Slim financing options for real estate as hope dims on pension funds

Increasingly, financing options for residential real estate or housing is getting slim by the day as hope and common expectation that the over N5 billion pension funds would be invested in this sector have been weakened by the revelation that managers of those funds cannot invest directly in real estate.

Analysts see this as another major challenge for the housing sector, considering that other financing options have not been able to take it out of the woods. The Federal Mortgage Bank of Nigeria (FMBN) estimates that N56 trillion is required to meet the shortfall in Nigeria’s housing needs.

But the current sources of housing finance are not equipped to fund the supply deficit estimated at 17 million units. The Real Estate Investment Trusts (REITs) is a viable option but there are only two viable options available now—the Skye Shelter Fund and UACN Property Development Company (UPDC) REIT.

Similarly, bonds are good sources of housing finance, but again, there are just two bonds in issue that are linked to housing and they the FMBN Bond and the Nigerian Mortgage Refinance Company (NMRC) Bond.

“Closed Pension Funds Administrators (CPFAs) are allowed to make direct investments in Real Estate, but Retirement Savings Account (RSA) Funds are not, and the exposure of the CPFAs as at 31 March, 2016 stood at N212 billion or 3.89 percent of the total industry assets under management”, said Eric Fajemisin, CEO, Stanbic IBTC Pension Managers, who spoke at a Mandatory Continuing Professional Development (MCPD) forum in Lagos recently.

The MCPD forum organised by the Lagos State chapter of the Nigerian Institution of Estate Surveyors and Valuers (NIESV) had as theme, ‘Pension Fund as a Catalyst for Sustainable Housing Growth and Development’.

Fajemisin noted that the housing sector in Nigeria was fraught with challenges that make it unattractive for investment of pension funds despite the huge opportunities they have seen. “Housing policy in this country has the characteristics of being inconsistent and poorly coordinated”, he pointed out.

There is also lack of political commitment and differing approaches between sovereign and sub-national entities such as the National Housing Fund (NHF) managed by FMBN with a total collection of N2 trillion from the 2.5 percent contribution from the basic salaries of contributors. Again, the primary mortgage banks (PMBs), about 43 in number, which are supposed to provide housing finance are highly fragmented and their licenses are misused.

“Regulatory challenges are not helping matters”, Fajemisi said, explaining that the “Land Use Act of 1978 is slowing down process of obtaining titles to ownership of land, and property registration is therefore, costly and difficult”.

Earlier in her presentation, Chinelo Anohu Amazu, Director General, National Pension Commission (Pencom) had listed valuation and liquidity or tradability as other reasons pension funds could not be invested in housing, explaining that housing is a long term investment asset class and therefore, it is not always easily disposable when the need to do so and recoup the investment arises. “Apart from this asset class not being liquid or easily tradable, valuation is yet another issue”, she said.

The above scenarios do not excite hope of an end to housing challenges in Nigeria and, in a very poignant manner, confirm the fears expressed by Samuel Ukpong, chairman, NIESV Lagos Branch, when in his opening remarks at the forum, he asked, can there be a solution to social housing; can housing be ever affordable in Nigeria?”.

CHUKA UROKO