How to achieve 50% reduction in affordable housing delivery cost
by CHUKA UROKO
August 15, 2017 | 12:49 am| | | Start Conversation
Arguably, houses are not affordable to many Nigerians and the reasons are very clear. Cost of housing finance, largely imported building materials, land use and tenure system, lack of basic infrastructure, among others, make housing delivery cost too high for many who want to buy or build.
But there are ways and means by which this delivery cost could be reduced. Ahmed Dangiwa, MD/CEO, Federal Mortgage Bank of Nigeria (FMBN, says it is possible to reduce the cost of delivering affordable housing by as much as 20-50 percen
Dangiwa believes that when the Federal Government intervenes in affordable housing delivery by unlocking land at the right location, reducing construction costs through value engineering and industrial approaches, increasing operations and maintenance efficiency, and reducing financing costs for buyers and developers, the cost of delivery will come down significantly.
Housing finance remains a major challenge in housing delivery in Nigeria and Dangiwa sees its future in a market-driven structure. To achieve this, he says, government needs to create an enabling environment, pointing out that the greatest challenge for a market-driven housing finance is mortgage affordability.
“Affordabiilty is a huge challenge to a market-driven housing finance; the lowest achievable cost to deliver the cheapest house by a formal developer in Nigeria is USD10,000, about N3.6 million”, noted Dangiwa who spoke on ‘Expanding Affordable Housing Beyond Government Support to Adopting Market-Driven Financial Innovations’ at a housing forum in Abuja recently.
He explained that affordability is a big issue because demand is weak, the proportion of the population below the poverty line is high at 46 percent, purchasing income is low with a minimum wage of N18,000 or $50 per month; down payment requirements is as high as 25 percent, and mortgage lending interest rates are also high at between 16-32 percent.
To improve affordability and access to housing finance, government has put forward some initiatives which include the recapitalisation of Primary Mortgage Banks (PMBs) by the Central Bank of Nigeria (CBN) with minimum capital requirements of N5billion and N2.5billion for national and regional PMBs.
There is also the National Housing Finance Programme (NHFP) which is a collaborative effort among Federal Ministry of Finance, CBN and the World Bank. The implementation of the programme included the establishment of the Nigerian Mortgage Refinance Company (NMRC). CBN guidelines provides for the establishment of additional private mortgage refinancing companies in Nigeria towards enhancing the secondary mortgage market.
The Family Homes Fund (FHF), which is another step in this direction, is a private sector-driven financing initiative aimed to use Real Estate Investment Trust (REIT) structure to raise funds from local and international markets.
Dangiwa pointed out, however, that there are some prerequisites for achieving a sustainable market-driven housing finance, saying that apart from having strong players and a bigger market at both primary and secondary markets, there has to be macroeconomic stability and improvements in which case inflation has to be controlled and reduced, interest rates should be targeting a single-digit regime while the foreign exchange market rates need to be more favourable in view of foreign components of building materials and cost of offshore funds.
He canvassed the FMBN recapitalization to N500 billion alongside the development of ‘down market’ products to integrate 85 percent of potential homebuyers who need first homes. “There should be legal and regulatory framework review, title issuance and approval, amendment of the Land Use Act and rejigging of land registry practices for cost and time effectiveness”, he said.
He added that efforts should be made at creating an asset-backed capital market and appetite for investments, common underwriting standards to achieve uniformity of loan products, and ‘true’ sale of mortgage assets from mortgage originator without need for Governor’s Consent should be achieved.
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