Seven-Year Wait for Mortgage Cuts Nigerian's Dream of a Home
(Bloomberg) -- Pius Okebe has waited so long for a loan to build a house in Nigeria’s commercial hub of Lagos that he’s worried he may be getting too old to qualify for the amount needed to finance it.
Seven years after applying, the used-tire trader is now banking on the latest government attempt to kick-start the Nigerian mortgage market: President Muhammadu Buhari’s plan to inject $1.4 billion into a state-backed lender. The measure is part of efforts to boost home ownership in a country where only 50,000 people out of almost 200 million have housing finance.
“I’m hoping I will get the loan,” Okebe, 42, said as he packed supplies on a rainy afternoon in the commercial capital, Lagos. “Although I know as I mature in age, the amount they can give me reduces.”
The government faces a daunting challenge to close a shortage of 17 million houses. Gripped by poverty, Nigeria has no formalized title-deeds registry and most homes consist of informal structures on land passed down through generations. Rapid urbanization is also causing a proliferation of slums and shanty towns.
Buhari’s drive to clear a backlog of mortgage applications comes ahead of a tough re-election bid next year and as the economy struggles to recover from 2016’s contraction. The 75-year-old is counting on lawmakers to this year approve a proposal to pump 500 billion naira ($1.4 billion) into Federal Mortgage Bank of Nigeria, or FMBN, to increase its funding capacity.
The state-backed lender is stepping up its game after meeting with mortgage providers two months ago, according to Olayemi Rabiu, managing director of Lagos-based Resort Savings and Loans Plc, which began operations in 1993 and is in talks for a recapitalization. FMBN has now stopped funding property developers after debts went unpaid and is dealing only with individual customers through mortgage lenders, he said.
“They are disbursing heavily now and regularly,” Rabiu said. “Unlike before when you can wait for five to ten years, now within eight months you will know whether you can get it or not.”
FMBN, which has about 18,200 mortgages, is confident the legislation needed for its recapitalization will be put in place before the next administration takes office in May, said Chief Executive Officer Ahmed Musa Dangiwa.
The company also started a rent-to-own project that will result in the development of 20,000 new homes, FMBN’s CEO said, adding a pilot began in August with 3,000 houses. The state-owned funder can lend at interest rates of as low as 4 percent, compared with the central bank’s benchmark rate of 14 percent.
Even so, more needs to be done to entice commercial banks to provide home loans, said Abiola Rasaq, head of investor relations at United Bank for Africa Plc, Nigeria’s third-largest lender by revenue.
Most Nigerian banks raise funding from short-term deposits, when mortgages require long-term financing. Delays with getting building plans approved or title deeds finalized also adds to the cost of the loan that most developers can’t afford, Rasaq said.
“We’ve seen a few good things evolving, particularly in some states such as Lagos and Ogun, which are making it easier to obtain title documents,” Rasaq said. “There is a mortgage gap and banks are willing to bridge that. We need to de-risk the segment and put incentives to encourage banks.”
Click here to read more about Nigeria’s plans to guarantee mortgages
The government is trying to reduce the risk of non-payment by next year starting the Nigerian Mortgage Guarantee Co., which will cover up to 50 percent of losses from a default.
At the same time, Nigeria Mortgage Refinance Co., which mimics Fannie Mae in the U.S., is helping some of the country’s 35 real estate lenders to reorganize about 30,000 mortgages to free up capital, with the goal of doubling its 40 billion naira of assets.
For a country that vies with South Africa as the continent’s biggest economy, Nigeria’s mortgage industry is small, with the equivalent of $260 million in loans, compared with more than $90 billion for its more industrialized southern peer. Nigeria’s total mortgage debt to gross domestic product is estimated at 0.6 percent versus 2 percent in Ghana, according to the NMRC. In South Africa, that ratio is 20 percent, according to Moody’s Investors Service.
Okebe needs the programs to turn into reality if he is ever to build a home because he hasn’t been able to save enough.
“If I have to take money from my business, the business will collapse,” he said. “The mortgage bank has told me that government is doing something about the situation and that I might smile next year. I’m praying for that to happen.”
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