Dearth Of Long Term Finance As Impediment To Affordable Housing

 

Chika Okeke writes that the highly-touted provision of affordable housing for Nigerians would be decimated without government resolving issues bothering on access to construction finance.

The construction and building sectors are crucial to the growth of any economy whether in developed or developing countries. While the housing sector in the United States contributed 36 per cent to their gross domestic product (GDP), South Africa had 30 per cent but in Nigeria, it is five per cent.

This is because, Nigeria’s built sector is confronted with enormous pitfalls such as unskilled manpower, difficulties in land acquisition, incessant building collapse due to use of substandard materials, delay in governor’s consent, absence of long term finance, bogus interest rate and among others. These problems are believed to have ignited the over 17 million housing deficit, over- bloated cost of rents, increased slum settlements, use of crude materials s in construction and building, completed and vacant buildings across the major cities in Nigeria.

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Findings revealed that there is no bank in Nigeria that loans on single digit interest rate and since most estates are being funded by commercial banks, the provision of affordable housing would remain a myth. It was also discovered that commercial banks or some Primary Mortgage Banks (PMBs) affiliated to commercial banks loans at 20 to 25 double digit interest rate to estate developers.

Added to this is that intervention funds extended to other sectors of the economy is absent in the housing sector. This is why low income earners who constitute over 80 per cent of the workforce may face severe battles owning homes in the country. Given that access to finance and flexible interest rate are key towards the sustenance of the built sector, experts have suggested that government should provide counterpart funding for the housing sector.

The Chairman, fellows’ forum of Nigeria Institute of Quantity Surveyors (NIQS), Mr. Ifeanyi Anago hinted that previous government had established the Mortgage Refinance Company of Nigeria (NMRC) whose job is to refinance mortgage to enable estate developers who have estates under construction to access funds to finance the estates. He informed that if NMRC is properly articulated and implemented that they would soon boost the mortgage market in Nigeria, stressing that active construction industry is the greatest weapon to crash poverty and create employment especially in the housing sector.

Explaining on how the built industry would boost employment, he noted that anybody building a typical house would at least employ 10 persons like the carpenters, masons, tillers, painters, welders, labourers and among others. According to him, if government decides to construct 10,000 housing units in a given time, multiply it by six which is 60,000 direct employments, you will find out that our cry concerning unemployment especially among the youths will be greatly minimized if we have articulated programmes of sustainable housing expansion.

Anago who is also the principal partner of Ifeanyi Anago & Partners regretted that the built industry contributed between 3 to 5 per cent to the countrys GDP despite its versatility stressing that the only way to capture its contributions was to integrate the industry into the formal market. He described the built industry as the ground wealth of any developed economy since it contributed higher to their GDP saying that since Nigeria is under-developed that most of the construction market is in the informal sector.

Anago pointed out that when Nigeria’s economy was rebased that we took over from South Africa because the economists captured markets that were sidelined in the informal sector adding that construction sector is the only industry that increases wealth without deprecating.

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In his contribution, vice president of Real Estate Developers Association of Nigeria (REDAN), Dr. Aliyu Oroji Wamako lamented the pitfalls in accessing construction finance adding that it was impossible for developers to obtain loans from commercial banks at 28 per cent interest rate and provide affordable housing. He noted that any developer that collected loan from commercial banks would end up enslaving for the banks, saying that since federal government is interested in providing homes for low and middle income earners that the objective would be defeated if the price tag on the houses are high.

Wamako pleaded with all levels of government to provide counterpart funding in order to reposition the built industry and reduce the housing deficit, stressing the need for federal government to eliminate hitches associated with land acquisition.

He suggested that the counterpart funding should be made available to Federal Mortgage Bank of Nigeria (FMBN) that earlier provided the funds at 10 percent interest rate for onward distribution to developers.
According to him, “If 1,000 people are contributing N5,000 in one year, they will only contribute N60 million and there is no thee-bedroom house that is sold below N8m to N10m, so it is impossible for FMBN to provide mortgage for four million people when contributions from the NHF contributors are like peanuts?” This he said is one of the major reason he is appealing to the federal government to streamline the idea of housing provision, cut down bureaucracies involved in accessing mortgages and re-organise the mortgage procedures in Nigeria to avoid wasted efforts.

Wamako pointed out that the provision of infrastructure in satellite towns could also attract foreign investors in the country. He said that once a housing layout is carved out by either federal, state or local government that there should be an existing infrastructure on the layout which is supposed to be provided by government and not private developers. Wamako wondered why residents of Lugbe, Gwagwalada, Bwari or Kuje cannot enjoy the same level of infrastructure available in Asokoro, Maitama and Wuse 2.

A developer who spoke on condition of anonymous appealed to the bank to consider lifting ban on the suspension of Estate Development Loan (EDL) saying that FMBN is the only institution that issues such loans at a flexible interest rate. He noted that some developers’ excesses shouldn’t be visited on others who collected the same loan and paid back as agreed by the institution.

The Federal Mortgage Bank of Nigeria (FMBN) created the Estate Development Loan (EDL) and rent-to-own scheme to bridge the housing gap. The EDL is granted at 10 percent interest rate with a maximum repayment period of 24 months to private developers, state housing corporations and housing cooperatives even as houses produced through the EDL window is not expected to exceed N15 million in price and must be sold only to National Housing Fund (NHF) contributors.

However, the EDL was suspended since 2012 due to a backlog of loan defaults by developers and mortgage bankers, amounting to over N100 billion. Currently, the bank in partnership with Special Presidential Investigative Panel for the Recovery of Public Property (SPIPRPP) are working towards the recovery of FMBN non-performing loans. The managing director of FMBN,

Arc. Ahmed Dangiwa confirmed that the suspended Estate Development Loans (EDL) window is still opened to state- owned housing corporations that are developing houses for workers and contributors to the National Housing Fund (NHF) Scheme.

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Dangiwa maintained that FMBN has always enjoyed mutually beneficial relationship with about 29 member organisations of AHCN which led to the approval of EDLs to build 10, 000 housing units nationwide. He listed the challenges related to housing corporations as state governments failure to provide infrastructure as promised, delays in packaging NHF mortgage loans to off-takers and delays in mortgage perfection due to non-issuance of title documents and governor’s consent.

To resolve the challenges of non-performing EDLs, Dangiwa stated that Real Estate Development Association of Nigeria (REDAN) and FMBN formed a joint committee with Mortgage Bankers Association of Nigeria (MBAN) to propose exit strategies.

He solicited for greater collaboration with housing corporations to improve engagement with state governments even as he appreciated the efforts of AHCN in addressing the housing challenges in the country. Dangiwa assured that the management are making plans to reactivate the EDL by adopting a business model to guide against abuse and loopholes associated with the loan before its suspension.

Chika Okeke

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