The Nigeria Housing Deficit: Which Way Forward?

We are delighted to publish the seventh edition of Brevis Quarterly Newsletter. In this edition, we consider the role of housing as a tool for economic development. While the housing and construction sector accounts for only about 3 percent of Nigeria’s rebased Gross Domestic Product (GDP), for countries like the United States of America, Britain and Canada, the contribution of this sector ranges between 30 percent and 70 percent of their GDP. With an estimated housing deficit of over 17 million units, the foreseeable future of the housing sector in Nigeria presents a grim picture for the faint-hearted but for the irredeemable optimist like us, the housing sector abounds with opportunities for attaining sustainable economic development.

Discussions in this edition will therefore examine how the current housing deficit can serve as a stimulant for economic growth across Nigeria’s value chain of service delivery and consumption. We hope you have a good read.

Esther Onoji
Editor-in-Chief

Introduction 
The housing and construction sector, if properly administered, has the capacity to produce a tremendous multiplier effect on the broader economy of any nation through forward linkages to the financial markets and backward linkages to land, building materials, furniture and labour markets. Nigeria is estimated as of 2015 to have a housing deficit of approximately 17 million and it is projected that about 59. 5 trillion Naira will be required to remedy the gap in this sector. Of all the challenges to the housing sector, limited access to finance stands as a major drawback requiring immediate intervention. The issue with finance can be traceable to underdevelopment in our mortgage industry as it reportedly generated less than 200,000 transactions between 1960 and 2014. According to the World Bank Report (2015), the contribution of mortgage financing to Nigeria’s GDP is close to negligible, with real estate contributing less than 5% and mortgage loans and advances at 0.5% of GDP.
 
Discussion in this article seek to examine how Nigeria can overcome the housing deficit through the development of the mortgage institution.   

Regulatory Framework  
Key players in the housing sector in Nigeria are, i.e. the Central Bank of Nigeria, the Securities and Exchange Commission, Federal Ministry of Lands, Housing and Urban Development, Financial Institutions and Property Developers. There are over ten (10) legislations that govern and/or provide for the administration of Mortgages in Nigeria. These include the Central Bank of Nigeria (CBN) Act, the Banks and other Financial Institutions Act, the Federal Mortgage Bank Act, the Land Use Act, the National Housing Fund Act, the Mortgage Institutions Act, the Trustee Investments Act, the Nigeria Social Insurance Trust Act, the Investments and Securities Act and the Federal Housing Authority Act.

The foregoing, in addition to the policies on housing provide the framework for mortgages in Nigeria. Although the mortgage institution should ideally thrive in a highly populated nation such as ours, the challenges encountered with mortgage financing in Nigeria include the following:

Insecurity in the Land Tenure System
Essentially, the Land Use Act vests title to all lands in a State in the Governor of the State who holds same in trust. By this mandate, the Governor reserves the right to revoke title to any land in the State for public purpose. Since the enactment of the Land Use Act, the tussle between holders of right of occupancy (statutory or customary) over land has continually bogged down the judiciary in the construction of the Governors wide discretionary powers. It is therefore not unusual to see massive portions of land under Government acquisition whether or not already earmarked for public projects. This factor has remained a cause of concern for private and corporate investors in real estate development projects who live in constant panic over whether or not the government in power is favourably disposed to their interest.

On this point, the law makers and the courts owe a duty to the society to define the powers of the Governor and the enforceable rights of persons holding various interest in land.

Bureaucracy of Land Registration and Titling
The bureaucracies involved in land acquisition and perfection of title poses a considerable difficulty to effective housing delivery, especially in most urban areas. Challenges faced in land accessibility includes affordability, availability and ease in acquisition. For instance, the process of obtaining a certificate of occupancy may take up to 2 – 5 years while the cost of registering a mortgage is estimated at 19% of the property value. 

The point to take home here is the need for an up-to-speed digital registry to capture and process perfection of title applications. An accurate and comprehensive land registration system is a necessary condition for effective property rights. However, it is important to mention that a few states such as Lagos have begun to address this problem through the setting up of several land registries in the State. At the Federal level, creating or sponsoring a Mortgage Electronic Registration System as is done in the United States and other established markets will also help to increase the ability to mortgage properties. As stated in the above point, the responsibility of the Governor towards lands transactions ought to be circumscribed.

High Interest Rates and Inflation
Compared to some other jurisdictions where mortgage interest rates range between 3-5 percent, Nigeria’s mortgage interest rates range between 16-24 percent save for the Federal Mortgage Bank which lends under 10%. High rates of interest charged by financial institutions presents a major disincentive for middle and low income earners to patronise mortgage financing. It is also common practice for commercial banks to misrepresent commercial loans as mortgages which tend to have higher interest rates and for which the duration is usually a maximum period of two (2) years.  As a result of this, the preferred options adopted by Nigerians to fund housing projects are personal savings,monthly contribution groups, returns on sale of previous houses, government subsidy on public sector housing etc.

The recommendation in this regard is to regulate mortgage institutions by a central guideline on mortgage transactions. This need not stem from the legislative arm of government but may be articulated by interest groups both from the investing and consuming community.

Low Awareness about Mortgage Financing Arrangements
There is an extremely low level of awareness of mortgage facilities, their benefits and services provided. Research shows that mainly civil servants and individuals in formal employment take up mortgages as a result of the monthly contributions they make to the National Housing Trust Fund. Data across the 36 states and the FCT also indicates that people based in rural areas are less likely to consider use of mortgage facilities compared to those based in urban areas. This is both as a result of absence of unawareness of the existence of such facilities and earning capacity of the rural populace. There is clearly a need for development of models to enable the spread of mortgage arrangements to these areas, and transmission of information, considering the fact that an estimated sixty-eight (61) percent of Nigeria’s population live in rural areas.

Opportunities for Growth
The above challenges notwithstanding, with targeted and specific reforms, mortgages can become a viable option to resolve the housing deficiency and ultimately improve the state of the economy. The current situation presents a huge opportunity for private investment and job creation. It is estimated, following labour impact assessments in countries such as Columbia, Malaysia and South Africa, that at least 5.2 direct jobs can be generated with every new home and 2.48 indirect jobs associated in housing related expenditure.A starting point for this sort of development will include as of necessity,amending the Land Use Act to adequately address the aforementioned challenges, facilitate ease of approval processes, and act as a pivot for development.

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