High cost of money, nature of funds and short tenor of finance have been adduced, among reasons, why most commercial banks are not granting mortgage finance to enhance housing development and homeownership in Nigerian.
President, African Region of International Real Estate Federation (FIABCI), Mr. Chudi Ubosi, said this in a chat with news men in Lagos.
Specifically, he said banks were not giving mortgage due to the fact that less than 10 per cent of their funds come with less than 365 days tenor, which could not match real estate development that requires long-term capital.
Long-term and capital intensive nature of real estate investment, he said, have made it difficult for banks to grant mortgage finance of 15 to 30 years with their short term money.
On how to unlock opportunities in housing finance, Ubosi said that banks were reluctant to give mortgage to real estate developers because 90 per cent of their funds were call (short term)monies.
“Call money is the one you just go to the bank, write a cheque and withdraw. Not less than 10 per cent of money in the bank is money that has less than 365 days tenure,” he said.
Apart from high cost of funds, he pointed out that exorbitant interest rate of 30 to 32 per cent being charged on loans by banks have made it difficult for mortgage financing.
Ubosi said: “With this kind of set up, it is difficult for banks to give you a 30-year mortgage. They won’t even give you a 10-year mortgage because they have to be jobbing with people’s funds. So it is difficult for bank to give a 10 year mortgage.
“And because their own cost of money is high, there is no way you are going to get their money at lower than what they get it. It will come with a margin to cover their expenses, salaries and cost of running generators.”
The African FIABCI boss, who is also the principal partner, Ubosi Eleh and Company, warned that unless the government sorted out the economy, it would be difficult for banks to grant mortgage for home ownership
On the ways out of the woods, he canvassed for the restructuring of the nation’s economy and building of strong institutions to support mortgage finance.
He said: “Unless this economy is restructured and, at the same time, build strong institutions so that if I take money from the bank and refused to pay, I will not go to court and tie up the bank for the next 15 years trying to collect N1million back from you, it would be difficult for banks to finance mortgage.”
According to him, there must be strong institutions, the legal system must be strong and the policing system must also be strong to support mortgage finance.
“If banks are even given mortgages at five per cent for 20 years, today I can tell you that people will collect that money and fix it in deposit account or on investment with 18 to 20 per cent per annum. And if we don’t have strong institutions, nothing will happen to them,” he said.
Ubosi also believes that investment of pension funds in mortgage finance would go a long way, urging the authority to work on this to reduce housing deficit of 17 million among Nigerians.
Nigeria needs to provide 740,000 houses yearly for next 20 years to bridge accommodation gap of 17 million.
For this to happen, he harped on the need to change some of the pension laws to enable pension funds and their administrators invest in real estate.