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Nigerians’ access to mortgages and investment in real estate has been negatively impacted by the Central Bank of Nigeria’s frequent interest rate increases, JOSEPHINE OGUNDEJI writes
To tame the accelerating inflation rate in the country, the Central Bank of Nigeria has hiked the interest rate from 11.5 per in April 2022 to 18.5 per cent in July this year. The increase in benchmark interest rate has been taking its toll on the country’s economy, worsening its housing crisis. It has also made investors take a watch-and-see approach as the prices of buildings continue to skyrocket.
The price of cement, which is a major input in construction has risen by over 34 per cent to N4,700 as of mid-July Tuesday from N3,500 in January 2022.
The International Human Rights Commission claimed more than 28 million Nigerians lack access to decent and affordable housing. Similarly, the Federal Mortgage Bank of Nigeria has stated that the country has at least 28 million housing gaps.
The country’s housing shortage has worsened from 7 million housing units in 1991 to 28 million housing units last year.
The country’s mortgage system has been struggling with slow growth in the last two decades, exacerbated by high-interest rates. Mortgage rates have surged to a range of 22 to 27 per cent per year from 20 to 24 per year. This has put considerable strain on the real estate sector, leading to challenges such as soaring building material costs, disrupted supply chains, and a dwindling number of potential buyers.
At a recent virtual forum organised by the Central Bank of Nigeria Financial System Strategy with the theme “Navigating Current Challenges in the Nigerian Mortgage Market”, the focus of the discussions was on how to improve the funding status of the sector.
The Managing Director of the Federal Mortgage Bank of Nigeria, Madu Hamman, noted that the CBN rate hike had not only increased the cost of borrowing in the sector but also affected the prices of building materials and other items, leading to high prices of housing across the board.
“FMBN, which manages the National Housing Fund, fixed the rate at single digit for contributors to the fund in order for them to have access to mortgage loans. But the contribution to the fund has not grown substantially to address the housing challenge in the country,” Hamman said.
He emphasised the importance of seeking alternative sources of funds for mortgage origination across the country.
He said, “We need to engage government and regulatory institutions at the national level and encourage the provision of special intervention funds for the mortgage sector. It is only through such intervention funds that we will be able to cushion the effect of an increasing rate of interest within the mortgage sector.”
He noted that if the sector continued to rely on what was obtainable from the capital market or the money market, it would not be palatable for borrowers and mortgage lenders.
According to the Executive Secretary of the Association of Housing Corporation of Nigeria, Toye Eniola, the apex bank is helpless and will continue to have these challenges until a deliberate policy that would attract foreign direct investments is put in place.
He said, “What is driving the economy is the change in the forex rate and it is because we run an import-dependent economy. However, Premium Motor Spirits are the main driver of our economy and every sector, including individuals depends on it to run their business and their individual lives. Sadly, it is imported with huge forex.
“With the increase in the pump price of PMS, everything skyrocketed and inflation hit the top roof, which is what the CBN was trying to control with the hike in interest rates, resulting in a ripple effect on the mortgage market. Until we do the needful with appropriate policy to stimulate exportation-friendly environments, which have been relegated to the zero level, we shall continue to move in circles.
“It is most essential to note that the CBN hike will negatively impact mortgage in the country as it will affect both the supply and the demand segment, cost of funds and construction will go up which will be transferred to the end users or buyers whose purchasing power has reduced and would not be able to afford available mortgage because of low take-home wages.”
The Chief Executive Officer of Fame Oyster & Co, Femi Oyedele, noted that the CBN’s persistent interest rate hikes had adversely affected the mortgage market.
He said, “The Central Bank of Nigeria’s persistent hike in interest rates has impacted the mortgage market. This is because the mortgage market is majorly dependent on commercial banks’ interest rates. Project costs of real estate are rising daily, posing challenges for both lenders and borrowers alike due to high uncertainties. This is one of the reasons Nigeria cannot attract foreign investors despite our huge infrastructure deficit, which the World Economic Forum Global Infrastructure Table of 2022 put Nigeria at 123 positions out of 186 countries surveyed.”
According to him, the World Bank Nigeria Affordable Housing Project (165296) of 2018 puts the housing deficit in Nigeria to be 17 million units.
He claimed that the multilateral bank recommended that 700,000 housing units must be constructed in the next 20 years for Nigeria to hope of having housing adequacy in the next 20 years.
“To solve the problem of the high cost of real estate finance, the government must evolve a housing practice that will reduce the usage of foreign materials. A serious government will see business opportunities in our high housing deficit and capitalised on it to create jobs and stimulate the economy.
“Nigeria should evolve a housing culture in which 70 to 75 per cent of the raw materials for production of housing will be from Nigeria. Nigeria is blessed naturally by laterite. The whole of Nigeria has a high depth of laterite, in some cases, under a thin length of humus deposit. We must adopt the use of clay as our brick-making materials. We can use timber-frame glass windows instead of the imported plastic-, and aluminium-frame glass windows. A committee of experts in housing should be set up by the government to look into how affordable housing can be achieved in Nigeria,” he enunciated.
In an exclusive interview with The PUNCH, the Managing Partner of Ubosi Eleh and Co, Chudi Ubosi, said what had been termed mortgages in Nigeria were simply commercial loans couched in fine language.
He said, “The dynamics and many inadequacies of the Nigerian economy make real mortgages a difficult thing to operate in. The high-interest rates are impacting negatively on real estate and the entire sector. We are experiencing higher construction costs and major variations of already agreed costs in the construction value chain. Unfortunately, these costs will result in major overruns and eventually will be passed onto the end users.
“In addition, many projects in turn may end with prices so high that sales become a problem. When sales are slowed, then repayment of borrowed funds becomes an issue and eventually reduces profitability and may even take the projects into foreclosure by the lending financial institution. This is indeed a challenge that all stakeholders in the sector must take seriously, and hopefully work out shock absorbers for the long run.”
Meanwhile, the General Manager of Shelter Initiatives Limited, Morenike Babalola, argued the CBN interest rate should not have an effect on the mortgage because the mortgage fund was from contributors to the National Housing Fund.
According to her, the purpose is to facilitate and enhance home ownership by contributors.
She, however, noted that access to mortgages in the real estate sector had not been very impressive.
She said, “An insignificant number of developers are able to meet the requirements and conditions set by the banks. So even if the interest rate is not high, conditions set by the mortgage institutions are ridiculously unrealistic, and making it difficult to access. Most developers raise funds for their projects through joint venture companies.”
On the CBN’s high-interest rate affecting the cost of borrowing from the Mortgage banks, Babalola noted that with the National Housing Fund Policy, it should not be so.
She added, “The interest rate, especially for contributors, should not be affected by the CBN interest rate. I think it used to be six per cent for contributors but this must have been increased to 10 per cent, which is still very reasonable because the pool of money is from the contributors. As you may be aware, most of the off-takers are civil and public servants, by the time developers apply for loans and off-takers are evaluated, the result is usually that they do not make the affordability table. This is a concept where the policy stipulates that only 30 per cent of annual income can be spent using.
“Those who are able to access the loan face multiple deductions, which make it a nightmare for the low or medium-income beneficiaries. To give an example, our company applied for a loan from one of the home financial institutions. We were not qualified for the loan because the price tag placed on the various housing types cannot build the housing types in Abuja, where bungalows are not allowed as a result of government policy to have compact development to conserve land and to prevent sprawling in order to reduce the cost of infrastructure. It also wants to address the issue of the high cost of building materials and labour.”
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