Using mortgage finance to address housing shortfall

The housing sector is one of the indices for measuring the standard of living of people across societies.

It also plays a more critical role in a country’s welfare than is always recognised, as it directly affects not only the well-being of the citizenry, but also the performance of other sectors of the economy.

Consequently, governments designed mortgage finance to enhance its adequate delivery as housing provision requires huge capital outlay, which is often beyond the capacity of the medium income/low income earners.

Despite its recognized economic and social importance, housing finance often remains underdeveloped.

The low levels of lending reflect the small numbers who can afford mortgages because of the high cost of houses in relation to incomes.

It also includes the perceptions of risk that are based on, amongst other things, the informal nature of most title deeds and property.

The National Housing Policy of 1991 created a two-tier housing finance structure with Primary Mortgage Banks (PMBs) at the first tier and the Federal Mortgage Bank of Nigeria (FMBN), the supervisor and regulator, at the second tier.

The Mortgage Institutions Act (No. 53 of 1989) prescribed the regulatory/supervisory framework for the establishment and operation of Primary Mortgage Banks (PMBs).

Later, the Banks and other Financial Institutions Act of 1991, “BOFIA”, as amended, transferred the licensing, supervision and regulation of PMBs and FMBN to the Central Bank of Nigeria (CBN).

Under the process, the PMBs are to mobilise funds for their lending operations.

Some of such loans (mortgages) can be off-loaded to the Federal Mortgage Bank of Nigeria to sustain continuous liquidity in the National Housing Fund (NHF) Scheme.

This flow has unfortunately been constrained by the provisions of the Land Use Act, which restricts access to legal title to land.

To encourage the penetration of the mortgage finance and homeownership, the National Housing Fund Law (Act No.3 of 1992) was promulgated to create an alternative and continuous flow of funds from which loans could be granted to contributors on affordable repayment terms.

The law stipulates compulsory contributions of two and a half per cent (2.5per cent) of basic salary by employees earning N3, 000.00 or above in the public and private sectors, which attracts attract yearly interest at compound rates, refundable to contributors on attainment of 60 years of age or on retirement from employment after 35 years of service.

The loan attracts a fixed interest rate of not more than six per cent and repayment is for a maximum period of 30 years while maximum amount loanable is N15 million.

In its strategic move designed to make homeownership more accessible and affordable for Nigerian workers, FMBN recently approved the implementation of a Rent-To-Own Housing Scheme, an innovative affordable housing product, which provides an easy and convenient payment plan towards homeownership for Nigerian workers.
 
The scheme is specifically designed to make it possible for Nigerian workers to move into FMBN homes as tenants, pay for and own the properties through monthly or yearly rent payments spread over periods of up to 30- years.

To further increase affordability, the properties will also attract a single digit interest rate of 9per cent on the price of the property on an annuity basis.

The product will cover properties with the maximum value of N15million.
 
The rent-to-own housing product targets Nigerian workers who are contributors to the NHF and will be implemented in phases. About 3,000 houses are planned for the pilot phase.

To deliver on the rent-to-own housing scheme, FMBN will partner with reputable estate developers for the construction of quality, cost-effective housing stock nationwide.

Payments for the houses will be domiciled with the CBN through the Treasury Single Account (TSA).
 
Properties that are planned for the rent-to-own scheme are existing estates that are funded by FMBN nationwide and non-funded estates.
 
FMBN Managing Director/Chief Executive Officer, Ahmed Dangiwa stated that the programme is targeted at increasing access to affordable housing by Nigerian workers who fall into the low- medium income brackets.

Alhaji Aliko Dangote and Alhaji Abdul Samad Isyaku Rabiu, Chairmen & CEOs of Dangote and BUA Groups of Companies respectively plan to partner the FMBN.

While on a joint courtesy call on the bank’s Board of Directors, they entered into partnership agreement and lent their support to the proposed N500billion recapitalization of the bank, stating that it is a much needed development that will help power FMBN’s efforts to more effectively discharge its mandate.

The Chairman, Dangote Group commended FMBN for the renewed aggressive drive to provide affordable housing for Nigerians.

Additionally, he said that his company is ready to collaborate with FMBN towards lowering the housing deficit by increasing the tempo and scale of social housing provision across the country.

His words: “Count me as a friend of FMBN. We are open to collaborating and supporting the good work that your bank is doing towards ensuring the provision of affordable housing to medium and low income earners in Nigeria.”

In the same vein, the Chairman, BUA Group of Companies, Abdul Samad Isyaku Rabiu also said that he is committed to a close partnership with FMBN.  

“I am committed to forging a partnership that will add value to FMBN’s work and look forward to further engagements in this regard,” he said.

In his response, the FMBN Board Chairman, Dr. Adewale Adeeyo on behalf of the board and management thanked and applauded the two distinguished business moguls for their visit and good intentions to partner with FMBN.

He said that FMBN will work closely with them towards the consolidation and implementation of the partnerships.

Another boost to housing development is currently underway through a strategic collaboration between FMBN and leading labour unions, aimed at addressing in a structured and sustainable manner, the housing requirement of their members currently estimated to be about 3,750,000 housing units.

The FMBN in conjunction with the Nigeria Labor Congress (NLC), Trade Union Congress (TUC) and the Nigeria Employers’ Consultative Association (NECA) plans to commence the implementation of a national affordable housing delivery programme for Nigerian workers.

This includes fast-tracking the provision of safe, decent, quality and affordable housing to registered members of NLC, TUC, and NECA that also contribute to NHF, which the FMBN manages.

The pilot phase of the program aims to deliver 2,800 housing units in 14 sites across the country. This includes 200 houses in each of the six zones in addition to Lagos and Abuja.  

FMBN Group Head, Corporate Communications, Mrs. Zubaida Umar said the key features of the housing program are the emphasis on affordability and the focus on low and middle-income classes of workers.

Planned house types therefore include fully finished semi-detached bungalows and blocks of 1 bedroom, 2 bedrooms, and 3 bedrooms.
 
She revealed that the designs of the houses are based on local and international social housing models that have been tested and proven to deliver housing units that are structurally strong, livable and at cost effective rates that fit the income of the targeted beneficiaries.
 
“To ensure successful execution of the program, the design and implementation plan was based on extensive deliberations and recommendation of housing experts.

They drew from the theoretical and practical experiences of housing stakeholders, varied inputs, and consultations with developers, private sector players, research and analysis of housing projects locally and abroad,” she said.