Why N5.4trn pension fund can’t be invested in real estate

So far, the contributory pension scheme (CPS) in Nigeria has been able to raise N5.4 trillion from about 7 million registered contributors who represent 4 percent of Nigeria’s 170 million population.

These contributors are predominantly employees of over 200,000 employers of labour who are implementing the scheme in 26 out of the 36 states of the federation.

As long-term funds aimed to cater for the retirement needs of the contributors, the N5.4 trillion, which is managed by market operators, including 21 pension fund administrators (PFAs), seven closed pension fund administrators (CPFAs), and four pension fund custodians (PFCs), has to be invested in high yield investment asset classes in various sectors of the economy.

At every given opportunity, there have been strident calls, especially from real estate stakeholders, for part of this huge fund to be invested in housing which, apart from securing the funds, will also solve the country’s most critical social problem, which is decent accommodation for the citizens.

Operators, however, intimate that though real estate is a secure and relatively high yield investment asset class requiring long-term and low-rate funds, pension funds cannot be invested directly in it for various reasons, which are linked to policy and regulatory framework, among other challenges.

Housing policies in Nigeria have the characteristics of being inconsistent and poorly coordinated, Eric Fajemisin, CEO, IBTC Pension Managers, said at a forum in Lagos. Lack of political commitment and differing approaches between sovereign and sub-national entities are also part of the policy challenges and Fajemisin cited the National Housing Fund (NHF) managed by the Federal Mortgage Bank of Nigeria (FMBN), which total collection is estimated at N2 trillion, but is yet to fully realise its goal.

The Land Use Act of 1978, which rests the power to allocate and revoke land on the state government, is one of the regulatory challenges, which, he said, was slowing down process of obtaining titles to ownership of land and also making property registration not only costly, but also difficult.

Pension funds administrators, like other investors, see opportunities in the housing sector which, apart from being supported by favourable demographics, also presents investment opportunity valued at N56 trillion by the FMBN.

The country’s over 170 million population with over 80 percent of this number living in unplanned settlements with poor living conditions; only 11 million housing stock with only 5 percent in the formal mortgage make the housing sector an investors’ haven in the country.

“It can play a special role in the economic dialogue in Nigeria as it can generate employment, increase productivity, raise standard of living and alleviate poverty,” Fajemisin informed, adding that unlike UK, US, China, Korea and Singapore where home ownership levels are 78 percent,  72 percent, 54 percent, 52 percent, and 92 percent respectively, home ownership level in Nigeria is only 10 percent.

But, according to Chinelo Anohu-Amazu, director-general of Pension Commission (Pencom), who spoke at a mandatory continuing professional programme (PCPD) of estate surveyors and valuers in Lagos recently, difficulty in valuation of real estate assets coupled with tradability or liquidity of such assets limits pension funds investment in them.

As a way forward, Fajemisin outloned channels through which this fund could be invested in housing and these included the Real Estate Investment Trusts (REITs), bonds, equities and CPFAs, which also have their own challenges.

“There are only two viable options available now – Skye Shelter Fund and UPDC REIT; we have only two bonds in issue that are linked to housing and these are FMBN bond and Nigerian Mortgage Bank of Nigeria (NMRC) bond, while the CPFAs exposure as at 31 March stood at N212 billion or 3.89 percent of the total industry assets under management, which make them not viable,” he said.