Housing Finance, Mortgage

Challenges of Mortgage Finance And The Way Forward

Housing is one of the basic necessities of life. However, basic to any development, housing inclusive, is finance.

Of all the problems of housing development in Nigeria, the problem of finance is very critical and decisive. The best programmes of government, no matter how grand and viable in scope and content will remain a day dream, unless there is sufficient capital to concretise it. Despite various pronouncements, regulations and deregulations, and all financial implementation policies of this country, the challenge of accessing sufficient funds for an effective housing delivery system remains an issue.

In Nigeria, mortgage financing has been a major area of concern, identified as one of the most formidable constraints in the housing sector. The recognition of the critical importance of finance in housing delivery led to the establishment of the Nigerian Mortgage Refinance Company in June 2013.

The NMRC was set up to bridge the funding cost of residential mortgages and promote the availability as well as the affordability of good housing to Nigerians by providing increased liquidity in the mortgage market through the mortgage and commercial banks.

Policies of various arms of government in Nigeria had been unstable over the years due to frequent changes and instability in the nation’s system. This instability can be attributed to the government’s failure to develop a viable and sustained housing finance system either because of lack of expertise, lack of knowledgeable industry leaders especially in making policies, and lack of funding for relevant institutional agencies.

Mortgage financing, has been confronted with numerous challenges that have impeded the attainment of its policy objective of acting as a catalyst for the provision of affordable housing in Nigeria.

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Challenges

In 2014, the Nigerian Deposit Insurance Corporation (NDIC) highlighted some of the challenges being encountered by Mortgage banks in its annual report.

The report outlined some the challenges which include:

Delay in accessing NHF funds/dearth of long term funds. Most of the PMBs continued to find it difficult to provide the required bank guarantee to access the NHF.

Due to lack of understanding of the nature of business of PMBs by the public, it had been difficult for the PMBs to mobilise deposits to finance their housing projects which were usually long term in nature. The public prefer to open savings/current accounts with deposit money banks (DMBs) rather than with PMBs whose operations were considered to be too complicated.

Another challenge is the Land Use Act, which had made the process of perfecting title to landed property burdensome, slow and costly. That had affected negatively the foreclosure procedures on the properties pledged as collateral.

Also, under-developed Mortgage-Backed Securities (MBS) which allows mortgage assets to be traded on recognized stock exchanges, do not presently exist in Nigeria.

Appalling state of facilities like roads, transportation, power and water supply had contributed to the high cost of building construction in Nigeria. Furthermore, the high foreign exchange content of imported building materials such as cement, tiles, ceramic wares etc have made housing non- affordable for the average and low income earners.

The lack of foreclosure laws governing the default mortgage loans, the entire cost associated with the task of title transfer, poor infrastructure to provide support for house constructions and highly complicated and lengthy legislative and legal frameworks for land acquisition.

Others are strict financing laws and weak banking structures that have led to volatile markets and made investors, reluctant to do business in such trying market conditions.

 

The way forward
The financing of national housing programmes should be viewed primarily as a national responsibility. The private sector should be encouraged to provide the bulk of actual investment funds for housing middle income and upper income groups.

For the low income group, however, continued public support, individual initiative and labour movement involvement, will be required for housing and community development. Empirical evidence shows that private sector participation in housing is the most assured way to induce stability in the market.

Indeed, the role of Government should emphasize creating an enabling environment to stimulate private sector participation in long-term housing finance. This includes provision of physical infrastructure, enhancing the soundness and competitiveness of mortgage finance institutions and developing property rights.

The housing fund contribution should be integrated into the personal income taxation system such that a defined proportion of taxes paid are allocated to the housing fund pool, as it is done in Singapore.

There is need for constant re- engineering of the capital and money markets in order to cope with the renewed challenges of provision of some mortgage financing. In this regard, the restructuring and strengthening of the FMBN becomes imperative for it to remain a viable financial institution with the capacity to enhance efficient housing finance development in Nigeria.

Cooperative and savings and credit institutions are complementary organizations in the housing sector. Savings and loan investment funds may be better able to serve low-income families if they are channelled through cooperatives. Infact, the cooperative societies may be necessary to encourage savings and loan associations to finance genuine low-income housing, since it enables small individual savings to be pooled into a collective mortgage.

In addition to funds through regular budgetary and fiscal programmes, there is need to put in place other measures to boost available investible funds in this sector.

New sources should be explored through the development of a variety of instruments for the mobilization of fund from the capital market. This include, the large-scale securitization of mortgage portfolios, a mechanism that has remained the primary engine of growth in the housing finance systems of the United States, Germany, France and Italy to name only a few.

For example, the National Housing Fund in South Korea thrives on, not only the deposit subscriptions, but also housing bonds issued by the Housing Bank to finance housing development programmes. Therefore, broadening the capital market to encourage sales and exchange of housing-related securities, i.e. housing bonds, mortgages, loan participations and certificates, can generate additional leverage. This is an important means to attract short or medium-term investment fund into the sector.

There is need to continue with sound economic and monetary policies to overcome the negative effect of inflation on housing and other construction finance, which require long-term credit in the country. This is because high and persistent inflation erodes the real value.

Housing is one of the basic necessities of life. However, basic to any development, housing inclusive, is finance.

The Housing Sector plays a more critical role in a country’s welfare than is always recognized because it directly affects not only the well-being of the citizenry but also the performance of other sectors of the economy.

With a good macroeconomic environment, sound policy, better data and increased access to affordable credit, an enabled housing market can increasingly provide housing that the average household in Nigeria can afford.

SOURCE: Affa Dickson Acho with additional reports from NDIC

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