Real sector investors groan as mortgage banks fizzle out

Investigations revealed that they groan because there is huge deficit in Nigeria housing sector but they are not financially okay to provide a robust facility capable of bridging the housing deficit gap and they cannot invest in the sector with loans from commercial banks which charge high interest rates.Checks revealed that mortgage financing started in […]

Investigations revealed that they groan because there is huge deficit in Nigeria housing sector but they are not financially okay to provide a robust facility capable of bridging the housing deficit gap and they cannot invest in the sector with loans from commercial banks which charge high interest rates.
Checks revealed that mortgage financing started in the country with the coming of the Federal Mortgage Bank of Nigeria (FMBN) in 1956. It was known then as the Nigerian Building Society (NBS), a joint venture of the Commonwealth Development Corporation, Federal and Eastern governments of Nigeria.
Its impact has not been felt much in the sector compared to what obtains in advanced jurisdictions because, all these years, it was domiciled in the states  until the arrival of the federal government reform programmes of the early 2000’s which liberalized national policy on housing and urban development in the country.  Government in its move to restore confidence in the sector and make it more economically viable mulled recapitalization of the Primary Mortgage Institutions (PMIs). The liberalization policy jerked the number to over 90 registered PMIs in the country from the little known one branch name to multi-branch names.
Obviously, the Central Bank of Nigeria (CBN) knew full well that mortgage sector is the future of the nation’s economy, introduced operational guidelines for the PMIs, stipulated N2.5 billion as the new minimum capital base for operation at state level and N5 billion for those wishing to operate at national level.  Despite the affirmation that the mortgage sector is the future of the nation’s economy, it is believed that recapitalization of the PMIs will deepen the sector sentiments that it will take some firms out of business were grossly expressed in the beginning. Then, the president of the Mortgage Banking Association of Nigeria (MBAN), Femi Johnson argued that at the end of the recapitalization process, half of the operators would not remain in business. He predicted then saying, “When I say half of them, it doesn’t mean that others will not be in business. It is just that the number will shrink by way of business combination.”
Reacting to the recapitalization policy of the central bank, the Managing Director, United Mortgages Limited, Mr. Walter Akpani, was of opinion that if the policy is well implemented, it will bring a positive turnaround in the mortgage industry, hoping that it will, in the first instance, provide a level playing field for all operators, and engender confidence in PMIs. He pointed out that the revised guideline is opportunity for the PMIs to be more creative, envisaging that growth will be witnessed among those PMIs that are able to add value to their customers in terms of product offering and cost of doing business.
After introduction of the recapitalization policy by the apex bank, a lot among the operators were seen talking to one another to merge to meet the requirements stipulated by the central bank. What followed the talks was a situation where three or more mortgage banks merged while some were acquired outright. At the end, the number of the mortgage banks in the country reduced drastically while as many went out of business.
The close of shop by some mortgage institutions, according to an expert in the sector, Yomi Olajide has had adverse effect on the real sector. According to him, “What we experience now is a situation whereby the developer has to do infrastructure, he has to put things on the ground; if he goes to conventional bank; they will say bring collateral and bring committed up-takers so that the bank can be sure of getting its money back. It’s been very tough coupled with the rise in the cost of building materials as a result of the fall of our naira.
 “Interest rate is at a very high rate. The problem of access to long term fund for housing sector must be addressed.  By now, we have people who are working, earning salary and paying rent; paying rent where, had it been well structured mortgage, they would have been able to own their own homes rather than pay house rent that is higher than mortgage.
“Had it been we are able to structure 20-25-year mortgage at 7-8 percent which is even still high anyway, it would be easier for more Nigerians to become a proud owners of their own homes as workers that earn salaries. The rent Nigerians are paying right now is more than enough of what they need to service their mortgage and own a house. There is also the problem of building materials and all that which should be tackled,” he noted.
The Managing Director of Realty Point Limited, a real estate firm,  Mr. Debo Adejana  said, “Access to mortgage provision helps affordability a great deal especially when the cost and tenor of finance are very competitive. The interest rate and charges payable on a mortgage and the tenor of the loan are critical elements of affordability. The lower the rate and the longer the tenor, the more affordable the house type because it means more people will be able to take and repay such loans based on their current earnings since constitutionally, individuals are not allowed to spend more than about 30 percent of their earnings on housing”.