Mortgage finance, Land Use Act resonate as experts chart course for housing sector

Developing housing cheaply and delivering same at affordable prices remain thorny issues in Nigeria that seem to have defied quick-win solutions, limiting investment and constraining growth of the sector.

But when experts and sundry stakeholders gathered in Abuja last week, seeking ways of ‘driving growth and sustainability in Nigeria’s housing and mortgage markets’, despite varied views, they had a common focus on mortgage finance and Land Use Act as major barriers to growth.

The experts, who gathered for the 12th edition of the Abuja International Housing Show (AIHS), described as the largest housing and construction sector stakeholder’s platform in Africa, identified Land Use Act of 1978 as the most critical constraint to the growth of the housing sector in Nigeria.

The place of these two factors in the housing sector is quite critical. No housing market can be said to be mature as those of UK and the US without a well developed and functional mortgage system while there can be no functional mortgage system without a good and flexible land administration system.

In Nigeria, both of these are lacking. The growth of the mortgage system in the country has been greatly hampered by very rigid, inflexible and primitive land laws as encapsulated in the Land Use Act.

Passed by a decree in 1978 and inserted into the 1979 national constitution, the provisions of the Act can only be changed through a constitutional amendment, necessitating a two-thirds majority of both the federal and state legislatures. Multiple attempts have been made to influence a revisit of the Act, but the process has been too cumbersome to succeed, causing the intending parties to drop their plans in frustration.

But developers have to produce houses and mortgage operators have to continue in business. So, “it has become clear that we must create an enabling environment in which a sustainable mortgage market can thrive, and one of the most important drivers of this is a well established land administration process”, said Adedeji Adesemoye, Head, Project Administration Team, Nigeria Housing Finance Programme, and Deputy Director, Other Financial Institutions Supervision Department (OFISD) at CBN.

Adesemoye who spoke on ‘Managing Unintended Consequences of the 1978 Land Use Act’ at the AIHS, highlighted efforts, including the setting up the Nigeria Housing Finance Programme (NHFP) and the Model, Mortgage & Foreclosure Law (MMFL), being put in place to grow the housing market.

NHFP is being implemented by the federal government through its relevant ministries, departments and agencies (MDAs) and this is supported by the World Bank International Development Association (IDA). The objective of the programme, Adesemoye explained, was to increase access to housing finance by deepening primary and secondary mortgage markets.

The MMFL is a draft bill designed to make delinquency in mortgage repayment unattractive to mortgagors and reduce losses from mortgage loans. It is expected to create a more attractive and vibrant environment, thereby attracting investors providing long term, low cost and more available capital to the market. Its main strategy is to encourage the use of administrative procedures to address some of the most negative provisions of the Act.

For property investors, this is a good development. But in addition to these efforts, developers also owe it as a duty to themselves to, according to Hakeem Oguniran, the outgoing managing director of UAC Property Development Company (UPDC), be creative in managing the limiting impact of Land Use Act.

He advised that developers should de-emphasize the traditional way of raising development finance, explaining that they should go to the capital market to raise funds by floating bonds which offer much cheaper rates at longer tenor.

To also address the problem of mortgage market growth, the CBN has come up with an initiative known as mortgage guarantee programme which is mortgage given to a borrower by a lender where an identified third party will take responsibility for the loan if the borrower defaults. Expectation here is that this will push up housing affordability because, with the new programme, once a borrower defaults, the third party receives a claim from the lender, pays the lender off, and assumes responsibility for the mortgage.

“A quality mortgage guarantee programme is used to provide credit loss protection to lenders in case of borrower default”, explained Tokunbo Martins, Director, Other Financial Institutions Supervision Department (OFISD) at CBN, who also spoke at the Abuja International Housing Show.

“Mortgage guarantee products incentivize lenders to accept loans with lower down-payments, thus increasing affordability”, she added. The implication of this is that borrowers who, ordinarily, would not have qualified for mortgage loan by reason of their low income, can now obtain loans which enhances their affordability.

From the government angle, Babatunde Fashola, the minister for power, works and housing, was of the opinion that one of the surest ways of making housing affordable and growing the housing sector was by industrializing housing development by laying greater emphasis on locally produced building materials.

Industrializing the sector, in the opinion of the minister who was keynote speaker at the housing show, would not only drag down the cost of construction, material wise, but would also create jobs for those involved in the housing value chain including input manufacturers, professionals and artisans.

But the experts tasked the government on providing infrastructure and coming up with policy frameworks in the financial sector that will make mortgage accessible and affordable through a significant reduction in interest rate.

“The housing market behaves in a particular way; it gravitates where there is effective demand. Government should recognize that the weakest demand comes from the low end market and so should direct regulatory system towards that end with policies to address that problem”, said Femi Adewole, managing director, Shelter Afrique, Kenya.

Adewole added that the government should also adopt the zoning system through which it would discover areas where housing need is highest and the type of housing needed, just as it should impose heavy tax on houses that are unoccupied to discourage further development in that area.

CHUKA UROKO