Posted by Grandiose Parlor on
There is more to the housing industry than just building houses. In advanced countries, the industry includes anything related to real estate and home ownership- from land title preparation and mortgage financing, to material sourcing and manufacturing- the housing industry is an enormous market. In the United States, perhaps the country with the most sophisticated housing industry, it accounts for about 20% (approx. $2.5 trillion) of the Gross Domestic Product (GDP).
A vast housing market exist in Nigeria given the massive home deficit estimated at about 14 million by the Federal Mortgage Bank. Contrary to the US and typical of most developing countries, the housing industry is grossly under-developed; it accounts for less than 10% of the Nigerian GDP. It is apparent that a ready and huge market exist, and the housing industry can potentially boost the Nigerian economy. Many factors contribute to abysmal under-performance of the housing sector in Nigeria. The major factors can be categorized under three broad headings namely:
Absence of long term financing- Mortgage financing and mortgage-backed securities are the instruments for long-term lending in the housing industry. These do not exist in Nigeria at the moment. At present, a typical home buyer will have to make a down payment that range between 20% to 50% of the purchase price and then pay off the loan balance within 5 years.
Legal restrictions- A moribund and repressive Land Use Act exist in Nigeria that hinders mortgage financing and creates enormous obstacles to private sector involvement in the housing industry. There is also no strong provision for foreclosure in the Nigerian constitution. This provision creates a strong incentive to lend on long-term basis.
A “dinosauric” land registration system- The present land registration system in Nigeria was instituted by the British well before the nation attained independence. It may have been in place since the late 1800! Thus literally restricting land title registration and other allied processes to the prehistoric era. The good news is that it appears that the present administration is now conscious to the realization that the housing industry needs a turn-around, and many policy statements have been issued to this effect.
According to the Nigerian Housing Minister, Dr Mimiko:
“…We need long-term funding to ensure that we can have affordable houses that people can buy on mortgage and pay over time …We want a situation where transaction in title deeds would be made easier...We have already concluded our activities at the Federal Executive Council on amendments on housing related laws that would create the appropriate legal and regulatory framework. We hope to keep striving so that the National Assembly would pass those laws as amended, either this year or latest first quarter of next year”.
Perhaps the most comforting statement emerged from the Nigerian financial sector last week via a report in The Vanguard that some banks have commenced post-consolidation expansion into the mortgage sector of the economy by investing in the Federal Mortgage Bank's 100 billion Naira housing bond.
I remain hopeful that despite being a daunting task, the institutionalization of a viable and mortgage finance driven housing sector is possible in Nigeria. It is on record that the mortgage market in the US was virtually not existent some 70 years ago. All they had then was similar to what Nigeria has now. But must we wait 70 years to start tapping into this industry? Nah!
According to the opening statement of John Taylor, the United States Under Secretary of Treasury for International Affairs at a roundtable on developing the Nigerian mortgage market held in 2004, and I quote:
“I encourage you to also discuss how the expatriate Nigerian population in the United States might be integrated into the Nigerian mortgage market. The market for expatriate mortgage services could be large as there are currently over 700,000 Nigerians of working age living in the USA. Tapping these expatriates might help develop the Nigerian real estate and mortgage markets and provide business opportunities for both US and Nigerian companies”.
Of course this applies to all Nigerians, both home and abroad in fact, the wheels of action seem already in motion going by the housing bond, and the about-to-be-signed Memorandum of Understanding with the UK Land Registry on land reforms (email me for additional information, the posted article has expired online). Interested parties and investors may also look into owning a piece of the Federal Capital Territory’s real estate.
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