Property analysts polled in a BusinessDay survey linked the poor performance of Nigeria’s mortgage industry to legal, economic and socio-cultural factors coupled with lack of advocacy, as studies have shown that only one out of 15 adults in the country understand what mortgage means.
Nigeria with about 20 million units housing deficit has one of the lowest mortgage to Gross Domestic Product (GDP) rate at about 0.6 percent, which obviously lags Ghana’s 2 percent, South Africa’s 30 percent, the U.S and UK rate at 60 percent and 70 percent respectively.
Abiodun Akanbi, Head Strategy at Infinity Trust Mortgage Bank said “in the society when you say you want to borrow to buy a house, people will look at you and ask; why will you go and borrow to buy a house? And that is one of the social issues, and it is still there, whether we like it or not.”
According to Association of Housing Corporation of Nigeria (AHCN), underdevelopment of Nigeria Mortgage sector in driving home ownership is worrisome as more than 90 percent of new homes utilise funds from personal savings for incremental construction.
“I have seen a lot of my friends who I tell to come take a mortgage and they will say no because they have one plot and they intend to be building the house gradually,” Akanbi said.
He explained that his friends do not understand the fact that they might not finish the house in the next 10 years but with mortgage they can move into the house immediately.
“And they can start enjoying the house and pay for it for say the next ten years. Life itself is borrowed so why can’t you borrow to have a good life, as far it is within your legal income you can repay back the loan, so that is one of the issues,” he added.
Although mortgages are also loans which mean that they come with interest rates, and typical mortgage interest rates in Nigeria range between 7-10 percent for the Federal Mortgage Bank 0f Nigeria (NHF) and between 15-25 percent for commercial mortgage institutions. Property experts say the rate is one of the highest in the world.
Aside from the interest payable, the potential buyer must also have a certain percentage of the total amount needed for the purchase readily available; this amount is known as equity and should range between 30-70 percent of the total cost of the home.
So, in Nigeria for instance, a Mortgage of N25million at 15 percent per annum interest rate means repayment of N37.9million in interest only over the 15year period, which is even more than the principal itself. The trick here is that at 15 percent interest rate, it takes a lender approximately 7years to recover the N25million it lent to you. That is about 6 years if the interest rate is 20percent.
With that sort of interest rate, many are left with the question of if anyone can, not just afford a mortgage but be willing to take one on even with a steady salary. This therefore refers to the economic factor that drags the sector.
“The spending power of an average Nigeria is another issue, if you ask an average Nigerian how much he can actually put down to use in investing in property even in a situation where affordable housing could be an option, you will be shocked,” Hakeem Sodiq CEO of Zama, a real estate advisory firm said.
Another industry analyst who asked not to be quoted due to his office said the social-cultural, the economic and more importantly the legal issues peculiar to Nigeria is one of the factors that is limiting the growth of the industries .
“How many Nigerians can tell you that they can confidently use 30 percent of their salary to pay for property? But if the government can provide infrastructure that can help reduce cost of developing houses, this can make it easier for an average Nigeria to access property at a rate affordable to them over time,” the analyst said on the condition of anonymity.
Speaking on the sector’s legal frame work in relation to the non-existence of foreclosure law in Nigeria, Akanbi said it is one of the biggest problems of the industry.
“If you lend out money, and the borrowers refused to pay, you are at the mercy of the debtors because you cannot reforclose, as there is no foreclosure law in Nigeria, that is the major problem, and because people know that there is no foreclosure law, they just go to court, get an injunction and trail for 6, 7 years,” the head strategist said.
Another industry expert who pleaded anonymity cited that the administration of the land use act means that everything must be issued by the governor, which according to him takes a lot of time.
“Then when you want to register a mortgage you must also have the governor’s consent, it comes with the cost. Most of the land registering we are still using are old, some are brazing up by using technology. The transaction cost of perfection sometimes gets between 7 to 8 percent of the loan amount; you will see a situation whereby you want to borrow N10 million and you need another N1 million or N700,000 as perfection cost,” the analyst explained.
On the way forward in bridging Nigeria’s housing deficit specifically through mortgage, the property industry experts cited advocacy and government intervention.
“I think it is an industry that has a lot of potential to grow, it is a sector that can turn around Nigeria, because it creates labour for both formal and informal groups. So one of the things government can do for the prosperity of this nation is to make the housing sector as vibrant as it can be,” Akanbi concluded.
Source: Endurance Okafor