‘Dead assets’ in housing deficit environment
The deficit in the Nigerian housing market has become a sing song which not many people are ready to listen to. But it amounts to double jeopardy for an environment where this deficit exists to also have many of its assets described as ‘dead’.
Housing deficit has remained an intractable problem in Nigeria which the country suffers and will continue to suffer from in many years to come. It is a major housing problem in the country but the ‘dead assets’ are another level of problem often muted and it borders on the value of the few residential houses in the country estimated at only 13 million units.
Analysts estimate that over 90 percent of Nigeria’s total housing stock, which are largely self-built, are ‘dead assets’, meaning that they are not in any formal mortgage and therefore, equity cannot be built on them nor can they be used as collateral for bank loan. This is quite unhealthy in a country where housing is deficient relative to the huge demand.
The housing sector in the country remains largely underdeveloped because government has failed to come up with the needed policy to grow the mortgage system which, in other economies, even in emerging economies like ours, drives housing development and homeownership.
As a country of almost 180 million people, homeownership is said to be a little above 10 percent as against 92 in Singapore, while the housing demand-supply gap is well over 17 million units, with Lagos, the country’s commercial nerve centre, accounting for about three million of the deficit.
There is no functional mortgage system and experts explain that the reason for the slow growth of the system is because of its relative newness such that many people don’t even understand why they should save their money in mortgage banks.
“Of the over 10 million housing units in Nigeria,10 percent of which is self-built, only about 5 percent is in formal mortgage”, says Ajila Dare, a mortgage originator and adviser, adding, this means that, effectively, about 95 percent of home equity/savings in residential developments are ‘dead assets’.
It is estimated that mortgage finance requirement for the country is over N50 trillion. Many residential developments were built or bought without recourse to mortgage due to the many constraints that have to be overcome in securing the facility from mortgage institutions. These constraints are regulatory, financial and operational.
Land ownership and management is always encumbered by administrative difficulties, especially with the issuance of Governor’s Consent. Apart from poor land registry practices, compensation for land is based on ‘fair compensation’ which is in turn based on diverse interpretations.
An overarching legal and regulatory framework for the housing industry is absent while limited access to long term funding; lengthy, rigid and ineffective foreclosure procedures; non-vibrancy of primary mortgage banks and low level of participation in the National Housing Fund (NHF) are some of the financial constraints buyers have to contend with.
Operational costs, manifest in high cost of housing developments such as building materials, land acquisition and transaction costs and reliance on expensive and conventional construction procedures coupled with inefficient land management and urban planning system also contribute to operational cost.
Low level of infrastructure provision for housing units developed, skills shortage and insufficient capacity building are also part of the operational costs are issues that need to be addressed.
Arguably, a major reason for the low mortgage facility for residential developments is mortgage operators’ demand for equity contribution as prerequisite for loan. But industry operators say such contribution is necessary for a number of reasons including the need to protect depositors’ money; need to hedge against default; lack of sound data-base on Nigerians among others.
Equity contribution is as fundamental to mortgage lending as it is to regular flow of income and according to operators, banks usually demand this from loan seekers because there are institutional and regulatory developments that are still lacking in the industry.
“We don’t have a sound data-base of Nigerians; the National ID Card is still struggling and foreclosure laws are still not strong”, says Toyin Banjo, a mortgage expert, arguing that if the banks had all the above issues resolved, they would give people mortgage based on their credit rating.
According to him, as financial intermediators, it is the responsibility of mortgage banks to protect depositor’s money and for them to protect those deposits, they have to ask for something that would act as a back-up to the money they give out to borrowers.
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