When household income is housing finance

When concerns are raised about the housing situation in Nigeria where demand-supply gap is in excess of 17 million units, homeownership level is below 15 percent and the country’s total housing stock is a little above 12 million, not enough is said about the source of housing finance in the country.

Contrary to what obtains in the advanced economies of the world, where housing finance is synonymous with mortgage and the only known way of building or buying and owning homes is by applying for and accessing a mortgage facility, home seekers in Nigeria generally resort to household income or money saved by individuals.

This is perhaps, one of the few countries, if not the only one, where homeownership is achieved almost 100 percent from own savings or through communal and co-operative efforts which rarely happens in most communities.

In Lagos, for instance, a city of about 20 million people where about 80 percent of the population lives in rented accommodation, unconfirmed report has it that about 86 percent of the housing stock in the city is funded from household income.

Experts estimate that housing finance by public authorities in Nigeria is about 10 percent; mortgage banks contribute about 2 percent, while contribution from banks and other institutions is insignificant.

In a comparative analysis of what obtains in Nigeria, Ghana and South Africa, Sonnie Ayere, CEO, Dunn Loren Merrifield, noted at a forum in Lagos that in South Africa, mortgage contributes about 40 percent of housing finance while in Ghana, our much smaller West African neighbour, the contribution is 3 percent.

Low mortgage contribution to housing finance in Nigeria is because of the cumbersome and unfriendly land administration in the country, making it rank the highest in property registration and construction permits difficulties.

The country is ahead of all other African countries in procedures legally required for registering property. It takes almost 360 days to register property here as against Ghana’s less than 10 days. In Lagos, the cost of registering property was, before now, about 15 percent of the value of the property.

Also before now, getting a property registered in Lagos involved long and cumbersome procedures, that required about eight stages and 30 steps for each of the lender and the borrower and this is part of the major reasons for the difficulties in getting mortgage for housing finance.

This is against what obtains in other economies including Ghana and South Africa. Ghana, before now, had a dysfunctional land administration, long and expensive procedures that lasted up to five years and involving six different agencies supervising which resulted in inefficient state land bureaucracy and customary tenure.

When, however, the country’s government instituted reforms, property registration was cut to 34 days and queues at the lands commission disappeared, making it possible for the mortgage sector to thrive.

In Egypt, government identified high fees and inefficient government agencies that hindered the formalisation of real estate as a major issue and sorted it out by reducing property registration fees; simplifying the property registration process, thus encouraging citizens and companies to obtain titles.

To make mortgage contribute significantly to housing finance in Nigeria, governments at both the federal and state levels should start discarding multiple verification payment, deployment of Global Information Services (GIS), making payments with a single receipt, improving capacity building and significant investment in technology.

Developers and mortgage providers say this is a way for the mortgage industry in Nigeria and, according to Hakeem Oguniran, managing director, UACN Property Development Company (UPDC) plc, there are five drawbacks to housing finance including cost, character, capacity, collateral and conditions.

Oguniran said at a real estate event in Lagos that the problem with land registration was with the Nigerian system, explaining that the system was people-driven and not process-driven. He recommended that there should be one-stop-shop for perfecting title and should be made business-like.

Abimbola Olayinka, MD/CEO, Resort Savings and Loans plc, says the Land Use Act should be used to empower the people and not as an economic and political tool by state chief executives, adding that the Act should be taken away from the constitution so that it could be easily tinkered with.

He recommends that land administrators should adopt what he calls three-one-three strategy for land registration, explaining that “land titles should be perfected in three days at one central place, and at the cost of 3 percent of the value of the land”.