The high cost of borrowing to own a home in the nation’s mortgage market is the main reason why many Nigerians are without their own homes, JOSEPHINE OGUNDEJI writes
Operators in the built sector have revealed that Nigeria has a meager 20 per cent homeownership rate among its population of 223 million, placing it significantly below its peer nations. For example, South Africa, with a population of 56 million, boasts of a homeownership rate of 67.7 per cent.
In contrast, even smaller countries like the Benin Republic, with a population of 11.8 million (about half of Lagos State’s population), have a homeownership level of 61 per cent. Libya, with a population of 6.8 million as of 2019, maintains a rate of 41 per cent. Meanwhile, larger nations like Brazil, the USA, Kenya, and Singapore enjoy substantially higher homeownership rates of 63 per cent, 70 per cent, 73 per cent, and 90 per cent, respectively.
Frequent reports issued by the National Bureau of Statistics; consistently depict a trajectory of growth or decline, hinting at the state of the housing component within the sector. The report signals improvement, stagnation or depreciation.
Real estate/construction market growth
In Q3 of 2022, the NBS released a report underscoring the substantial impact of the construction and real estate sectors on the GDP during the first three quarters of 2022. According to the report, the construction services sector generated a remarkable N12.9tn in revenue, while the real estate sector contributed an additional N7tn, resulting in a combined total of N20tn added to the GDP.
Further insights from the report indicated that the real estate services sector witnessed a nominal growth rate of 9.13 per cent during this period, surpassing the growth rate observed in the same period in 2021 by 0.50 per cent. However, it was 3.68 per cent lower compared to the preceding quarter.
The real estate sector’s journey to positive growth began in the last quarter of 2020, marking its recovery from a recession that persisted for six consecutive quarters. This recovery followed the last positive growth rate of 0.93 per cent recorded in Q1 2019.
Nevertheless, despite this positive momentum, the housing segment of the sector continues to grapple with a widening deficit of over 28 million housing units.
According to the latest data released by the Nigeria Bureau of Statistics recently, the sector contributed a total of N8.33tn in the quarter compared to the N9tn generated in the fourth quarter of 2022.
The NBS attributed the decline to the adverse effects of the cash crunch experienced during the quarter.
A breakdown analysis showed that the real growth rate of the construction sector reduced by 1.56 per cent points from the rate recorded in the previous year.
The NBS, however, noted the sector contributed 11.79 per cent to nominal GDP in the first quarter of 2023, higher than the 9.68 per cent it contributed a year earlier and higher than the 10.16 per cent contributed to the fourth quarter of 2022.
Despite all these, the homeownership level remains low, and experts have identified a number of factors responsible for this disparity or mismatch.
Inflation
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 18.75 per cent in July this year. The rate persists till now. 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.
“Inflation which is the reason for the high building material prices and labour costs is at the root of the problem we have at hand,” Johnson Chukwuma, a construction engineer, said, explaining that GDP figures were not necessarily based on increased output, but rather on increased costs.
The recent surge in building material prices has dealt a blow to the dreams of many prospective homeowners, dashing their hopes for lower construction costs.
Between January 2022 and August 2023, the prices witnessed a staggering increase of over 70 per cent, making it increasingly challenging for individuals to afford their desired homes.
This has been attributed to soaring inflation in the country.
The Consumer Price Index report, which measures the rate of change in prices of goods and services from the National Bureau of Statistics showed a slight increase in the inflation rate, soaring to 25.8 per cent as of August 2023.
The chairman, Real Estate Developers Association of Nigeria, Lagos Chapter, Bamidele Onalala, said besides inflation, the real estate sector is also challenged by the high interest rate and volatile exchange rate of the naira against other currencies.
He said, “Presently, all the factors that drive an increase in commodity prices in Nigeria, including galloping inflation, volatile foreign exchange rate and cost of transporting goods from one point to another, have all contributed to challenges confronting the real estate sector.”
He added that the Exchange rate in the country, which is dwindling and increasing daily, is a huge source of worry. This is a given that Nigeria is a country where over 70 per cent of building materials are imported.
High mortgage rate
The Association of Housing Corporations of Nigeria had earlier decried Nigeria’s low homeownership rate, saying the country ranked lowest at 25 per cent, especially when compared to Brazil (74 per cent), Kenya (75 per cent), South Africa (70 per cent) and Indonesia (84 per cent).
Speaking on the occasion of this year’s World Habitat Day with the theme ‘Mind the Gap: Leave No One and Place Behind,’ the President of the Association of Housing Corporation in Nigeria, Dr. Victor Onukwugha, said it was sad that at 63, Nigeria was still beset with confusion about how to develop the housing sector.
He said, “Inappropriate mortgage systems that still depend largely on outright sale of houses that are out of the reach of the pocket of the people who really need them; lack of housing finance, among others, are some of the challenges plaguing the housing sector.
“A crawling mortgage market without a vibrant platform that would create unhindered access to affordable mortgages, as well as exit points for developers who invested in housing and inappropriate land administration that could offer acceptable access to appropriate and viable real estate transactions were crippling the sector, “ he added.
In the same vein, a real estate expert, Timothy Gbadeyan, said the high interest rate and low wages were among the major factors making it difficult for most Nigerians to access a mortgage to own a house.
He said, “Accessing a mortgage in Nigeria is at an interest rate of around 17 per cent or in some rare cases 16 per cent. If the bank wants to give you N14m and your salary is N120,000 in a state capital like Osogbo for instance. From that N120,000, your mortgage payment should not exceed N40,000. What kind of property will you be buying that N40,000 will be able to service your principal plus interest within a period of 10 years? So, when you look at a commercial mortgage, it is outside the reach of the masses.”
In an exclusive interview with The PUNCH, 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.”
Flooding
In recent times, the communities of Anguwan Rogo, Rikkos, Bauchi Road, and Naraguta in Jos North Local Government of Plateau State were struck by a devastating flood. This calamity was the consequence of heavy rainfall occurring on both Saturday and Sunday afternoons, resulting in the destruction of a minimum of 150 houses and substantial property damage.
Experts have approximated that properties located in flood-prone areas have experienced a decline in value of approximately 10 per cent. They argued that properties situated within floodplains significantly lose their value compared to similar homes in flood-safe areas within the same vicinity.
Apeh Phillips, the Chairman of the Nigerian Institution of Estate Surveyors and Valuers in Kogi State, emphasised that the impact of flooding on property sales had been significant.
“Even after the floodwaters recede, rental values remain low because people are hesitant to reside in areas where the constant threat of flooding looms. Prospective buyers are also cautious, leading to difficulties in selling properties in these flood-prone regions.”
Recently, officials from the National Emergency Management Agency revealed that at least 11 states, including Adamawa, Taraba, Benue, Nasarawa, Kogi, Anambra, Edo, Delta, Bayelsa, Rivers, and Cross River, are at risk of experiencing adverse effects from the opening of dams. They advised residents in these areas to evacuate to prevent harm to human lives and valuable assets.
Building collapse
As per the latest findings released by the Building Collapse Prevention Guild, Nigeria has recorded a total of 553 building collapses spanning from 1974 until April 13, 2023.
This unsettling trend has played a role in the persistently low rates of home ownership in the nation.
The report indicated that Lagos State had recorded a high collapse with over 326 buildings caving in the last 49 years.
It showed that 326 collapsed buildings in Lagos represented 59.05 per cent of a total of 553 recorded cases in the country during this period.
The report stated, “Lagos State accounts for 59.05 per cent of the recorded incidents in Nigeria. Taraba, Bayelsa, Gombe, and Yobe states had their first recorded collapse in 2022, and Zamfara has only one recorded building collapse, which happened in 2018. Also, 1971, 1975, and 1981 were years that had no recorded collapses.
“The year 2022 has had the most collapses with 62 nationwide with Lagos accounting for 20. In addition, 2023 has recorded 12 collapses so far.”
Findings by the guild revealed that professional ineptitude ranging from excessive loading, use of substandard materials, faulty design, poor workmanship and weak foundation accounted for a significant fraction of the collapses recorded during the period under review.
The Pioneer President, Building Collapse Prevention Guild, Kunle Awobodu, blamed weak regulations for the incessant cases of building collapse in Lagos State.
He said,” There is a difference between policy formulation and implementation. One of the things we discovered was that the staff strength of the building control agency was low compared to the vastness of the Lagos built environment. Quackery is also a major problem. To forestall the frequency of collapsed buildings, developers must submit their approval plan to undergo an approval process, including checking the structural design to identify anomalies.
“Once the approved building plans are returned to their owners, the system does not follow up to check and ensure that those who will handle the construction are professionals. So, the construction will just be given to anybody who claims to have experience in building construction.”
Nigeria tops homelessness list in the World
“Nigeria has the world’s greatest number of homeless people. Within the nation, 24 million people don’t have homes,” data from World Population Review has reported.
According to the report, Nigeria is the most populous country in Africa, and this presents an epidemic of homelessness throughout the nation.
It stated, “Over 24 million people are considered homeless, with many more not having appropriate access to a proper dwelling that has access to some of the most basic services. With this being said, Nigeria is not as deep in poverty as others may think, as there are a lot of resources contained within the country. Much of the issue is due to access to wealth, which is often exploited by other countries or even their state.
