Africa’s economic underweight and mortgage access

Like any other financial system, mortgage depends squarely on cash and liquid assets which is why mortgage access and poverty run on parallel lines. In this part of the world where poverty is endemic, access to mortgage is difficult for some and impossible for others.

Africa, on account of its poverty, has been adjudged economically underweight which is why despite its relative large population size, it has low standard of living and with its people living in sub-human conditions
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With only €113 billion gross asset value of real estate, representing 1 percent of the world’s total value, Africa is also said to be underweight despite its large and growing population estimated to be 15 percent of the world total.
Analysts insist that the continent is underweight in asset value of real estate relative to other continents, adding however, that this state of affairs has its positive side, having made the continent an attractive prospect for investible funds in real estate.
Home ownership in most parts of this continent is almost a luxury because houses are literally unavailable and where they are, they are inaccessible and unaffordable because of their high prices.
The World Bank estimates that only 3 percent of the African population, about 15 percent of the world’s 7.3 billion population, has income viable enough to qualify them for a mortgage, underscoring the level of poverty in the black continent where some households live below poverty line.
In Nigeria, the continent’s most populous nation and one touted as its largest economy, it is estimated that 70 percent of its 170 million people lives below poverty line, which explains the low home ownership level which is a little above 10 percent in the country.
It is also estimated that about 90 percent of houses in Nigeria are self-built with less than 5 percent of them in possession of formal title registration. Close real estate industry note that mortgage loans and advances in the country stand at 0.5 percent to GDP in contrast to 30-40 percent in emerging economies and 60-80 percent in advanced economies.
Major obstacles to mortgage finance, pointed out, included dearth of long-term funds, absence of a secondary mortgage market, inadequate branch network of Primary Mortgage Banks (PMBs), among others, noting that a lot still needed to be done to grow housing finance in the country.
The growth of housing finance in Nigeria, according to Guillaume Roux of Lafarge Africa Group, needs the support of the small microfinance institutions in their efforts to expand and diversify their offering, adding that the growth would also come from the large commercial banks which are becoming more and more attracted by the low to medium income segment of the housing market.
Roux’s argument is that both the microfinance institutions and commercial banks need support to develop housing products and build up projects which would positively affect the low income segment, urging organization and institutions to help one another to achieve these goals.
Nigeria needs to grow housing finance through such initiatives as ‘Housing Microfinance Academy’ which Lafarge launched in 2014 in partnership with International Finance Corporation (IFC) and African Finance Development (AFD).
Training sessions need to be organized to promote housing microfinance and develope the capabilities of banks in that field. Roux sees governments as critical stakeholders required to create the regulatory framework that would make the housing market work for the low income segment, noting that the setting up of the Nigerian Mortgage Refinance Company (NMRC) and the institutions for housing finance, including microfinance and mass housing financing, with the support of the World Bank, is a good example of a platform which would facilitate the growth of initiatives there.
“This will progressively enable a decrease in interest rates in the mortgage industry. However, more support from the government is needed to lower the interest rates for the funding of affordable housing and social housing projects. Today, they represent a cost of up to 30 to 40 percent of the construction, which is borne by the end user”, Roux said.
It needs to be stated that there is a need to improve the affordability of construction itself in which case social housing projects should be setting the stage by showcasing new construction techniques that could improve quality, deliver faster and reduce the cost of construction.
African governments need to creatively innovate in order to improve the living standard of their people through the provision of affordable and mortgage-backed housing programmes. Also, the mortgage system has to be improved to make it not only accessible but also affordable.

Chuka Uroko