FMBN, REDAN, Shelter Afrique in $2bn pact to finance affordable housing

Concerned about the lingering housing deficit in Nigeria and the cost of funds which has denied many access to credit, the  Federal Mortgage Bank of Nigeria (FMBN) has signed a memorandum of understanding (MoU) with the Real Estate Developers Association (REDAN) and Shelter Afrique aimed to establish a $2-billion affordable housing fund.

The fund is planned to distribute $200 million per year to developers to help them to finance the construction of a targeted 10,000 homes annually over the next decade. In addition, the signatories to the MoU expect the construction work generated by the funding to create more than 150,000 jobs.

“We agreed that we needed to bring in Shelter Afrique to work in partnership with REDAN to make available some funds over the next 10 years by providing REDAN members with the necessary construction finance that is required to drive the national housing model,” Richard Esri, acting managing director of FMBN, told the media at the signing ceremony.

In March, the federal government announced it would waive an initial 10 percent payment on mortgages below N5 million ($15,700) administered by FMBN, targeting future home-owners taking out mortgages in the low-to-mid price range. The average cost of a mortgage is $18,000, with interest rates at around 19 percent as of September, according to the Centre for Affordable Housing in Africa.

The move comes on the back of the creation in September of the government’s Family Homes Fund. The mandate of the N500 billion ($1.57 billion) fund is to keep mortgage rates for affordable housing at well under the average 23 percent, targeting 9.99 percent payable over 20 years.

With prospective buyers required to put down an initial deposit of 10 percent to qualify for these home loans, 70 percent of the mortgages are expected to go to houses priced between N2.5 million ($7900) and N4.5 million ($20,000).

Financed by the Sovereign Wealth Fund, federal government bonds and Bank of New York, the scheme will work as a public-private partnership (PPP). It is also expected to promote the development of primary mortgage institutions which tend to have a narrow banking licence and are generally reliant on wholesale funding, making them more vulnerable in times of financial or economic crisis.

These changes will come as welcome news to many Nigerians, with half of the population living on less than $1 a day. Furthermore, the minimum wage is currently around $60 per month, meaning home ownership is often out of reach for those in the low- to middle-income wage bracket.

A standard mid-level apartment in an urban area, for example, can cost roughly $100,000, with rent averaging around $5000 a year, according to the Centre for Affordable Home Financing in Africa, leading to a home-ownership rate of 25 percent.

Meanwhile, the mortgage penetration rate stands at about 0.6 percent of GDP, as per World Bank data, which although low by standards in more developed economies, puts Nigeria roughly in line with many other large African markets.

Low mortgage uptake is attributed to lack of awareness and cost, as high interest rates can make mortgages too expensive for middle- and low-income earners.

In order to begin filling the country’s existing deficit of 17m housing units projected by the World Bank and to meet the increase in demand, the government will need to support the construction of 170,000 units per year over the next decade.

With almost half of the country’s 184m-person population residing in cities and urbanisation growing at an annual rate of 3.75 percent, demand for affordable houses is also set to remain strong.