CPS to close housing sector gap through primary mortgage

The nation’s housing sector gap put at 17 million, which has remained a major challenge for government and the private sector, would be reduced if the provision in the Pension Reform Law 2014, on utilisation of pension funds for residential mortgage becomes a reality.

This would be a major breakthrough for Nigerian workers and pension contributors who have long desired quality housing for themselves and their families, but has been largely difficult due to economic hardship and failed government policies.

Analysts say N25 trillion is needed to bridge the housing gap in Nigeria estimated at 17 million units and growing by 2 million yearly, according to a report by Consolidated Discount Limited.

According to the report, the mortgage market in Africa is relatively small which has led to pent up demand that could serve as a major growth driver for housing in the continent. Nigeria, which is Africa’s largest economy based on a recent rebasing, has struggled to deliver housing to the population because of the high prices of the homes in the market.

Across the continent, home financing has been largely accessible by mainly the upper class and the upper middle class. This can be traced in large part to the preference of the mortgage lenders for mainly corporate clients, while individuals are left to access mortgage finance at exploitative rates. So, the use of pension funds to provide mortgage is opportunity for the Nigerian workers who are largely in the middle-class to access primary homes.

Nigerian employees and workers participating in the Contributory Pension Scheme (CPS) would therefore be looking forward, beginning from the New Year, to policies and regulations from the industry regulator – the National Pension Commission (PenCom) and other support partners in the mortgage industry on implementation framework that would enable utilisation of a part of the contributors balance in the Retirement Savings Account (RSA) for equity contribution towards accessing mortgage.

This provision will be a major bolster to President Goodluck Jonathan’s transformation agenda, which promises to provide quality housing to as many Nigerians as possible.

Most significantly is the fact that it would change the place of pensions in Nigeria, not only in the way it would be perceived, but its role in the economy as a major mobiliser of long-term funds. Besides, it will mean confidence building and one likely to enhance compliance level by those affected by the law, particularly the corporate and private sector institutions.

Organisations that were yet to comply or state governments that were yet to adopt the scheme would find a compelling reason to be part of the scheme, and employees themselves would become more interested, and push for their inclusion on their employers.

This generally would impact on the growth of the scheme, more income for pension operators, increased contribution to GDP and more investible long term funds for the economy.

As at the end of June 2014, the nation’s pension industry, according to figures released by the National Pension Commission, has grown to N4.5 trillion in investible asset, while registered contributors was standing at 6.2 billion.

According to the Commission, payment of pensions under the CPS has been prompt and consistent since 2007, from about N2 trillion in pension deficit under the defunct defined benefits scheme as of 2004, to over N4.5 trillion pension assets.

Analysts’ forecast indicates that pension assets will surpass the 21-29 percent growth range experienced between 2010 to 2013, to about 30 percent in 2014, to N5.28 trillion. “We are even more bullish on 2015, when we expect year-on-year growth of 31 percent to N6.9 trillion as our forecast is premised on the increase in pension fund contributions by 300 basis points,” a market analyst argued.

ChineloAnohu-Amazu, director-general of PenCom, recently appealed to states and local governments in the country that were yet to adopt the CPS to do so to enable their employees benefit from the scheme.

The PRA 2014, she said made provision that allowed contributors seeking to own primary homes, to apply part of their retirement savings account balance as equity contribution for residential mortgage, subject to the guidelines issued by the commission.

Mortgage experts say pension money is mostly long-term funds and are the most suitable to support the mortgage industry in attaining its millennium development goals. But these funds, understandably, are mostly locked up in government treasury bills and bonds. These (pension) funds have to be unlocked and made available for the real estate sector. This is because the funds are basically long term and won’t have problem in terms of mismatch in the maturity profile of the loans presently granted by mortgage institutions in the country, because ‘mortgage loans are long term, as against the deposits we take that are mostly short tenured.

Today, the pension industry has the largest pool of long-term investible funds in Nigeria, it is the largest investor in the capital market combined industry strength, and in the average contributes between 10 percent and 20 percent of free floating issued shares in the capital market.