Cost of funds, land policies hold lock to mid-low income home ownership

Experts in the housing sector have said that home seekers within middle and low income bracket find it difficult, and sometimes impossible, to realise their dream of owning homes because of the cost of funds and land policies in Nigeria.

They explain that at 19-22 percent interest rate charged on loans from mortgage banks, this class of people cannot afford such loans, more-so as their monthly income are generally poor.

According to them, housing loan mostly come in form of mortgage that attracts low interest rate and long repayment tenor which, they note, does not exist in real terms in Nigeria at the moment.

Anthony Owuye, managing director and chief executive officer of Personal Trust Savings and Loans Limited, however, told BusinessDay that an added challenge to housing delivery in the country is an unfriendly mortgage environment.

“The major challenge to housing development here is that the system is not really geared towards mortgage banking. Mortgage system is supposed to be a long term thing, but our economy has been operating on a short day-to-day basis. It has been a short term economy for a long time”, he said.

“In an inflationary high interest rate environment, it is difficult to create a mortgage because the borrower will not be able to pay back at two-digit and short tenor interest rate”, he added, pointing out that the Land Use Act is mortgage unfriendly while the legal environment for recovery called foreclosure is mortgage hostile.

Continuing, he said, “Assuming you take care of all these, to now develop the housing on which mortgage is to be created, it poses another level of challenges because the infrastructure is not there. A developer spends much money providing the roads, water, electricity and more. At the end of the day, the housing units you want to create at affordable cost become unaffordable”.

Owuye noted that by the time you put all your costs together, the house goes beyond the reach of the ordinary person to whom mortgage finance is directed, adding that Nigeria is a society where there is less than one percent of persons who can afford their own housing without recourse to mortgage.

Adeniyi Akinlusi, MD/CEO, City Trust Mortgage Bank, former Intercontinental Homes Plc, agrees, adding that many Nigerian households cannot afford to own homes because of high interest rate on housing loans.

Land policies including building approvals, land use charge, Certificate of Occupancy and governor’s consent, the experts add, are also major impediments to homeownership by people in middle and low income group.

Real estate developers frequently complain of excessive charges on land by state governments, blaming the provisions of the Land Use Act which places ownership of land on state governors for their woes.

This explains the position of Jide Awosode, the president and CEO of Grant Properties, who says the only condition for him to build low cost housing is for government to give him land free of charge or at a huge concession.

Awosode maintains that low income housing is the business of government, explaining that lack of infrastructure and cost of building make that segment of the market unattractive to private developers.