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Affordable Housing, Economy

Problems with the National Housing Fund and the Way Forward

On 2 April 2019, the Senate, during its plenary, announced that President Muhammadu Buhari declined assent to the National Housing Fund (Establishment) Bill 2018 (“The NHF Bill”).

The NHF Bill, which was recently passed by the National Assembly, sought to provide for additional sources of funding for financing housing development in Nigeria. However, the President rejected the Bill for legal and economic reasons.

The President equally declined assent to seven other bills which were passed recently by the National Assembly.

Buhari, according to the letters, cited several grounds, ranging from infractions on extant laws, duplication of responsibilities of existing agencies, to financial constraints for refusing assent to the bills.

The National Assembly had transmitted the NHF Bill to the president for signing into law after passing it in February 2019.


Character of the NHF Bill

The NHF Bill sought to replace the current National Housing Fund (NHF) Act and introduce a number of changes to the NHF Scheme. These changes include the imposition of a compulsory 2.5% deduction on the monthly income of Nigerian workers, a 2.5% levy payable by manufacturers and importers of cement and a compulsory investment of 10% of profits before tax on banks, Pension Fund Administrators (PFA) and Insurance companies.

Under the extant NHF law (NHF 1992), every Nigerian earning N3, 000 or more per annum is required to contribute 2.5% of their monthly basic salary to the NHF. The funds mobilised will be made available to contributors at affordable interest rates to build homes.

Just like the pension and personal income tax contributions, the NHF is compulsory for a public worker, a private worker or self-employed individuals earning pay from the range of minimum wage and above.


Key elements of the proposed fund

  • Mandatory 2.5% contribution of monthly income by employees earning minimum wage and above in public and private sectors as well as self-employed individuals.
  • 5% on locally produced or imported cement.
  • Employers are to deduct and remit the contributions monthly
  • Penalty for non-compliance of up to N100 million for corporates and N10m for individuals while sanctions include cancellation of operating licence of banks, insurance companies and PFAs for violations.
  • Withdrawal by contributors who have attained the age of 60 years or 35 years of service to be an interest rate of 2% per annum. The Fund and any refund of contributions are exempted from payment of taxes.


Presidential Rejection

However, the President declined assent to the NHF Bill. According to the President, the various levies and obligations imposed by the NHF Bill would be disruptive and punitive to the Nigerian worker and to sectors such as cement manufacturing, banking, insurance and pension. The President also stated that the provisions of the Bill directing PFAs to invest in the NHF undermines the powers of the National Pension Commission and adversely affects the safeguards that protect the pension industry from unreasonable investment risks.

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Public Sentiment against the NHF Bill

Checks have revealed that there is a teeming public sentiment against the bill, just in line with that of the president. Although the Fund is not new, many have faulted it on so many grounds.

One of the major reasons for public sentiment against the bill is because it is very much shrouded in secrecy, with little or no consultation whatsoever from the relevant stakeholders in the housing and finance sectors.

The revised bill is being presented for passage without the input of various stakeholders. The same factor that affected the NHF Act of 1992 which failed because many organisations including those of the government didn’t make contributions to the poll.

In a conversation with Housing News, Gbenga Orile, a housing finance and mortgage consultant revealed that there wasn’t any critical business analysis or due consultation on the part of the Federal Mortgage Bank of Nigeria – the authority charged with the sole responsibility and cumbersome bureaucratic bottleneck of administering and getting loan(s) from the fund – before presenting the proposal to the National Assembly.

‘’Everyone can agree that there is a huge housing deficit in Nigeria, and it is high time this age long problem is addressed. The National Housing Fund is a plausible idea because it symbolises a social contract – a situation where those with delegated authority can on behalf of the people fashion out a suitable plan that will bring good to the highest number of people. But it becomes problematic when the relevant stakeholders are not even consulted or a critical business analysis is done. A thorough look at the bill will easily reveal these obvious errors,’’ he said.

The Federal Mortgage Bank of Nigeria (FMBN), has also been accused of having a poor record keeping data base like the one existing in PENCON.

According to Mr. Orile, the amount of contribution(s) to the national pension fund is public knowledge because of the need for transparency and accountability. If the NHF bill should become law, then it must place value on transparency and accountability, he said.

As mentioned earlier, there is a public recognition of the fact that the cost might be too much for the beneficiaries.

Putting it in clearer perspective, the cost implication for income earners is that it will take 2.5% from their income every month which is the equivalent of 250% from the PAYE contribution. This means that a N30, 000 earner will pay 2.5% (N750) every month to a poll account on the provision of affordable housing for the population.

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It will increase the price of cement as the revised bill introduced a 2.5% tax on a bag of cement.

It will also take 10% away from commercial or merchant bank profit before tax (PBT) in every accounting year.

The Lagos Chamber of Commerce and Industry (LCCI) also feel that the President did the right thing by declining assent to the Bill. According to Mr Muda Yusuf, the Director-General of LCCI, the bill would have caused more problems for citizens.

Yusuf said that the bill would have increased cost of building materials and widen the country’s infrastructural deficit, leading to increase in cost of doing business and inflict hardship on workers.

What government should do, according to him, was to evolve a mechanism that would reduce the cost of building materials to enable more Nigerians become empowered to construct buildings.

Another shortcoming of the revised bill was its inadequacies to touch on the shortcomings of the 1992 Act on the issue of land ownership and titles as well as the current Land Use Act. The NHF loan is merely for the construction of the building without the acquisition of the landed properties.


NHF Bill: The way forward          

While the National Housing Fund has obviously become a raging controversy, the national problem of housing deficit remain unsolved. A lot of industry stakeholders, including the President of Housing Development Advocacy Network, Bar. Festus Adebayo, believes that Nigeria cannot afford to throw away the baby with the bad water – which in essence means that the NHF remains a critical part of the housing crisis solution in Nigeria if the problematic issues around it can be resolved.

In doing so, he believes that relevant stakeholders including the Real Estate Developers Association of Nigeria, Mortgage banks, Mortgage finance experts, financial market analysts, tax consultants, lawyers and many more professionals that will ensure an inclusive consultation panel be formed in order to look into the contentious issues that prevented the President from assenting the bill.

This he believes will enable a popular representation of views, a review of the pros and cons, and a conclusion that will be based on facts and evidence.

Stakeholders have been admonished not to fold their arms, in order to ensure that the extant issues, including the foreclosure act and the land use act are also reviewed.

As earlier echoed, the opinion of many is that the NHF be open, accessible to all, transparent and accountable. According to Mr Orile, if this is done, it will even bolster the confidence of more fund investors, which will ultimately reduce the cost for the people.

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The National Assembly has also been encouraged by stakeholders to act in a manner that is beneficial to national interest. According to Mr Adebayo, once the 9th National Assembly has been sworn in, stakeholders should quickly begin an engagement with them on how to review the issues that have been mentioned so far, as well as to see to the amendment of pending laws.

Furthermore, the government is advised to open up the industry by way of policy to encourage the participation of the private sector, by first creating access to affordable land for investors. Through the Homestead Act of 1862, the American government made available 300 million acres of public property to the private sector to ensure massive development. Nigeria can borrow a leaf from this to attract the interest of major investors in affordable mass housing.

The government, according to Tosin Ashafa, a real estate analyst, can also look into reducing or eliminating the payment of duty, over a certain period of time, on imported building materials that are targeted for use in mass housing projects within the country.

There is no doubt that the cost of borrowing funds from financial institutions is a macro-economic issue that affects several other industries. It has become necessary, for the sake of progress, that special interventions (e.g. tax breaks) be made to encourage banks to lend to investors in mass housing projects at lower interest rates, over longer periods.

It is time for the government to look at mass housing or the real estate sector as an economic imperative. Only recently, the real estate sector contributed 1.1 trillion dollars to the American economy, creating millions of jobs in construction, brokerage, and so on.

At a time when Nigerians are in desperate need of jobs, this industry has the potential to create opportunities for millions if the right policy framework is put in place. Nigerians deserve the dignity of owning a house of their own and having access to real estate jobs. This will happen only with the stakeholders’ review of the National Housing Fund Bill.

By Ojonugwa Felix Ugboja

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