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Equity contribution and the paradox of bring money to take money

Except in the informal economy where documentation and financial technicalities are overlooked or, at least, taken for granted, giving and taking of money always is always a serious business and has to do with security or collateral from he who takes.

In some cases, however, in the informal economy, depending on the size of the money that is given and taken, an eyewitness is often required from both parties involved in the transaction and the aim of this is to have a third party who will tell the story in case of default.

But the story is different in the formal sector, especially in the mortgage market where the business is largely about lending and borrowing.

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The mortgage market is structured in such a way that even when high interest rate, which is a big challenge, is removed from mortgage business, borrowers will still have some hurdles to cross and one of such hurdles is equity contribution, usually demanded by mortgage institutions before they can advance loans to borrowers.

Equity contribution is the financial commitment, always calculated in terms of the percentage of the money to be lent out, is the money which a lending institution, a mortgage bank, that is, demands from somebody seeking loan to enable him buy, build or renovate a residential building.

To the man on the street, the idea of equity contribution does not square up. He does not understand why somebody that is looking for money to borrow is required to bring money in order to get that money. The question he frequently asks is ‘why borrow if I had money to give?’

But the lender, the person who gives out the money, thinks differently and so has an answer to give to the question.

Before now, mortgage loans were given at very high interest rate of between 20 and 25 percent and the borrower is also required to bring about 30 percent of the loan amount he wants to borrow as equity contribution.

The street man wonders why somebody who wants to borrow N10 million, for instance, is required by the lender to bring upwards of N3 million in order to access the N10 million. He argues that if he had such money, he probably would not have gone for the loan in the first place.

Mortgage banking operators, however, say there are reasons they demand equity contribution. One of these reasons is for the contribution to act as “a hedge against loan repayment default”. Equity contribution, they say, is fundamental to mortgage lending just as regular flow of income is.

Equity contribution is fundamental because there are institutional and regulatory developments that are still being expected in the industry. There is no sound data-base of Nigerians yet; the national ID card remains largely unreliable and foreclosure laws are still not strong.

All these issues, according to mortgage operators, have compelled mortgage banks to demand for equity contribution and they argue that if they had all the above issues resolved, they would give people mortgage based on their credit rating.

Because mortgage banks do financial intermediation, it is their responsibility to protect depositors’ money and for them to protect those deposits, they have to ask for something that would act as a back-up to the money they give out to borrowers.

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“If we had development funds, the kind of funds that we have in the manufacturing and agriculture sectors of the economy, where government gave out intervention funds over a period of 15 years at a single digit interest rate; if we had that kind of fund in the mortgage banking industry, it would be very helpful in a number of ways”, says a mortgage bank CEO who does not want his name mentioned.

Anthony Owuye, a finance expert, notes that “the banker and the borrower are in the same market in which case both suffer a common problem; we should not forget that we are all trading in one commodity which is money, and the trading is done in such a way that you sell according to how you buy”.

Another argument by mortgage operators is that the credit the banks, including the mortgage institutions, have are short term in nature. So, they can’t lend long term and they do business in an environment that is very costly.

Time is now for the federal government, through the CBN, to do something about high interest rate charged by both the commercial and mortgage banks if the housing demand-supply gap is to be bridged.

In other economies, there are special interest rates on loans to real estate. Nigeria can do the same and the relevant authorities should look critically into the whole issue of equity contribution demanded from home loan seekers, especially the low income earners who cannot afford such loans.

Equity contribution is reason for the huge housing deficit and low home ownership level in Nigeria today. It could, perhaps, be reason too for the a performance of the Federal Mortgage Bank of Nigeria (FMBN).The apex mortgage bank administers the National Housing Fund (NHF) and is responsible for the disbursement of mortgage loans from contributors to the NHF.

Source: Chuka Uroko

Governor and market reacts as Amazon cancels Newyork Headquarters

On the heels of Amazon’s surprise announcement yesterday to cancel moving forward with its plan to build a new headquarters facility in New York’s Long Island City due to some Democratic political opposition, both the local real estate market and the Governor’s office were stunned.

In a prepared statement, New York’s Governor Andrew Cuomo released the following comments this week:”Amazon chose to come to New York because we are the capital of the world and the best place to do business. We competed in and won the most hotly contested national economic development competition in the United States, resulting in at least 25,000-40,000 good paying jobs for our state and nearly $30 billion dollars in new revenue to fund transit improvements, new housing, schools and countless other quality of life improvements. Bringing Amazon to New York diversified our economy away from real estate and Wall Street, further cementing our status as an emerging center for tech and was an extraordinary economic win not just for Queens and New York City, but for the entire region, from Long Island to Albany’s nanotech center.

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“However, a small group politicians put their own narrow political interests above their community — which poll after poll showed overwhelmingly supported bringing Amazon to Long Island City — the state’s economic future and the best interests of the people of this state. The New York State Senate has done tremendous damage. They should be held accountable for this lost economic opportunity.

“The fundamentals of New York’s business climate and community that attracted amazon to be here – our talent pool, world-class education system, commitment to diversity and progressivism – remain and we won’t be deterred as we continue to attract world class business to communities across New York State.

After over a year and a half of politically courting Amazon’s HQ2 to New York, in a deal that promised over 25,000 new high wage jobs for New York, along with creating another 82,000 indirect jobs with an economic impact topping over $5 billion dollars, the State’s Governor was understandably disappointed at yesterday’s news.

The Real Estate Board of New York’s president John H. Banks also released a prepared statement.

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“New York’s renaissance over the past forty years has been due in part to our ability to work through difficult issues that have led to record population and job growth and the emergence of our city as a true global capital. It’s unfortunate that we have lost out on an opportunity to create tens of thousands of jobs for city residents and generate billions of dollars in tax revenue to fund vital services including infrastructure improvements for transportation, schools, and open space. Nevertheless, New York City is still open for business and will retain its status as a world class center for tech and innovation,” says Banks.

A number of local real estate brokers, developers and property speculators also had their dreams dashed this week with Amazon’s decision not to come to New York.

Hundreds of local properties have either gone under contract or have already traded hands since announcing Amazons move to Long Island City last November 13, 2018. Some local experts estimate the blow to the local real estate market will be into the hundreds of millions of dollars of lost property values in the next 12 months.

Regardless of New York, Amazon’s other two other HQ2 locations in Virginia and Tennessee are still slated to move forward as planned.

Ghana to construct 10,000 affordable housing units

The government of Ghana has signed an agreement with Solin, a Hungarian private company to construct 10,000 affordable housing units across the country.

According to the Minister for Works and Housing, Samuel Atta Akyea who confirmed the reports, the project came at the right time when the country was facing a 1.7 million housing deficit.

Rapid Housing Technology

The project dubbed Rapid Housing Technology will use polystyrene concrete technology to provide fast and cost effective housing units for Ghanaians. Signing of the agreement between the public and private companies commences construction of the housing units.

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Solin will finance and build the affordable housing under the Public-Private Partnership (PPP). Part of the project is establishment of a Solin factory. András Szabó, Ambassador of Hungary to Ghana said that once the company is established and the materials to construct the rapid housing technology us produced locally, Solin will be able to construct 2000 housing units annually.

“Establishment of the Solin factory in Ghana will help the government’s One District One Factory initiative that is aimed at providing employment for Ghanaians,” said Atta Akyea.

Solin is partnering with Sino Africa Development Company Limited who will execute the civil works so as to meet the local construction standards and to transfer the technology to the local partners.

Once Solin completes the construction, the government will absorb the housing units which will then be presented to the citizens at flexible and affordable terms. Ghanaians will be able to own the houses at an affordable price through the mortgages that will be created by the government

Moreover, Ghana has established a US $190m mortgage and housing finance with a seed of US $19m every fiscal year for the next 5 years in order to address the country’s housing deficit.

Source: Constructionreviwonline

 

Nigeria is losing over $20 billion yearly to road construction–NPA Senior Staff

The Senior Staff Association of Statutory Corporation and Government Owned Companies (SSASCGOC), Maritime branch, has said that there is a truth in the recent report that the country is losing over $20 billion yearly to the poor state of the Apapa-Oshodi Expressway and other port access roads.

It called on the incoming administration to take urgently rehabilitate the Apapa ports access roads, specifically the Apapa-Oshodi Expressway, warning that the situation can completely kill Nigerian ports at the benefit of the ports of the neighbouring West African countries.

President General of the association, Comrade Ya’u Adamu Gora, who stated this in Lagos week while speaking with some maritime journalists, further warned that the Nigerian economy would totally collapse if the present state of the port access roads are allowed to continue for another two years.

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He blamed the Federal Ministry of Power, Works and Housing for the dilapidation of the port access roads, saying his association had extracted commitment from the Managing Director of the Nigerian Ports Authority (NPA), Ms Hadiza Bala-Usman to set up a special fund to reconstruct the road and save the Nigerian economy from collapsing, “she ready and equal to the task but the ministry will not allow her to do it.

“We as an association has done all we could to ensure that the road is rehabilitated. I have written severally to the Federal Ministry of Power, Works and Housing. We have engaged the MD NPA on the matter; she has set up a special fund for that purpose. She is ready to do the road, NPA can and is ready to do the road, but the ministry will not allow. But instead of doing it the ministry is just dilly-dallying.
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“The situation has reached an emergency situation but the authorities seem not to be noticing it. Today it takes a truck over 10 days to reach the port from Mile 2, the normal things most importers use to do by sending trucks to ports to pick up their cargoes and return to their warehouse in Kirikiri, Ijora and around Amuwo Odofin is no longer possible because it will take up to 15 days to achieve. Just about four five years ago, the trucks can do such trips two three times a day.

“The appropriate way to describe the true state of the Nigerian economy today in view of the situation at the ports is an economy on a standstill,” he said.

Comrade Gora further said that his highest expectation from whoever emerges the President of Nigeria is a declaration of a state of emergency on the Apapa gridlock with the view of ensuring that port access roads are rehabilitated without any further delay.

According to him, Nigeria loses billions of dollars annually weekly because of the state of the port access roads, and unless a solution is found urgently, the economy would not record any meaningful growth.

Meet 29 Richest countries in the world

Twice a year the IMF releases a huge dump of data about the economic power of the world’s nations, with gross domestic product (GDP) per capita a key statistic. The IMF ranks the world’s countries according to their GDP based on purchasing power parity (PPP) per capita.

The PPP takes into account the relative cost of living and the inflation rates of the countries to compare living standards among the different nations.

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The small countries that dominate the top ten all have small populations compared to countries that lead the world purely in terms of GDP – such as the United States, China, or Germany.

Most of these small nations heavily depend on immigrant workers who often do not reside in the country they are working in or are not granted resident status, and are therefore not counted in the GDP per capita calculations.

We’ve included all the countries with a GDP per capita higher than $45,000 per year. Check them out below.

29. France — $45,473

Pexels / pixabay.com

28. United Kingdom — $45,565

Ian Wilson/Flickr

27. Oman — $45,723


26. Finland — $46,342

The Northern Lights over Kuopio, Finland.
source
Unsplash/Niilo Isotalo

25. Belgium — $48,258

Brussels, Belgium
Pixabay / Walkerssk – CC0

24. Canada — $49,775

Jeff Vinnick/Getty Image

23. Bahrain — $50,102

Pixabay

22. Denmark — $51,643

People biking along the lakes in Copenhagen, Denmark
source
Kristoffer Trolle/Flickr

21. Austria — $51,936

minnystock/Dreamstime.com

20. Australia — $52,190

Wikimedia Commons – CC2

19. Taiwan — $52,304

Sean Pavone / iStock

18. Germany — $52,801

Getty Images

17. Sweden — $53,077

Fans of Sweden ahead of the FIFA 2018 World Cup Qualifier between Sweden and France at Friends Arena on June 9, 2017 in Solna, Sweden.
source
Nils Petter Nilsson/Ombrello/Getty Images

16. Iceland — $54,121

Wow Air

15. Saudi Arabia — $55,859

Pixabay

14. Netherlands — $56,435

Pixabay / kirkandmimi – CC0

13. San Marino — $61,169


12. United States of America — $62,152

Flickr / Zach Dischner

11. Switzerland — $63,379

Getty Images

10. Hong Kong — $64,533

A cityscape of Hong Kong is see from the Peak on August 8, 2000, moments after sunset.
source
Bobby Yip/Reuters

9. Kuwait — $66,673

meSohrab/Flickr

8. United Arab Emirates — $68,662

An aerial view taken from a sea plane shows Swiss pilot and original Jetman Yves Rossy and Vince Reffett flying over Dubai’s Palm Island, Dubai, United Arab Emirates
source
Lara Sukhtian

7. Norway — $74,065

Norway’s team supporters hold a giant national flag during their 2012 IIHF men’s ice hockey World Championship game with Latvia in Stockholm May 12, 2012.
source
Reuters

6. Brunei — $79,726

Sultan Omar Ali Saifuddien Mosque, Brunei.
source
Flickr/bvi4092

5. Ireland — $79,924

Pixabay / mailgres- CC0

4. Singapore — $98,014

Singapore’s port.
source
Wikimedia Commons

3. Luxembourg — $110,870

Will Martin/Business Insider

2. Macau — $122,489

Unsplash/Healthycliff Syndor

1. Qatar — $128,702

A traditional dhow floats at the Corniche Bay area as tall buildings of the financial district provide a back drop, a day ahead of the start of AFC Asian Cup soccer tournament in Doha, Qatar, Thursday Jan. 6, 2011.
source: AP Photo/Saurabh Das

Court case rises between landlord and tenant as economic hardship deepens

The last 24-36 months in Nigeria have seen considerable rise in court cases involving landlords and their tenants who, for reasons that are largely economic, are defaulting in their house rents payments as at when due. Analysts say this is a reflection of how deep the economy has plunged within the period.

Nigeria exited a crippling 15-month economic recession in the second quarter of 2017 (Q2 2017), but  the impacts are still being felt as many people, especially those in paid employment, are still smarting from jobs losses and salary cut for those who could be considered to be lucky.

Many of the young executives who lost their jobs can no longer afford their rents. Some of those who are still at work are not sure of their salaries, leading to high rent default rate. Some of them have moved from the mid-income locations where rents ranged from N2 million to N3 million per annum for a duplex to areas where rents are relatively lower at N1million to N1.5 million per annum, yet they find it difficult to pay.

The relationship between a tenant and his landlord is generally contractual. This relationship usually doesn’t encounter problem for as long as the tenant pays his  rent regularly. Most landlords are not even keen about how well the tenant is taking care of the property as long as the rent is being paid on a regular basis. But the relationship  goes sour when the tenant defaults in payment of rent.

 Most landlords resort to legal action to either compel the tenant to pay the rent owed or to recover his or her property. Because of the prevailing economic hardship, landlord –tenant cases in court have been on the increase in the last two years and it is not restricted to any one state. It is country-wide.

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Adebayo Adedayo is a lawyer who practices in Ibadan, the Oyo State capital. According to him, “merely visiting the courts will provide an insight into the volume of tenancy cases going on in the courts; it was not this bad some years ago. I have gotten more tenancy briefs in the last one year than the three years preceding the last one year combined”.

Olumide Osunsina, CEO, Megamounds Investment, confirmed to BusinessDay in an interview that rent payment default rate has been on the rise in the last two years, blaming it on economic hardship. He revealed that in their serviced estate, County Homes in Lekki, Lagos, many of the residents were in debt of rents and service charge. Many of them have lost their jobs and have no income”, he noted.

Andrew Oke is a landlord who owns properties in Ibadan. “Some of my tenants have been finding it difficult to pay rent in the last three years”, he told BusinessDay, citing one of them particularly who stated that his reason for not paying his rent was because he lost his job. “This is a tenant that has been in the property for seven years and was paying his rent regularly until two years ago,” Oke informed.

A magistrate in Kwara State who spoke on condition of anonymity said, “tenancy cases that come before my court has multiplied in the last two years; though I cannot give exact figures, the rate of tenancy matters in my court has increased significantly compared to some years back. In Ilorin, for example, so many of the landlords are old people who depend on the rent they collect to survive”.

Continuing, he said, “tenants have been failing them and as a result, those that do not want to take laws into their hands have decided to be  approaching the court; the usual excuse from tenants that are businessmen is that the economy is not favourable while the ones earning salaries do claim that they haven’t been paid for months”.

An estate manager in Ogun State  also disclosed that the rate at which he goes to court to eject tenants has increased, saying, “some tenants have been owing for two to three years and yet cannot pay. Some of them claimed to have lost their jobs and as a result can’t afford to pay their rent. Due to constant harassment from the landlords, some of them have locked the house and are hanging around with family and friends; I will end up approaching the court for order to recover premises by forcing the door of the apartment open.”

In Abuja and Lagos, it is estimated that over 70 percent of civil cases in magistrate courts are tenancy matters. In Lagos, particularly where over 60 percent of the state’s 20 million residents are tenants, tenancy cases are very high. Parties are encouraged to embrace the state’s alternative dispute resolution (ADR) courts to no avail.

Raymond Ajao is a lawyer and company secretary of a company in Lagos. He told BusinessDay that the company he works for has been served with quit notice due to its inability to pay rent. “We have been paying the landlord piecemeal and the man is tired of that already. The company has been struggling to get contracts for nearly three years now. I haven’t been paid November salary and this is February”, the company secretary lamented

Nigeria losses about $1.5billion on election postponement

Lagos Chamber of Commerce and Industry (LCCI) has stated that the postponement of the Presidential election by INEC cost the nation no less than $1.2billion loss owing to the disruption of activities across the states.

Independent National Electoral Commission (INEC) postponed the general elections a few hours to the commencement.

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The elections scheduled to commence Saturday, February 16 with the presidential and National Assembly elections, will be held February 23. Governorship and state houses of assembly elections will take place on March 9.

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The Director General of the Chamber, Muda Yusuf in a chat with The Guardian noted that several activities were disrupted as a result of the postponement adding that a slowdown should be expected in the days ahead till the elections are conducted.

Yusuf stated that many SMEs’ activities were affected; the airports and seaports were shut down while many people have had to move from one location to another.

He noted that the impact of the loss will be felt across the sectors of the economy, especially for activities scheduled for February 23rd, the new date for the elections.

Source: The Guardian

Greek property market outlook 2019

Due to the Greek economic slump, which began in 2008-2009, Real Estate faced a huge decline. For almost a decade prior to the global financial crisis of 2007–2008, the real estate market and property values increased with an impressive ratio. The main reason for this incredible performance of the real estate sector was the unlimited and easy access to cheap finance which was available both to developers, investors, and buyers. In reality, the Greek economy could not, in any possible way, sustain the level of prices and could not absorb the huge number of new properties that were constructed all over the country with a super-fast pace.

Seeking luxury standards of living and hoping for easy profits, Greeks rushed to participate in that irrational market. All interested parties and stakeholders dazzled by the amazing performance of the sector were not prepared for the downward part of the cycle and definitely not for a global recession. The 2008 financial crisis is considered by many economists as one the worst financial crisis since the Great Depression of the 1930s. It has affected each and every market around the world.

Markets backed by strong economies such as Germany or the UK faced the side effects of the global crisis but in a soft manner and recovered fast. Other countries such as Greece, Cyprus or Portugal had to face the harsh reality. Overspending citizens, weak banks, impoverished economies, heavily indebted households, and governments had to face the ugly ruthless face of the financial and capital markets.

In Greece where property traditionally was considered as one of the safest, almost risk-free investments, the impact of the property market crash was destructive, dragging almost all the sectors of the economy including the banking system into an incredible swirling fall. After several assessments on the internal and external debt of Greece, the huge increase of unemployment, the collapse of the stock market, still, no one has presented the real loss in nominal value of the real estate in Greece as an asset class during this period of recession.  By providing temporary and futureless protection of property ownership, all the governments is doing is to try and cover the huge losses of the property assets.

This temporarily stops the processes of forced liquidation but property owners who cannot sell their properties won’t understand the losses they will have to face upon the sale or confiscation of their assets. It is human to forget and adjust to the new established environment in order to survive. After ten years of real estate inactivity and annual price declines, Greeks have become used to the new levels of the market. Only after a bank or a fund will auction their properties for a fraction of what they initially paid will they realize that not only they lost the asset but they still owe a fortune to the lenders.

Property owners will not understand exactly what happened and how irreversible the situation is. According to the Bank of Greece, at the end of 2017, real estate in Athens was 44% cheaper compared to its peak of 2008. However, the fall in property prices is slowing down. In 2015, the price per square meter fell by 5.3% in 2015, by 1.8% in 2016, and by only 0.9% in 2017. In quarterly terms, prices have even stopped falling – they remained constant in the last quarter of 2017. House prices finally showed a marginal increase in the first three quarters of 2018, after declining since 2008. It is true that this is a very positive sign.  There are two important elements that the report of the Bank of Greece and other reports cannot display.

First, the fact that all the figures and numbers would be completely different if the market was allowed to operate properly without government intervention. That means allowing auctions to happen without any restrictions. Secondly, the last three years have seen a lot of real estate investment related to the increase of tourism. This is affecting the numbers and the market dynamics, which is not representing the correct market outlook for the residential and commercial/office properties around the country.  Another reason that we are observing a small positive change in the market is the mandatory increase of the tax values which has been implemented over the last few years. This increase is completely artificial and does not change or affect positively the market values.  The reality of the Greek property market remains misty.

There are some areas such as popular islands where holiday houses show an increase in demand based on the impressive current status of Greece as a popular tourist destination in the region as well as the golden visa program. In reality, the core section of the housing and commercial market around the country is still suffering from low demand and lack of affordability as the average purchase power of the Greek family has been weakening year after year since the beginning of the recession.

Source: Property Investment News

FHA needs to comply with remittance of operating surplus, FRC cautions

The Fiscal Responsibility Commission (FRC) has cautioned the Federal Housing

Authority (FHA) for not submitting its annual audited account, receipts of remittances, budgets, Medium Term Expenditure Framework, (MTEF) and operational strategic plan thereby hampering prompt and accurate determination of operating surplus liabilities.

The commission’s acting chairman, Victor Muruako, stated this recently at the stakeholders meeting with the management of the FHA in Abuja, a statement by the commission said.

He warned FHA on the need to comply with remittance of operating surplus as stipulated by Fiscal Responsibility Act of 2007.

Muruako, who stressed that the independent revenue drive of the Federal Government was not encouraging, added that the Federal Housing Authority has not been complying fully with the provisions of sections 21, 22 and 23 of the Fiscal Responsibility Act of 2007.

He also noted that the commission was offering the authority training on the recently launched template on the calculation of operating surplus to improve compliance.

While responding, the executive director of Finance and Account of the FHA, Mrs Nkechi Nwazota, who represented the Managing Director, Professor Mohammed Al-amin said the FHA was willing to comply with all the requirements of the FRC act.

She pleaded for more time to enable the authority make all necessary documentation that will make it possible to pay the operating surplus and provide receipts of remittances to the commission.

She said FHA will work with the commission to improve the independent revenue generation drive of the Federal Government.

She also stressed the need for the preparation of improved estimation of Revenue and Expenditure (MTEF) with efficient narratives to highlight the activities of the agency.

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