Solving The Housing Problems in Nigeria… Part 1
In his book, Long Walk To Freedom, when describing his return from Prison in 1990, Nelson Mandela had this to say about his house in Orlando West, Soweto.
“It was the opposite of grand, but it was my first true home of my own and I was mightily proud. A man is not a man until he has a house of his own.”
Shelter along with food and clothing remains essentials of life identified by Abraham Maslow’s human basic needs. There is a sense of pride, security and level of fulfillment humans derive from owning their homes. The following Home Ownership rates tell us how Nigeria is fairing, with about 25 percent, in comparison to South Africa (56 percent), Kenya (73 percent), Indonesia (84 percent) and Singapore (91 percent). Home ownership makes a landlord think differently about his community. A landlord is more protective of an environment where his property is located because he or she is invested.
Nigeria’s Real Estate sector is growing fast — 6th largest sector of the economy at about 8.1 percent of GDP. However, the bulk of the growth recorded in the sector can be attributed to retail, industrial and commercial real estate development even though there has been a rise in demand for residential properties by the growing middle class. According to World Bank estimates, Nigeria still has housing deficit of about 17 million units which will require over $390 billion to fix.
Despite the growth, the quality of housing stock in Nigeria is poor because the construction industry is driven by cost minimization rather than value maximization. The lack of a regulatory body and a non-existent legally binding building code has led to the continued poor performance of contractors leading to poorly constructed buildings as seen here and here.
Housing problems abound in Nigeria both in rural areas and urban centres. The problem in the rural areas has to do with qualitative housing while the problem in the urban centre is both quantitative and qualitative in nature. Almost half of Nigeria’s population live in cities, with 80 percent living in overcrowded slum areas and generally poor living conditions coupled with inadequate infrastructural amenities. Rural houses are of generally poor condition, and they are characterized by lack of potable water, toilet and decent environmental conditions.
Since independence, all the housing policies by the federal government, though laudable, have failed because they were built on unsustainable tenet that houses will be provided by the government. This is an anomaly which must be corrected for the country to move forward and achieve a remarkable reduction in the housing deficits.
Although, it is not the duty of government to provide every citizen with the perfect home, but it is a symptom of failure when millions are homeless or living in slums.
The major issues that continue to affect housing in Nigeria include legislation, high cost of land registration and titling, policy issues, licensing issues, inadequate access to finance, risk sharing mechanism, lack of adequate credit database, knowledge gaps, lack of favourable contract enforcement mechanism, high cost of building materials, and inadequate infrastructure among other things.
- Legislation
The biggest problem we have in Nigeria today regarding Housing, and a host other things, is the Land Use Act (1978). This Act continues to dictate and hinder all land matters in Nigeria because land is vested in government. There is a need for this law to be amended to allow for easier land transaction and making available land for those who want to genuinely invest in the country.
This law has hindered a lot development not just in the housing sector only. it has continuously prevent Foreign Direct Investment into the country because some investors are not just ready to go through the wahala when they can easily set up in neighbouring countries and truck their products into Nigeria. It would interest you to know, according to a Corporate Services expert, that except for Shell Petroleum, there is no multinational company operating in Nigeria that owns real estate in Nigeria because they can’t just deal with the madness that goes with our land matters.
Late President, Umaru Musa Yar’Adua came into power 2007 and promised that his administration will attempt to amend Land Use Act but till he died nothing was achieved and since then, nothing has been mentioned of the amendment. Also, over 11 different Bills on affordable homes and social housing have been presented on floor of National Assembly since 1999 with most recent one being the Social Housing Bill sponsored by the current Governor of Cross River’s, Dr. Ben Ayande during his time in the Senate. It was also turned down.
The Land Use Act, according to Section 351(5) of the Nigerian Constitution, can only be amended with the consent of state’s Houses of Assembly and National Assembly.
In the interest of this country, I think we all need to start engaging our legislative representatives both at state and federal level to ignite conversation around amending this Act.
Here and here are more readings on unlocking capital hidden in our land.
2. Land Registration and Titling
This has been improving over the years, for example, according to World Bank’s report “Doing Business — How to Reform”, some reforms in Land registration especially in Lagos and Abuja led to the reduction of days required to complete the process of property registration from 274 days to 80 days in 2007. However, nearly a decade after, we have only been to reduce the process further by only 3 days as it now about 77 days to complete registration of property in Nigeria going through thirteen procedures and with an average of 10 percent (up to 20 percent in some states) of the property value as charges in the process according to the World Bank’s report “Doing Business 2015”. Whereas it takes 22 days, 4 percent and 5 procedures in OECD countries and 58 days, 8 percent and 6 procedures in other sub-Saharan African countries.
Despite the improvement recorded as a result of the reforms leading up to 2007, over 95% of lands in Nigeria do not have registered title according to the Chairman of the President Technical Committee on Land Reform in this report. Another challenge with this registration process is the culture and work ethics in different Land Registry Departments across the country.
Why does our own take forever? It’s very simple because Governor’s are the ones to sign Certificate of Occupancy. As I write this, there are heaps of files on land matters needing attention of those governors on the president entourage or the ones enjoying baby boy’s life doing parties all over the place.
If I were one of the governors who is genuinely serious about expanding earning bracket of their state, especially as the crude all price have gone down drastically, this is the time I will be looking at automating the land registration process in my state and reducing the cost, procedures and time required to get land and properties registered. The benefits are endless. If we reduce the cumbersome nature and cost and are able to get more land owners to register their titles the government will earn more revenue during registration process. The data collected can also be used to plan appropriately.
This will equally boost investor confidence as they are more comfortable in environments where registration is automated and procedures are minimal, and will be glad to invest in such places.
Ever wonder why Singapore leads in home ownership? One of the reasons is that, it takes about 5 days under 4 procedures and about 3 percent of the property value charged for registration. That should be our target but we can start with maximum of 30 days and 5 percent charge while working towards reducing the procedures considerably.
3. Policy Formulation
The problems that are associated with the national housing policy include implementation, inadequate research and studies on the formulation and execution of the policy. For example, the Federal Government’s Affordable Home Ownership Scheme set up in 2014 to provide affordable housing to the lower end of the pyramid had the minimum price of N4.5million to be paid over a period of 15 years. Rough estimate of monthly repayment without interest element gives N25,000. Going by the National Housing Policy which states that not more 20% of monthly salary should be used to offset housing expenditure, it means that only someone with N125,000 monthly pay can afford the house. In a country where N18,000 is the minimum wage, I don’t see how this was/is going to work. Even some middle income earners as categorized by African Development Bank as people who earn between N75,000 and N300,000 are not able to afford home in this scheme because of the cost hence Affordable Housing Scheme has only provided about 3 percent of the required housing stock needed.
Through the National Policy on Housing (2006) the Federal Government intends provide one million affordable housing units per annum to address the housing deficit. To achieve this, National Housing Fund (NHF) was set up as part of the policy.
NHF stipulates that every worker that earns above N3,000.00 should contribute about 2.5 percent into a fund that is being managed by Federal Mortgage Bank of Nigeria (FMBN). FMBN provides up to N15 million in loans through Primary Mortgage Banks (PMBs) for home acquisition to its subscribers. As at January 2015, only 60,000 housing units have been provided despite average monthly contribution of N2.4 billion by its over 4 million subscribers representing only about 1.5 percent penetration.
The National Mortgage Refinance Corporation (NMRC) set up in 2013 called for application for 10,000 housing units in July 2014 and received 66,402 entries. Of this figure, 25,000 applications were pre-qualified and 9,000 were given offer letters but as at end of 2015 only about 33 of them have been availed monies to buy their homes. One will require a special calculator to bring out the percentage.
What we need to do differently is effective and efficient policy formulations and implementation as well as monitoring and evaluation of the performance of the policies to stimulate the private investor participation and not Government being in the business of building and delivering housing as it has failed woefully in the past.
4. Inadequate Access to Finance and Risk Sharing Mechanisms
Although access to finance increased, according Global Findex (2014), from 30 percent in 2011 to 44 percent in 2014, access to loan only grew from 2 percent to 5 percent within the same period. The concept of mortgage finance is still not popular in Nigeria due to lack of a robust system. Mortgage remains a very small percentage of Nigeria’s GDP, at 0.5 percent. In comparison to Ghana (2 percent), South Africa (31 percent), US (77 percent) and UK (80 percent).It is very clear that mortgage finance is still at very elementary stage in Nigeria and it does not cater to the low income earners.
The commercial banks, in addition to the PMBs, create mortgage loans for home acquisition with interest rate ranging between 11 and 31 percent with a down payment of up to 30 percent of the value of the property required for repayment period of 10–15 years. UN Habitat also acknowledged that there are “two extreme outcomes of current shelter systems being witnessed today: affordable shelter that is inadequate, and adequate shelter that is unaffordable.”
There are so many factors contributing to dearth of mortgage financing in Nigeria but top on the list will be liquidity issue i.e. absence of long term funding to match average duration of mortgage loans being 20 years (South Africa), 25 years (UK) or 30 years (USA).
The National Mortgage Refinance Corporation was set up to address this challenge but I doubt if there is proper implementation. How is NMRC suppose to work? PMBs and Commercial Banks are expected to package mortgage loans on their books and sell them to this agency thereby providing the banks funds to create additional mortgage. How and where does NMRC get the money from? Typically, they issue bonds on capital market to raise funds and through loans some international development finance organisations such as World Bank, IFC, AfDB etc. When NMRC was launched in 2013, it had US$250 million, 40 year term loan from the World Bank and it was looking at raising additional equity capital of US$143 million through a shelf registration programme.
Another major challenge faced by lenders is inadequate credit information for qualification for borrowers, especially low-income earners. The financial institutions settle for lending to the rich instead. To address this, we must continue improve on the existing credit information database systems such that they can provide credit information of all individuals that enjoy financial services in any form. Such database will in no small measure assist lenders in making their lending decisions. I believe the recent Bio-metric Verification Number (BVN) exercise will also help in this regards.
The absence of a robust risk sharing mechanism that will encourage the bank and other financial institutions to advance mortgage loans to low-income earners is another challenge. It will be hard to lend to low income earners if the financial institutions do not have adequate credit information to determine capacity of the borrower. This where the government comes by providing guarantees in the form of insurance to lenders on loans granted to low-income earners or first term home buyers. This is what Roosevelt did when he established the US Federal Housing Administration (FHA) under the National Housing Policy of 1934.
How does this work in America? FHA Insured Loans are FHA mortgage insurance backed mortgage loans that are provided by FHA approved lenders. The objective of this loan is to help borrower to achieve low down payment, low closing costs as well help with credit qualifying. Even though FHA requires upfront payment of mortgage insurance premium by the borrower, it is worked into the loan amount by the lender and paid directly to the Federal Housing Administration.
I believe Nigeria should start thinking in this direction by re-organizing the Nigeria Federal Housing Authority into mortgage insurance institution sponsored by the government. Such insurance will give lenders some level of comfort thereby encouraging them to extend mortgage loans for longer tenors to low-income earners. It is my opinion that our Housing Authority should not be saddled with the responsibility of building houses as it currently does because private sector can fill that gap if there is an enabling environment.
To further provide liquidity in the mortgage sub-sector, such insured mortgages may be securitized, that is, pooled by the FMBN or NMRC, depending on which agency we decided to give that responsibility and sold in the domestic capital market to interested investors.
It is important to note here that no matter how readily available mortgage finance is, many households will still not be able to buy least expensive house because of their low income level. In situation like this, Housing Microfinance (HMF) will be of great assistance to millions of people in that bracket — the poor and sometimes, the very poor — by extending small amounts of loans based on repayment capacity on an incremental basis. The concept is not new even though the practice is not that popular. Interestingly, LAPO Microfinance has already started talking about it. Perhaps they have products that can be reviewed for larger uptake.
‘Bisi Ogunwale is an Infrastructure Finance professional,an agroprenuer and wannabe photographer. He tweets at: @bisiogunwale
This opinion piece is the first in a three-part series that hopes to steer the current housing deficit debate as towards a focus on addressing the issues hindering the the growth of housing stocks drawing from history, and evidence from Nigeria and other countries as I discussed at The Play Forum event with theme “if we were the government” in Abuja on Saturday 22, 2016. The authors hope that those concerned and relevant authorities will read these pieces and start the process of moving the country in the direction of genuinely reducing the housing deficits.
