land to the individual from the government. Furthermore, the Act has not guaranteed security of title and cost remains prohibitive while access to titled and registered land is difficult and cumbersome.

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Taxes, Stamp Duties and Fees: The tax burden on housing development in Nigeria is enormous. Value Added Tax (VAT), which is collectible at various levels of the building process, adds as much as 30% to the total cost of a house. This is exclusive of titling fees and stamp duties. This ultimately puts the sales price of the unit beyond the reach of low income earners.

Property Registration: Registering property is generally slow and expensive. However, there has been some improvement since 2008 when the World Bank’s Doing Business 2008 report recorded that reforms had led to a reduction in the time required to complete the process from 274 to 80 days. In the 2010 World Bank Doing Business sub-national report, the number of days for processing the governor’s consent was estimated to be 52 days. However, it takes only 1 day for the same registration to be done in Singapore.


Insufficient Capital Base: The inadequate capital base of most primary lenders limits their ability to provide needed finance to meet market demand.

Funding Challenges: Funding is a major challenge in the Nigerian housing market. The market is characterized by high interest rates, which are a reflection of the source of funds which is predominantly short tenured (30 days, 60 days and 90 days) Mortgage finance where present is structured as variable rate mortgages. Funding challenges lead to affordability issues. Thus, there is a gap between the cost of houses and the income of end users.

Unavailability of Secondary Market: There is no efficient secondary mortgage market linked to capital markets and institutional investors. This puts enormous burden on PMIs or housing finance institutions to carry the mortgage loans to maturity. Currently, outstanding mortgage loans remain on the books of the PMIs no matter the tenure. This limits the ability of the PMI to originate more loans.

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Lack of Credit Enhancement Vehicles: To extend mortgages to low-income levels, there needs to be some credit enhancement like mortgage insurance to guarantee credit risks up to certain loss levels for loans with high loan to value ratios. This may also extend affordability to the low income population as lenders will require smaller deposits if the loan is guaranteed.

Skilled Manpower: There is limited capacity for the requisite skills required in the mortgage market in Nigeria. This is explained by the fact that the market has not being in existence for a long time.

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High cost of building materials: Nigeria imports about 60% of the building materials required for housing development. This is a key factor for the high cost of houses.

Infrastructure: Infrastructure accounts for about 25 to 30 percent of housing costs. It is a major determinant in the delivery of affordable housing. Government has neglected this area and developers now provide same, thus increasing the cost of houses. This is evident in many gated residential estates across the country, where the developer provides independent/alternative electricity, water treatment plant, sewage plants, access roads to the estate, etc.


…to be continued

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