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Interview, Mortgage

FG Should Increase FMBN Capital Base to N100bn – REDAN President

In this interview with EDWARD NNACHI, the National President, Real Estate Developers Association of Nigeria and Managing Director, COPEN Group of Companies, Mr Ugochukwu Chime, talks about the housing crisis in Nigeria, and the need to recapitalise the Federal Mortgage Bank of Nigeria, among other issues

 What is your assessment of the current state of the real estate industry in the country?

Although the real estate industry in Nigeria has a lot of potential of being used as a desired vehicle for employment generation, socio-economic growth, increased Gross Domestic Product and bigger multiplier growth in the local economy, unfortunately it is still at the lowest stage. This is because the road map, collaborations and understanding of the transaction dynamics by key stakeholders are withholding capacity to deliver; and that for me is a huge step.

The sector is still suffering from the inability to understand and implement transaction dynamics in line with the paradigm shift that has taken place. Twenty or 30 years ago, our people used to build their own houses or government would build for them through the various housing corporations. But with the privatisation and commercialisation of those houses by these corporations and people seen as bankers, doctors and other professional groups, they are no more able to handle the responsibility of providing their own homes. The dwindling financial capacity has necessitated a different mode of purchasing their homes via mortgage option as against buying outright.

All these have led to increased demand. And the increasing population from where we were a few years ago with the current population of over 200 million people has necessitated the need for people to own homes. The total number of mortgages in Nigeria for instance if you go to the Central Bank of Nigeria is less than 100,000 that have been created. That is terrible for a population of over 200 million people, even if you take it that you have only 70 million adults.

Another factor is that we produce less than 200,000 housing units per annum in this country. And that is very terrible when you compare it with the increasing population. We have a very huge housing deficit; the number of which is not yet known. Yet, in providing shelter for our people, we have to create employment, because employment is created from the very first day you start the process of housing construction. It is a sector that is capable, with agriculture, of giving us all the employment we need. We have a problem because of some factors that are not yet properly aligned.

The entry and exit and the commencement and closure of any housing project have to be properly aligned. In Nigeria currently, they are not aligned. Once they are not aligned in terms of the common goals of affordability, availability and acceptability by all the stakeholders, we are going to still have some problems along the line. Many people believe the country’s economy has been badly affected.

How has the economy affected the real estate industry? 

The greatest problem we have in the country today is the high level of uncertainty in every area. Nobody is sure of the direction of any sector in this country. The socio-cultural nature of the country presently with insecurity has made people to become less interested in investment. Investment is the engine that drives any economy and it is based on the perception of what tomorrow looks like. This is because no project gets consummated the day it was initiated.

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Some of the housing projects take up to two years in planning; then you have another two or three years for execution as the case may be. These things add up to about five years. Now, most of the investors are not sure what will happen in the next two years in our economy. That becomes a very huge challenge, apart from other factors of multiple layers of taxation by authorities; challenges in ease of doing business which government is trying to attack. Unfortunately, most of the time in trying to sort out these problems, they create more problems for themselves and create layers of challenges and in most of the solution provision obligation, they have not been able to integrate the private sector in trying to define some of the solutions that need to be put in place.

The economy is challenging; access to funds is terrible; we have the interest regime of deposit money banks at upper double digits that is between 24 per cent and 30 per cent. When you add up another set of data, that is the issue of compliance cost – complying with town planning approval, complying with taxes, complying with development authority, complying with environmental issues, this adds another range of between 15 per  cent to 30 per cent.

Now, if you add these two costs together, you find that the cost of doing business in this country is as much as 50 per cent. No country survives such an alarming high cost of investment. The net effect of it is that the product is not affordable for the masses. If we have a people-oriented and sensitive government, I’m sure we will need to sit down and have to change the way we do things in this country.

REDAN has spoken so much about launching real estate data. What does this mean to the ordinary man?

We saw that many estates in this country were sited in the wrong places. Some locations are not viable in terms of the number of people who buy a certain level of houses. Therefore, what we saw was that there is a need to have the integration of appropriate data of planning every aspect of the real estate investment; and if that aspect is not done, it will lead to a situation of mismatch.

You may go and site a project for houses that would be sold for N10m in a state where nobody wants to buy a house of that amount or where the cost of renting a house per annum is as low as N100, 000 or N50, 000. So there is a problem. The global downturn we had in the economy in 2008 started from the real estate sector and because of that the people at the CBN realised that we could not progress without adequate data. We need to track the trend, the direction, the start-ups and other indicators in the real estate sphere as a means of tracking development in our fiscal operation and policy. REDAN is not interested in working in silo with any organisation, but we will like to work collaboratively.

Despite the fact that many Nigerians are homeless, many people cannot afford the houses being built by government. Who should be blamed?

It is a cocktail of many factors. Let me start with the stakeholders; those who need the houses themselves. Many of us are unrealistic as to our housing need. We have done a survey and in the survey, one of the things we put in as a sample was: what kind of house do you want? You find somebody who cannot afford a duplex telling you he wants a duplex. His monthly repayment maybe N10,000. But he is looking for a house that would require N150,000 monthly for repayment. So, one of the key things that we need to do is educate ourselves to know that there is no more free money for housing development; you have to pay for what you are asking for. That is a critical thing.

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The second thing is to look at the core centres involved in the development of those houses. Find out which area to touch. That something is costly is as a result of input factors which determine the output factors. We need to look at the cost of building materials; look at the cost of access to land; cost of financing; the cost of compliance – approval fees, registration of titles, and other contingencies. These add up eventually to the cost of affordability.

Therefore, it is not an issue of Federal Mortgage Bank of Nigeria; it is not an issue of the developers; it is an issue of sitting down and finding out where we are getting it wrong and why we are not getting an effective demand not desire, like they say in economics. Anybody can desire to have anything, but what you demand should be within the ambit of what you can pay for.

What is the way out of this?

The way out is that government has no business being involved in direct construction of houses because of inefficiency. I have been in government. I was chairman of a housing development corporation for four years. I was a civil servant for 14 years. Now, government is not oriented to perform a role in long-term projects because of the vicissitude of the rapid change taking place in the key man that drives those projects.

For a private-sector organisation, the tenure of the key drivers is longer. Many of the permanent secretaries, commissioners, MDs of the MDAs have tenures of six months, one year; some, two; and some, four years, and they are gone. And most of the time, their successors are not interested in projects that their predecessors initiated. The projects get abandoned. Furthermore, because of bureaucracy, you find out that the cost of funds for projects is even high. Most of the ministries or agencies that go to the ministry of finance, whether at state or federal level, to get money duly approved for them are forced by some unscrupulous officials to pay them some kickbacks; to bribe them to release money. People don’t say this truth; but that is the truth.

So, most of the time, the budgeted amount for these housing projects at the Federal Government level, only 50 per cent of it is deplored to complete the projects. And when that happens, we have seen that the houses being built by the ministries are far more costly than the ones we are building. This is because of the cost of corruption; the cost of bureaucracy; the delay in decision-making, and the need to conform to certain level of extant laws.

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All these issues make it difficult for housing delivery to trickle down to the masses. Government should not get involved in direct housing development. They have tried it, invested billions of naira over the years and failed. I bet them to show the number of houses they have built, both at the state and federal levels. They have budgeted this and released that; let them show us where those houses are. And remember that most of the time they get their land free. They are selling houses at high prices, but they got free land and they also got money at zero interest. We should ask them to confine themselves to the level of being enablers; to create the enabling environment for the private sector to come in and provide what they know best.

Do you share the belief that not everybody should own a house?

There is no society where everybody ever owns a house. There are still homeless people in every part of this world. I have been to Japan, Germany and other places; we still have homeless people there. Housing, whether it is by way of rent or by way of direct ownership, is still housing.

Our view as REDAN is whether is it by rent or direct ownership, let people be housed. We mustn’t all own homes. But if we have sufficient number of housing units across the country, it becomes easier for somebody to own a house at a reasonable price, not price controlled but market-driven houses. If you put your own at N10 and I put mine at the same location at N8, people will flow to mine. It is the issue of availability. If houses are available for both renting and for direct ownership, let us begin to have homes and in the process, create employment for our people and then create internally generated revenue for component states where these housing projects take place.

Some years back, you spoke on recapitalising the FMBN to the tune of N500bn. In your opinion, has the bank fared better in providing housing for Nigerians in the last four years?

The FMBN needs two things. Every other country that has created an institution like the FMBN has always put in some reasonable amount of money compared to the envisaged services they are going to render. Unfortunately, in Nigeria, the Federal Government has only put N5bn into the FMBN and the same government has the temerity to ask commercial banks in the country to recapitalise up to the tune of N25bn. A development institution like the FMBN should have up to four times the capital base of a commercial bank. This is because they are providing a unified secondary mortgage service. So, it is an act of wickedness for the government over the years to have kept the capital base of the FMBN at N5bn as its own contribution.

That is why we are saying if commercial banks should have N25bn, look at the development institutions at the time, increase their capital base in quadruple of that N25bn. This is logical. The government has accepted it but it has not deemed it fit to do what is needed. The same government is willing to invest N700bn in electricity companies that were bought by the elite.

Source: punchng

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