Operators plot mortgage sector growth, anticipate 30% contribution to GDP

Operators in the mortgage sector of the Nigerian financial system are building blocks and putting measures in place to enable growth of this fledgling sector in order to increase access and affordability, and by extension, enlarge the clan of homeowners in the country.

Unbundling of mortgage origination process, further reduction in loan origination period, introduction of computerised land titling registration, land title insurance, introduction of uniform underwriting standards (UUS) for informal sector, enactment of foreclosure law, and wider public awareness for the sector are part of the push by the operators for the growth of the sector.

The sector’s slow growth is exemplified by its low contribution to GDP which stands at 1 percent, hence the drive by the operators to push this contribution to, at least, 5 percent in the short run, 30 percent in the medium term, and about 65 percent in the long run.
“We blame the slow growth of this important sector of the financial system on its relative newness and lack of public awareness on its operations and benefits; a lot of people don’t even understand why they should put their money in a mortgage bank”, noted Rose Okwechime, CEO, Abbey Mortgage Bank Plc, in an interview with BusinessDay.

Femi Johnson, CEO, Homebase Mortgage Bank Limited, agrees, stressing that the sector is challenged in several ways, including low mortgage penetration which accounts for less than 5 percent of about 13.7 million housing units in the country having formal title registration.
In a paper titled ‘Key Challenges in Funding the Mortgage Portfolio in Nigeria’ which he present at the African Housing Finance Conference (AHFC) in Abuja recently, Johnson who is also the President, Mortgage Banking Association of Nigeria (MBAN), listed other growth challenges in the sector.
These included lack of affordable housing especially in cities, high cost of land, unfavorable investment climate— high exchange rate, high cost of title registration and transfer which is as high as 22 percent in some states, but mostly 15 percent, lack of awareness and public apathy towards mortgage financing, and slow bureaucratic procedures such that registering and transferring title could take from 6 months to 2 years with too many processes that are slow, cumbersome, unreliable, and inefficient.
To achieve the envisaged growth therefore, the MBAN president says there should be gradual reduction in interest rate in the economy from current Monetary Policy Rate (MPR) of 14 percent per annum to a maximum of 6 percent, and a huge improvement in infrastructure across the country like roads, power, rail, drainages, etc, which together contribute about 30 percent of the cost of housing delivery.
“Operational Bureaucracy is wieldy and so, we need a reduction in cost of title transfer to a maximum of 1 percent of property value; time to a maximum of 3 days, and procedures limited to only 1 desk (1:3:1); the rest of the country needs to follow the Lagos State example which recently reduced its charge on property value to 3 percent .
Despite the challenges, the mortgage sector has been able to record some achievements including the development of UUS for the formal sector; improved operational efficiency for mortgage banks, and seamless integration of the customers of mortgage banks into the BVN platform
Other achievements include issuance of NUBAN numbers to facilitate online transactions for mortgage bank customers, and amendment of Pension Act to facilitate withdrawals from Retirement Savings Account (RSA) for down payments on equity contribution to boost inclusion.
As part of strategies to grow this sector, experts are canvassing the inclusion of the informal sector into the operations of the National Housing Fund (NHF).

They recall the product called ‘Informal Sector Co-operative Housing Scheme’ which was launched by the Federal Mortgage Bank of Nigeria (FMBN) with the aim of bringing that sector of the economy into the mortgage net to enable them own homes through mortgage loans. That product which as theme ‘Affordable Home Ownership Through Co-operative Financing’ was also part of efforts at bridging the housing demand-supply gap, and giving the vast majority of this economically-disadvantaged Nigerians, who constitute the informal sector, the opportunity to have decent and affordable housing.
The informal sector in Nigeria comprises low income earners struggling to earn their daily living such as artisans, the road-side mechanics, the market traders, farmers and so on. Basically, these are individuals who do not wear suits, ties or polished shoes to work in air-conditioned offices, yet they contribute immensely to the national economy.
The National Housing Fund (NHF) scheme has always been accessible to only those in the formal sector, but by the launching of this new product, FMBN assured that Nigerians in the informal sector will be registered as bona fide contributors to NHF and become eligible for affordable loan to build, purchase or renovate residential accommodation. Unfortunately, little or nothing is heard about this product now.