Housing and its finance are issues that are of great interest/concern in any nation- developed, developing or emerging market. The financing of housing is a key element of any housing policy. In general, two objectives should be taken into account in order to make financing options viable and sustainable.
Thus, the options should offer profitability to market participants, otherwise, it will not be feasible to attract investment, particularly private investment to the housing sector; and secondly, they should be adapted to the potential borrowers’ ability to pay, otherwise, the low-income population will be marginalized from market operations.
Housing is essentially necessary to the extent that in some countries is equated with human right. This is because habitable housing discourage anti-social behavior, promotes healthy living, efficiency, and general well-being of the populace. Housing does not only serve as an asset to individual and Nation, it also provides man with cover and security.
Therefore, the provision of affordable housing at scale remains a challenge to most countries particularly those in developing country like Nigeria. It has become increasingly glaring that most urban population live in dehumanizing housing environment, while those that have access to average housing do so at abnormal cost.
The capital market is unarguably the most robust institution in any economy notable for mobilizing the necessary fund for financing long-term productive project. It controls relatively large amounts of capital and represent the largest institutional providing long-term credits for capital project like real estate that requires huge capital outlay.
The money market however, only provides support to the capital market in the provision of the necessary liquid capital to compliment the total fixed capital. Therefore, the capital market is a good avenue for mobilizing huge and long-term capital required for funding housing development and investments. There exist various vehicles/devices available in the capital market for funding real estate projects which include but not limited to Property bonds, Real estate investment trust (REIT), property unit trusts, loan stock and debenture stocks
Property bond is an available device for small investors that cannot achieve their dream of investing in prime properties due to inadequate fund. Such investor will only purchase few units in a fund and invest in prime properties in prime location and cities that have the capacity and potential to grow capital.
The global universe of real estate companies has expanded dramatically over the past decade due to the very strong performance of the sector, ongoing equity issuance and a proliferation of REIT vehicles across the globe, which has attracted capital into the sector. REITs generally allow participants to invest in a professionally-managed portfolio of real estate properties and their business activities are usually restricted to generation of property rental income. The introduction of REITs in the US and other developed economies has created a remarkable positive change in real estate finance. This is not yet the case in Nigeria, and other emerging nations with REITs.
There is no doubt that finance is an important factor in real estate development. Lack of long-term finance to develop mass housing is a major hindrance to housing for all. After 54 years of Nigeria independence, a vibrant mortgage market is yet to be developed. The existing mortgage scheme that should provide cheaper housing development loan is grossly incapable of satisfying the needs of the populace. Where there is no virile financing structure for housing, a market-based housing delivery system will persist.
These aforementioned devices, if tapped into will help Nigeria in threading the part towards an efficient and continuous housing finance system as there are enormous benefits and opportunities to developed economies from them