Diversification through mortgage for economic growth

There appears to be a slow down on the discourse on diversification through which the federal government seeks to refocus the economy towards non-oil sectors such as agriculture and manufacturing which are noted by the government as major growth areas with low hanging fruits.

This is to be expected as oil price has climbed several steps up in the last twelve months. The country only thinks of alternatives when there is a drastic fall in oil prices which it has chosen to stay with as the mainstay of the economy. But that is simply a sure way of postponing the evil day.

So good that agriculture and manufacturing top considerations for diversification, but it worries that the originators and promoters of diversification are yet to recognize that economic growth can happen when mortgage and/or real estate, which is the fulcrum around which the mortgage system revolves, is factored in their calculation.

In other economies, the mortgage industry makes significant contribution to economic development. In Nigeria, this is not the case because no consideration is given to its potential. This lack of consideration explains why mortgage finance as a percentage of Gross Domestic Product (GDP), till date, remains as low at 0.5 percent, leaving it several steps behind other emerging markets such as Mexico, Malaysia and South Africa where mortgage contributions to GDP are as high as 10 percent, 25 percent and 29 percent respectively.

There is no-gain-saying that mortgage has all the potential to contribute to the growth of the economy, but for it to do that, all the obstacles to its own growth have to be tackled. The relative ‘newness’ of the industry, lack of understanding of its dynamics and operational models by many Nigerians, and poor appreciation of the need and the ultimate benefit of keeping money in a mortgage bank are some of the militating factors.

Experts are of the view that a flourishing mortgage banking industry is an effective tool in the hands of the government as the industry will help in regulating the economy in the desired direction.

But the federal government, in all the things that are being said about diversification of the economy to steer it away from the current challenges, doesn’t seem to pay attention to the mortgage sector. If government really wants to stimulate the economy, a reduction in the interest rate will be a master stroke as, all things being equal, more people will embrace mortgage loan to buy houses, leading to increased activities in the construction sector.

Because of the identified obstacles, many primary mortgage banks (PMBs) are going through very difficult times, such that some are still unable to meet up with the capital requirements in the industry.

“If government pays a closer attention to the PMBs by removing some of the obstacles that they have such as the drawbacks of the Land Use Act of 1978 which essentially vests land ownership in the hands of the state governors; the right to easily foreclose on delinquent borrowers, ease of creating a legal mortgage and perfecting titles and the ease of falling back on their collateral to recover bad loan etc, this sector will surely improve significantly”, a mortgage operator observed recently.

The operator who did not want to be named, insisted that until all these issues are resolved in a way that encourages the provider of capital, in this case the mortgage bank, the sector will not grow as desired and he hopes that when these obstacles are removed, the supplier of mortgage will allocate more funds towards the provision of home loans while home buyers will better appreciate the implication of prompt interest and capital repayments as well as ensure discipline on the part of the people.

Okika Ekwem, a US-based realtor, affirms that the poor capital base of the PMBs is inadequate. He however, dismissed the idea of a fixed capital base for mortgage institutions. To say that a mortgage institution should have a fixed base of, say N10 billion, is wrong because that amount is too meagre; even N100 billion is also meagre given the kind of projects they are to finance.

“The Federal Government needs to come in, look at what is happening in other civilised world and copy. These days, copying is no longer an act of deception but actually something that is done even in the civilised world”, he said.

In the civilised world, according to him, there is secondary market for real estate financing where commercial banks or individual brokerage banks lend money to people and thereafter sell the securitised certificate to the secondary market and come back again to lend to individuals.

Given the size of Nigeria as a mortgage market, the growth of this industry is possible if the Federal Mortgage Bank of Nigeria (FMBN) plays the role of a regulator while the federal government, through the Central Bank of Nigeria (CBN), empowers the PMBs more.

Arguably, the Nigerian mortgage industry needs more well established and well funded PMBs. Meckson Innocent Okoro, an estate manager, explains that this is to discourage the concentration of these institutions only in urban centres. “When the number of PMBs is increased to say five in each state, access to housing finance will also be increased.

“The PMBs must be positioned to champion the whole issue of affordable or social housing for the low income earners in the country. Anything the country wants to do without a functional mortgage system that can guarantee homeownership for a good number of people will not succeed”, he reasoned.

Continuing, he said: “We are talking about housing which is capital intensive and so must have capable institutions to finance it; increased homeownership will, one way or another, contribute to the country’s GDP which translates to economic growth”.

Chuka Uroko