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Mortgage Banks and Affordable Housing

By Bashir Ibrahim Hassan

Primary Mortgage Banks (PMBs) are the temples of mortgage financing and their CEOs the high priests. In nine and half years one such temple called ASO Savings and Loans Plc has these results to show:  Funded the development of 5000 houses across Nigeria;  Helped 15,000 Nigerians own houses through mortgage facilities;  Boasts of over N100 billion balance sheet and over N20 billion shareholders’ fund of tiers one and two.

The helms man is Mr. Hassan Tanimu Musa Usman, the 47-year-old CEO of ASOSavings & Loans Plc., who has few months to relinquish the enviable position. But his cumulative knowledge and experience in the mortgage industry will continue to be in demand as the industry is set to blossom, especially, with the coming of the Nigerian Mortgage Refinancing Company (NMRC), which is poised to provide the liquidity the mortgage industry in Nigeria has been yearning for.

Usman sits on the board of the NMRC and his bank holds a handsome equity in the public-private partnership initiative of the President  Goodluck Jonathan administration. With 23 branches spread across the country, ASO is a clear market leader in the industry.

However, despite the efforts of PMBs like ASO Savings, the delivery of adequate and affordable housing in Nigeria, over the years, has not met the desired target. Today Nigeria, with a population of over 170 million people, is facing a national housing deficit of about 17.5 million units, and requires a minimum of additional one million housing units per annum to reduce that deficit.

In 2012, the World Bank published an assessment of levels of financial inclusion around the world in the form of the Global Financial Inclusion (Global Findex), which indicated that 30 percent of Nigerians over the age of 15 has an account at a formal financial institution. It also indicated that only two percent of Nigerians over the age of 15 has a loan from a financial institution, and almost none (0.6 percent overall) has an outstanding loan to purchase a home. Borrowing for home construction is more common, although still small, 1.7 percent overall, or 1.5 percent of the top 60 percent of income earners and 1.9 percent of the bottom 40 percent of income earners had a loan for home construction.

This was re-echoed by Co-ordinating Minister for the Economy and Minister of Finance, Dr.Ngozi Okonjo-Iweala, recently when she said: “Although we have 84 primary mortgage banks (PMBs) and 20 commercial banks, most Nigerians typically rely on private savings to pay for their homes. The size of the mortgage market has grown from N54 billion (US$342 million) in 2006, to about N224 billion (US$1.42 billion) in 2011. Yet, this still accounted for only roughly 0.5% of GDP. For our commercial banks, mortgage loans accounted for less than 1 percent of their total assets.”

To the key players in the industry, like ASO Savings, underneath these realities lie great opportunities. This is attested to by the National Bureau of Statistics which reported in 2014 that the real estate market contributed 8.02 percent to GDP in 2013, and the building and construction industry 3.12 percent for the same period. The figures may seem small, given the nation’s high rate of urbanisation, at an estimated 3.8 percent. However, the good newsis that both sectors are growing rapidly — real estate by 11 percent and building and construction by 13 percent between 2012 and 2013.

Overall, the Nigerian financial system is also becoming more sophisticated with deeper penetration of the insurance and pension industry. In general, as of December 2013, the country’s financial system grew by 10 percent in terms of operators; with 21 commercial banks, six development financial institutions (DFIs), 82 Primary Mortgage Banks (PMBs), 820 Microfinance Banks (MFBs), 61 finance companies, and 2,889 Bureaux de Change (BDCs).

At the 6th Global Housing Finance Conference in Washington held in May last year, Okonjo-Iweala outlined four inter-related issues that needed to be addressed to unlock the full potential of the housing market in Nigeria:

First, to maintain conducive macroeconomic policies, which provide for stable and low inflation; low interest rates; and stable exchange rates.  Second, to improve access to long-term finance, in particular by deepening liquidity of the housing finance market.  Third, to simplify transactions in land registration and foreclosure processes; and  fourth, to promote good quality and efficient building and construction in the country at reduced costs, underscoring the need to address the existing supply-side concerns in producing houses at affordable costs; and also investing in the training of skilled labour for the housing sector.

Already actions are being taken on all these four fronts. In particular, the key players in the mortgage industry are happy with the establishment of the $300 million-capital base NMRC, which is essentially a re-financing institution that provides PMBs with increased access to liquidity and long-term funds. By deepening the available liquidity in the housing finance market, the NMRC will help to bridge the funding costs for residential mortgages in the country. Of the $300m sum, about US$250 million will be disbursed in instalments to NMRC as Tier 2 Capital subject to various performance indicators. Another US$25 million is also allocated for theestablishment of a Mortgage Guarantee Facility for lower income borrowers; while US$25 million will support the development and piloting of Housing Microfinance Products.

In a recent interview Hassan enthused about the NMRC’s promise in these words: “Creating an NMRC means that we could use our short-term money and create a long term mortgage asset, sell those assets in NMRC.NMRC would give us the cash, we would value that cash and do similar mortgages. So, it also means we could do more activities in the mortgage market, in much longer terms. We could expand whatever we are doing at the moment by expanding the mortgages between 15 to 20 years, rather than doing just 5 to 10 years, which means that people can afford this aspect of development”

According to Mr. Hassan Usman, there are lots of opportunities the NMRC presents to the market operators, but it would take at least two to three years for the full benefits and for the Mortgages to become more substantial. He strongly believes that when that time comes, mortgages will inch towards to single-digit interest rate, in addition to 20 year Mortgages. In addition stamp duties will come down significantly, with charges payable on home acquisition significantly coming down. At that mature stage new instruments will be created, which would enable pension funds to play a greater role in the Nigerian Mortgage industry

May 19, 2015

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