As we settle into the New Year, reflections from the previous year continue to shape projections for the various sectors of the economy in 2018. The housing sector, in particular, is expected to rebound as the overall economy hopefully maintains a steady rise out of its worst recession in a quarter of a century.
Against the backdrop of a relatively positive global economic outlook and an optimistic domestic economic environment, strengthened by recovery in global commodity prices (oil’s inclusive), improved crude oil production, rising non-oil revenue, relative stability and liquidity in the foreign exchange (“forex”) market, receding headline inflation (year-on-year), and notable reforms generally around the ease of doing business; the mortgage industry is poised to leverage on the positive 2018 Outlook and take full benefit of new interventions and innovative solutions being developed and implemented by critical stakeholders to deliver affordable homes to Nigerians.
PROJECTIONS BY INTERNATIONAL AGENCIES
The World Bank in its recent report, Global Economic Prospects January 2018, projects that growth in Nigeria will pick up from 1 percent in 2017 to 2.5 percent in 2018 and expected to hit 2.8 percent from 2019 to 2020. According to the report, forecasts for 2018 and 2019 were revised up on the expectations that oil production will continue to recover while reforms in the forex market will combine with improved electricity supply to enhance the growth of the non-oil sector. The expected growth for Nigeria is projected to occur amidst marginal growth in the Sub-Saharan African region which is expected to rise to 3.2 percent in 2018 and 3.5 per cent in 2019 on the strength of recovering commodity prices and gradual rise in domestic demand. The International Monetary Fund (IMF) similarly projects that Nigeria’s economy will achieve a 2.1 percent growth in 2018.
Fitch Ratings, an international rating agency, has also projected a 2.6 percent growth for the Nigerian economy in 2018 as the possibility of a slide back into recession is unlikely, given that higher oil revenue and various funding initiatives have enhanced government’s ability to execute its capital expenditure (CAPEX) plans.
Rising population and increasing urbanization constitute demographic ‘emergencies’ compelling the Federal Government of Nigeria (FGN) to stay focused on its goal of affordable housing, particularly for low-income earners. The FGN in line with this goal has therefore set aside a sum of N35.4 billion in the 2018 Appropriation Bill (currently before the National Assembly) to address the housing needs of its workforce, under the Nigeria Housing Finance Programme (NHFP). The success of this effort at the federal level in enhancing access to affordable housing finance will however depend on timely passage of the N8.6 trillion ($28.16 billion) 2018 Appropriation Bill and the effective implementation of same thereafter, considering that the previous year budget was planned to run till the end of March 2018.
Whilst availability of unsecured credit to households increased in the last quarter of last year (Q4 2017) and also expected to continue in Q1 2018, the Central Bank of Nigeria (CBN), citing lower appetite for risk, reports that availability of secured credit to households decreased in Q4 2017. This implies a negative impact on the ability of households to take mortgage in the period under review. However, according to the Credit Conditions Survey Report Q4 2017, released by the CBN, the trend is projected to change as there is expectation of a rise in secured credit to households in Q1 2018. However, on a positive note, overall availability of credit to the corporate sector increased in Q4 2017 and is expected to be on the rise in Q1 2018 due to favorable economic outlook.
Demand for Secured Lending for House Purchase (SLHP) increased in Q4 2017 and more lenders expect that demand for SLHP will further increase in Q1 2018. Despite the increased demand, the CBN report indicates that the proportion of loan applications approved decreased despite lenders’ loosening of the credit scoring criteria. It is expected that the positive 2018 Outlook will increase lender’s appetite for risks and spur more activities in mortgage-backed transactions.
Foreign Exchange Market:
The CBN in 2017 continued its regulatory interventions to further strengthen the stability and liquidity of the Nigerian forex market. A liberalised forex regime had earlier been introduced in June 2016 to end the era of artificial/pegged exchange rate which, due to fallen oil prices, had caused a drain on Nigeria’s foreign reserves, collapse in the value of the Naira against major foreign currencies, persistently strong inflationary pressures and exit of foreign portfolio investors from the country.
A major intervention in the forex market in 2017 was the Establishment of Investors’ & Exporters’ FX Window to boost liquidity in the forex market and ensure timely execution and settlement of forex trades for eligible transactions as stipulated by the CBN, which include loan repayments, interest payments, dividend/income remittances, capital repatriation, bills for collection and others ‘Miscellaneous Payments’ as detailed under Memorandum 15 of the CBN Foreign Exchange Manual. The stock market immediately reacted positively to the news of the establishment of the special forex window as the All Share Index (ASI) rallied 1.97 percent within the first day and gained 42 percent in 2017 overall. The Naira which traded against the greenback at over N500 to $1 before the intervention has recovered significantly and now settles around N360 to $1. According to data published by the FMDQ OTC Securities Exchange, the Investors’ and Exporters FX Window recorded circa $26bn of transactions in 2017.
Similar interventions by the CBN in the forex market is expected to continue in 2018 to further stabilize the local currency and the domestic market, boost investors’ confidence, and lower the risks generally associated with investments; including mortgage lending.
Other Macro-Economic Indices:
The CBN retained its Monetary Policy Rate (MPR) at 14 percent throughout 2017 and also voted at its November 2017 Monetary Policy Committee Meeting to leave all other policy parameters unchanged, thereby retaining the Cash Reserve Ratio (CRR) at 22.5 percent, Liquidity Ratio at 30 percent, and the Asymmetric Corridor at +200 and -500 basis points.
The economy witnessed moderate inflationary pressures throughout 2017. According to the Consumer Price Index (CPI) December 2017, released in January 2018 by the National Bureau of Statistics (NBS), inflation ended the year 2017 with a rate of 15.37 percent (year-on-year) in December 2017. A rate 0.53 percent points lower than the rate recorded in November 2017 (15.90), making it the eleventh consecutive disinflation in headline year-on-year inflation since January 2017.
Data from the NBS also shows that the country’s unemployment rate increased to 18.80 percent in Q3 2017 from 14.20 percent in the corresponding period of 2016 while the real Gross Domestic Product (GDP) grew by 1.40 per cent in Q3 2017, up from 0.72 per cent, and contraction of 0.91 per cent in the second and first quarter of 2017, respectively. The major drivers of real GDP growth were agriculture (0.88%) and industry (1.83%) while contraction was recorded in some subsectors including construction (0.01%), trade (0.29%) and services (1.02%).
Overall, the CBN Monetary Policy Committee noted at its November 2017 Meeting that non-oil real GDP contracted by 0.76 per cent in Q3 2017, further buttressing the argument that more work needs to be done in consolidating the recovery process in 2018; by putting in place policies that will boost growth through the non-oil sector.
Whilst preparations for the 2019 General Elections pose downside risks to the 2018 positive outlook, hopefully, projected higher economic growth for the New Year would provide some buffers against the risks.
Like most businesses, mortgage lending and refinancing thrive in an enabling environment with positive economic indices. The 2018 Outlook presents a mixed bag of risks and opportunities for the mortgage industry in Nigeria. However, on the back of clearer legal and regulatory framework, streamlined operating system, standardized mortgage lending practices, innovative product offerings, and ongoing strategic partnerships among private and public sector players across domestic and international markets; more affordable homes are expected to be delivered to Nigeria in 2018 through increased activities both in primary mortgage origination and secondary mortgage refinancing.