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As the proposed date of commencement of the mortgage sector reform being promoted by the nation’s apex bank, the Central Bank of Nigeria (CBN) draws nearer, experts in the sector are divided on the prospects of the reform in an economy that remains largely a cash and carry one. In this report, industry experts speak with correspondent, Bamidele Ogunwusi about options for building a virile mortgage system.
Things have not been the same in the nation’s mortgage sector since the Central Bank of Nigeria (CBN) announced plans for its total overhaul in line with the reform of the entire banking system.
As part of the reform, the CBN released new guidelines for the primary mortgage banks (PMBs), chief of which was the new minimum capital requirement of N2.5 billion minimum capital base for those operating at state level, and N5 billion for nationwide operational licence.
This is a quantum leap in the capital base of operators from the present N100 million. Before now, capital base for PMIs started with N5 million, before rising first to N20 million and later to N100 million.
The blame for the slow growth of the nation’s mortgage industry have always been laid on the doorstep of poor capital base of operators, in addition to what analysts see as the unfriendly mortgage business environment. For those who point to the later, there is the wrong perception and poor understanding of the industry by the banking public that needs to be changed.
Many industry operators see the big leap from N100 million to N5 billion capital as a big challenge to the industry in view of the credit squeeze in the financial system generally.
Investigation reveals that many of the PMIs have hit the N1 billion mark while big names in the industry, including Abbey Building Society Plc, Aso Savings and Loans, Resort Savings and Loans Plc among others, currently have between N3.5 billion to N5 billion capital.
These big players are therefore in a position to and are believed to have commenced mergers and acquisition talks with some other industry players, in addition to some others whose discussions with potential investors are centred around equity contributions.
The CBN also outlined in the new guidelines activities the mortgage banks are permitted to undertake such as financial advisory services for mortgage customers and accepting savings and term deposits. Among non-permissible activities for players include: demand deposits, equity investment in property development, estate agency/facilities management project management for real estate development and management of pension funds/schemes.
Some industry operators welcome the recapitalisation directive, particularly as it would serve as catalyst for the much needed growth in the sector.
Former Managing Director, Union Homes Savings and Loans Plc, Soji Thomas, for example, believes the increase in shareholders’ funds would pave the way for mortgage operators to engage in long term lending to customers and explore viable options in mortgage financing.
Adeniyi Akinlusi, managing director Intercontinental Homes agrees with Thomas, saying that the benefits expected from the order are quite enormous, explaining that “the benefits are not only to the mortgage sector, but also the nation at large, as this will create a much more vibrant and robust mortgage sector.”
He expects that the exercise will see a reduction in the number of mortgage banks as a result of mergers and acquisitions that will arise. He however expressed hope that bigger players will emerge.
Akinlusi also expects that operators will have bigger and healthier balance sheets, that will attract long and short term funds which PMIs can effectively deploy to creating more mortgages, as well as fund housing developers.
“The huge housing deficit, currently the case in the country, will be reduced and the nation will be happier for it as more Nigerians will then be able to own their homes,” he said, adding that the consolidation would also afford mortgage firms the opportunity to expand, and to bring quality mortgage services to Nigerians.
While not disagreeing, Toyin Banjo, a finance expert, however believes, “capitalisation does not translate to cheaper funds in the finance industry.”
According to him, though the present N100 million statutory capital base for the PMIs is not sustainable, “N5 billion may not be the answer to the problem. I would therefore, suggest N2 billion for national mortgage institutions and N1 billion for regional ones.”
Banjo, former managing director of Cornerstone Savings and Loans, canvasses intervention fund by government for the mortgage sector as has been done in manufacturing, arguing that “if we had developmental funds as in the manufacturing sector which government gave out for over a period of 15 years at a single digit interest rate.
“If there’s such fund in the mortgage banking industry, it would help in a number of ways, including alleviating poverty as the construction industry remains the largest employer of labour,” he added.
Following the recent examination of all licensed PMIs by the CBN, 16 were not found at their last known addresses. In addition, these institutions had failed to render monthly returns to the CBN for about six consecutive months, in contravention of Section 58 (1) and (4) of the BOFIA, 1991.
The affected PMIs are: Acclaim Homes Savings and Loans Limited; Allwell Savings and Loans Limited; Citihomes Savings and Loans Limited; Credence Savings and Loans Limited; Estaport Building Society Limited; Futureview Mortgages Limited; Guardian Trust Savings and Loans Limited; and Hallmark Home Savings and Loans Limited.
Others are Home Trust Savings and Loans Limited; Horizon Building Society Limited; Imani Savings and Loans Limited; New Capital Savings and Loans Limited; New Prudential Building Society Limited; Owners Home Savings and Loans Limited; Peak Savings and Loans Limited; and Sakkwato Savings and Loans Limited.
Moses Ogundana, a mortgage finance expert, said the majority of mortgage banks in the country are not operating core mortgage banking, and instead push various products that have no link with housing into the market.
According to him, “a look into the activities of mortgage banks in the country will shock most Nigerians as they prefer to do what commercial banks in the country do and jettison their primary duty of mortgage financing. Even when the Federal Mortgage Banks (FMBN) gave them authority as collectors of National Housing Funds (NHF) some of them still prefer to (engage in) commercial banking (activities).
“I am not surprised that some of them are facing hard times and may likely lose their licenses.
To many Nigerians, the industry has in the last few years, not lived up to the expectations.
Many of them lament that instead of the PMIs facing their core business of assisting in mobilizing saving for the purpose of building their own houses, are competing with commercial banks in the more lucrative business of deposit mobilisation, rather than mortgage banking.
Among mortgage operators, it is widely known that the sector is feeling the impact of the harsh economic down condition, arising from the global economic crisis that has lingered for some years now. This, they say, has resulted in the scarcity of long-term, following many have had to scamper for the short-term funds available from the money market, where commercial banks also complete for funds.
As if this is not enough challenge, operators in the sector also have their cash flow hampered by the inability to tap into the National Housing Fund (NHF) for their contributors through the Federal Mortgage Bank of Nigeria (FMBN), which should have been a window for the pooling of long-term funds.
This has prompted the umbrella body of industry operators- the Mortgage Banking Association of Nigeria (MBAN) to liaise with CBN, local financial institutions and international development agencies in a bid to float a liquidity facility company.
The development is on the heels of new regulatory guidelines for PMBs aimed at recapitalising and repositioning them as specialized banks through the Other Financial
To many, the National Housing Fund (NHF) which came into being via Decree No. 3 of 1992, to provide cheap loanable funds to those desirous of building or buying their own houses, has not made significant impact on citizens because of the attitude of mortgage banks in the country.
They believe that despite Nigeria’s 102 primary mortgage institutions (PMIs) with capital base of N100 million, the nation’s housing deficit continues to grow daily and in urgent need of redress.
Minister of Lands, Housing and Urban Development, Ms. Amal Pepple, while admitting that mortgage finance is still far from the ideal in the country recently, said high costs of acquiring land and building materials are the major reasons Nigeria has such high housing deficit.
Pepple, however, said that government is exploring various strategies to provide affordable housing for the people just as she also appealed to financial institutions to make mortgage facilities available to people at affordable interest rates, adding that the move would provide many the opportunity to own their homes.
She assured that government was working with stakeholders in the housing sector to tackle the housing deficit in the country.
Her words: “As part of the moves to have accurate data on the housing deficit in the country, the ministry is in talks with Cities Alliance with a view to conducting housing census in Nigeria.”
She also added that the Federal Government is discussing with state governments to make land available for the construction of low cost housing.
Managing Director, Aso Savings & Loan Plc, Mr. Hassan Usman, said the bank would continue to provide financial services to the country’s housing sector, adding that in the past decade, his company provided loan facilities of N40 billion for over 15,000 house owners across the country.
“Aso’s passion to see Nigerians own their houses and experience financial freedom has led to our organising a forum where all stakeholders involved in the housing market can convene. These include estate developers, building materials suppliers, architects and interior decorators.”
No secondary market
There is the argument in many quarters that PMIs lack the financial backbone to finance residential housing developments in the country. The near absence of a secondary market and the high rate of interest charged by banks are identified as reasons why mortgage financing remains very unattractive in the country.
This has also given rise to cash and carry mentality in property sales in Nigeria, even as built environment and financial experts argue that this trend will not worsen the housing problems in the country.
A former National Secretary of the Nigerian Institution of Estate Surveyors and Valuers (NIEV) and President, FIABCI Nigeria, Kola Akomolede noted that “because of the capital intensive nature of building or owning a property, it is not often that an individual can muster savings from his legal income to buy or build a house. In the civilized world, he said, “nobody expects you to pay fully at once to buy a house.
“But here in Nigeria, it is ‘cash and carry’ even for houses built and are being sold by the government. In other parts of the world, all that is required of you is a proof of employment with steady income and five to 10 percent of the cost of the house and you can secure a mortgage for as long as 30 years repayment and a reasonable interest rate of between four to six percent per annum. But what do we have in Nigeria, an interest rate of about 18 percent and 22 percent where applicable,” he lamented.
His views were corroborated by Joe Idudu, a past president of NIEV and immediate past president of the Estate Surveyors and Valuers Registration Board of Nigeria, who described mortgage finance as crucial in the delivery of houses.
“It is only in Nigeria that you are expected to pay cash, and carry a property. Elsewhere, especially in the civilized world, houses are bought through mortgages and the balance is structured in a way that it doesn’t impinge on your income. Here if you are buying a property of N20 million, you will be expected to pay cash,” he lamented.
He stated that the phenomenon of advance rent is not the creation of the estate surveyors but the financiers (banks) who demand repayment of loans in two years at very high interest rates.
The only way out of the problem, he believes, is to pass it unto the tenant in form of advance payments. “Mortgage finance is the sinequa non to housing delivery. Although land, materials and labour are costly, you can pay for them and solve a lot of the problems that go with housing if you have money,” he said.
Deputy Governor, Financial Services Surveillance, Central Bank of Nigeria, CBN Kingsley Moghalu, was quoted as saying that mortgage finance currently contributes less than one percent of the country’s GDP. This is in contrast to other emerging markets, like Malaysia, where it accounts for over 25 percent, 29 percent in South Africa and 85 percent in New Zealand.
Moghalu identified some of the major impediments to housing/mortgage finance in the country as the dearth of long-term funds; absence of mortgage re-finance/liquidity companies or a secondary mortgage market and inadequate branch network of Primary Mortgage Institutions PMIs for easy disbursement of loans from the National Housing Fund. Others include: a poorly designed National Housing Fund; inadequate capital and weak corporate governance of the FMBN; inadequate skilled labour and high cost of building materials.
The president of the Real Estate Developers Association of Nigeria, REDAN, Olabode Afolayan enumerated a plethora of factors affecting the mortgage industry in the country.
According to him, the 100 million naira capital base for primary mortgage institutions PMIs and N5 billion for the Federal Mortgage Bank of Nigeria, FMBN, are inadequate to do effective mortgage banking transactions. The REDAN boss regretted the absence of foreclosures in Nigeria, also faulted the operations of commercial banks who are only interested in giving out hot funds for real estate development.
But the Managing Director of Safetrust Savings and Loans Limited, Yinka Adeola is more interested in what would be done to make the sector more effective. He listed a number of factors that could help in reforming the mortgage industry.
These include long term funding supported by the availability of secondary refinancing windows and low interest rates, less government regulation and control, amending the Land Use Act and computerising land titling through the use of Geographic Information system GIS to hasten and reduce cost of transactions in land thereby enhancing accessibility for development purposes. Others include the establishment of cooperative housing models and stability of economic factors such as interest rates, inflation and exchange rate.v