‘For us to have a sustainable housing market, mortgage must come in’
EMMANUEL OBIRE, an engineer, is the managing director/chief executive of Multi-purpose Infrastructure Development Company (MIDC), a real estate investment and development firm. In this interview with CHUKA UROKO, he speaks on the state of the property market and various on-going housing initiatives at federal and state government levels. He also speaks on the mortgage market among others. Excerpts
There are various interpretations of the situation in the property market today. While some analysts say the market is self-correcting, others say it is recovering. What is the true situation?
What we have today is market correction. The market is correcting itself. About four years ago, a lot of properties were over-valued in terms of sale prices. The property market is like a pyramid—there is the top pointed end, the middle and the base or bottom. Much of the money we saw in the market within this period was concentrated at the top. The properties that were meant for the middle end of the market were over-valued in terms of price. There is a case of a certain primary mortgage bank (PMB) that did a development in Abuja.
Each of the housing units in the project was delivered at N35 million, but because of the artificial market that was created in Abuja, they put these houses on the market for N250 million each and some people bought. But, when they realized that the market had started correcting itself, they brought the price down and sold the last units for N45 million each and this is the real price of the houses. What we have seen all these years is an artificial market in which prices were unrealistic and unsustainable.
It has been observed that much money from Diaspora Nigerians has gone into investment in this economy in the last 12 months. How much of this do you think has gone into real estate?,
Because of the recession and depreciation in the value of the naira, a lot of money coming into the market now is Diaspora funds taking advantage of the stronger currency they have which gives them more naira. A lot of our subscribers now are from Nigerians in Diaspora. We have seen a lot of inflows from outside the country which the Central Bank of Nigeria estimates at $25 billion in the last 12 months.
In spite of the challenges in the economy, Nigerians still need homes. What should the government be doing to address this need?
For those in the market that really need homes, there are some challenges meeting the nitty-gritty of their obligation, but the government at both state and federal levels are addressing these challenges.
In the past, civil servants were given staff quarters and the rent was paid on monthly basis through deductions from their salaries. Using that same model, government has come up with housing scheme called the Federal Integrated Staff Housing (FISH) for civil servants.
This is a double pronged scheme because it is also aimed to check corrupt tendencies among civil servants. The head of civil service has realized that part of the corrupt practices at the civil service level stems from workers inability to build or buy homes in which they will live when they retire.
By this initiative, homes will be built within affordable range of N0-5 million for which no equity contribution will be required from buyers; and then the N5-10 million range for which equity contribution of 10 percent is required and the balance paid through direct deduction from salaries. So, getting on the property ladder is now a lot easier.
That is at the federal level. In the states, especially Lagos, where housing shortage is acute, what should the state government be doing to close its estimated three million housing units gap?
In Lagos, what the state government has done to address its housing challenge is the adoption of the Rent-to-Own scheme which allows civil servants to own homes by just paying normal rent on government houses for 10 years after paying 5 percent of the value of the houses as equity contribution.
These rent payments are done through deductions from their monthly salaries which has reduced rate of default to almost zero. As for the private sector workers, what the state has done is to work with the human resources (HR) departments of the various organizations to ensure that the rents are deducted from their salaries. Where the applicant loses or changes job, he takes out an insurance and the insurance company pays the rent for a maximum of six months. When he gets another job, he continues from there.
However, for all these to happen, the three components of housing development must be sustained and these are the demand, the supply and the mortgage sector that will drive demand. For us to have a sustainable housing market, mortgage must come in. And the only way for the mortgage sector to remain in business is also for a secondary mortgage institution like the Nigerian Mortgage Refinance Company (NMRC) to continue to refinance the primary mortgage lenders. When the primary lenders are refinanced, they will have more cash for on-lending to the property buyers and developers and this makes the property market more dynamic.
With this initiative, what Lagos has done so far is to address the demand side of the housing problem. How about the supply side?
To address the supply problem, what the state government has done is to redefine the kind of houses they want to produce. They are taking into consideration the level of income of the end users of the houses to be produced. Another consideration is that not more than 30 percent of someone’s income will be used to pay mortgages.
The state government has therefore come up with what it calls Lagos Affordable Public Housing (LAPH) initiative in which houses will be produced within a price band of N3.5 million to N10 million mark. These houses will be made up of studio apartments, one and two bedroom apartments.
Every civil servant will be profiled to determine which house-type he or she needs depending on the size of his salary. As a worker earns more, he can move up the ladder. The state government’s primary concern at the moment is to provide something decent and affordable for people to live in.
The state government has an ambitious plan of rolling out 20,000 housing units in the next four years under this scheme and these will be delivered in different locations in the state. The houses will be sold through mortgage, the Rent-to-Own scheme and outright to those who can afford that.
The state has signed a memorandum of understanding with NMRC to ensure that all the houses to be produced under the LAPH, mortgage on them will be refinanced by NMRC. The state government has also appointed some PMBs the developers who will be producing the houses.
Part of the problems of owning homes in Nigeria generally is not just the affordability but also accessibility. How can civil servants access these houses you have been talking about?
What a civil servant needs to do to own a home in this arrangement is to pay equity contribution and the primary mortgage bank (PMB) of his choice underwrites the balance which it takes to NMRC to refinance. The developer gets back his money and goes back to continue producing more houses.