REALESTATE/CONSTRUCTIONNG

Evaluating MRC and Nigeria’s Housing Needs

09 Oct 2013

      

Housing Estate


Eromosele Abiodun highlights the impact the proposed Mortgage Refinancing Company (MRC) will have on the nation’s economy and submits that good housing policies have a bearing on overall economic performance and living standards

It is a known fact that effectively-supervised financial and mortgage market development combined with policies that enhance housing supply flexibility are key for macroeconomic stability.

This is why governments in most countries of the world intervene in housing markets to enhance people’s housing opportunities and to ensure equitable access to housing. These interventions include fiscal measures, such as taxes and subsidies; the direct provision of social housing or rent allowances; and various regulations influencing the quantity, quality and price of housing.

Housing policies also have a bearing on overall economic performance and living standards, in that they can influence how households use their savings as well as residential and labour mobility, which is crucial for reallocating workers to new jobs and geographical areas. In most developed countries, innovations in mortgage markets, coupled with appropriate regulatory oversight and prudent banking regulations, have led to a vibrant housing market.

Conversely, financial liberalisation and mortgage innovations have failed to increase access to credit and lower the cost of housing finance in Nigeria. This has had negative implications for credit-constrained households, denying them a better chance of owning their own homes.

Nigerian governments have, at different periods, incorporated various policies aimed at affordable housing into its economic development plans. The government has since realised that the sheer weight of housing delivery for the country’s vast populace cannot be borne by mere politicking.

Housing has the ability to be a leading sector for stimulating economic growth and development in a depressed or stagnant economy and raising the standard of living of the people. It is a key driver of social and economic development and there is evidently a positive correlation between such indices as home ownership rates, contributions of housing sector to Gross Domestic Products (GDP), proportion of total mortgage loans to bank lending on the one hand, and a country’s level of development.

Today, Nigeria has a shortfall of about 16 million housing units. The shortfall requires over N56 trillion (at an average cost of N3.5 million per housing unit) to remedy and improve on the nation’s prevailing home ownership rate of 25 per cent.

Yet, experts believe the real estate sector can be developed to account for more than 35 per cent of GDP as seen in other emerging economies. Currently, the mortgage sector contributes less than 3 per cent of Nigeria’s GDP, a trickle of which is funded by less than 5 per cent of the total lending portfolio of Nigerian banks and just about 13.5 per cent of mortgage lending by primary mortgage institutions.

A New Approach
To reverse this trend, the federal government recently announced plans to establish the Nigeria Mortgage Refinance Corporation (NMRC) which would provide funding for the housing and construction sector.

Speaking at his maiden visit to the Eko Atlantic City Project in Lagos, President Goodluck Jonathan explained that NMRC, which would be private-sector-led, would be established as a PPP arrangement and the partners would include the federal government, Nigeria’s local banks and savings & loans institutions, and the multilateral institutions, especially the World Bank, which is providing concessional credits of $300 million.

He said the NMRC would be able to access the capital markets to raise long-term funds via bond issues. “We anticipate that the NMRC will provide more liquidity to the housing and construction sectors, and with its operations, would hopefully lead to reduced mortgage and construction finance interest rates”, he added.

World Bank Intervention
To make the MRC a reality, the World Bank recently announced that it has approved a $300 International Development Assistance (IDA) credit to Nigeria for affordable mortgages for middle-income and lower income families. The development was disclosed in a statement from the Bank’s country office in Abuja.

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, had in April, at the Spring Meetings of the International Monetary Fund (IMF) and World Bank in Washington, United States told reporters that the World Bank had agreed to assist Nigeria on reintroduced mortgages and was ready to lend to Nigeria up to $300 million.

President Jonathan equally re-echoed this penultimate week in Abuja while declaring open the Nigerian Economic Society yearly meeting, where he said as part of measures to curtail the temptation to commit graft by both the public and private sector workers, the federal government was reintroducing housing and vehicle loans.

“The Nigerian financial system has quickly grown and is becoming increasingly integrated into the regional and global financial systems,” said the World Bank Country Director for Nigeria, Marie Francoise Marie-Nelly.

She added: “Today’s project will further the country’s economic success, strengthen the nascent mortgage market and create much-needed jobs in construction, housing improvement, finance and other sectors throughout Nigeria. The project is an integral part of the government’s transformation agenda and is designed to provide access to long-term financing for first time homeowners and new homeowners with lower family incomes, including people who are self-employed in the micro finance market segment.”

“The project will support the establishment of a mortgage refinance company, also known as a mortgage liquidity facility that will generate long-term funds for home mortgages. It will also establish a mortgage guarantee product, targeted at lower income borrowers that will be used to guarantee some of the credit risk for this special group of lenders. The funds will also support the development of a new home microfinance industry in the country that will serve as a pilot designed to demonstrate a sustainable business case for this activity.
“This project will directly benefit new home owners who struggle to find available cash to purchase a long-term mortgage and increase incomes for Nigerian families through the creation of new jobs,” said Michael Wong, the World Bank Task Team Leader for the project.

Expert Views
However, experts believe the MRC is a duplication of efforts considering the role of the Federal Mortgage Bank of Nigeria (FMBN) and its failure to address the housing needs of Nigerians.

Founding Partner of Huntingfield Capital Limited, Onye Onwuka, said: ‘The idea is good but this country does not need that at the moment. The industry should be talking about how to strengthen and make existing institutions more viable rather than what we are told the government wants to do. Why are we multiplying institutions in Nigeria? The Federal Mortgage Bank should have been empowered to do that. If you have an institution and you are paying billions of Naira to workers as salaries and you are creating a parallel institution, is that wise?

“The race for 17 million houses should not start on this note else we will end up embarking on a wild goose chase because I don’t know if MRC’s mandate will be outside what FMBN does. We know that the mortgage sector has been facing challenges, including waning public confidence, and lack of long term funding, but does the coming of RMC offer a solution?"

Onwuka's position was echoed by Managing Director and Chief Executive Officer of Emerging Capital, Mr. Chidi Agbapu, who stated that although mortgage financing in Nigeria is a welcome idea, MRC establishment is a duplication of an existing institution.

Agbapu acknowledged that although mortgage refinancing aims at making housing affordable for Nigerians, the FMBN should have been empowered to do so.

“We have said that much of our resources in this country is for recurrent expenditure – paying salaries and we don’t have enough money to do capital projects and we are still creating institutions, creating General Manager, creating layers of officers in the new company and the other company. FMBN is there, doing nothing. Let’s look at our institutions, what is the Federal Housing Authority not doing right? Let us restructure them and that was what we started in 2006,” he added.

He said: "We were told that the MRC is being set up to help grow the housing sector in the Nigerian economy by bridging the funding cost of residential mortgages, promoting availability and affordability of housing to Nigerians by increasing liquidity in the mortgage market. But that job is already being done by another agency. When you go to the UK and United States, their prosperous mortgage system was not achieved through duplication of functions. If the government does not have a rethink on this, I am sure it will be counter-productive.”

States’ Role on MRC
Not minding experts’ criticism of the MRC, Okonjo-Iweala, last week in Lagos, disclosed that the federal government had selected 14 states for the pilot phase of the proposed MRC. Okonjo-Iweala said this while delivering a lecture tagged: ‘A Century of the Nigerian Private Sector’, organised by the Lagos Chamber of Commerce and Industry (LCCI) in Lagos.

Okonjo-Iweala stressed the need for a functional mortgage system, saying that by the end of November, President Goodluck Jonathan would launch the MRC.

The finance minister added: “The World Bank last week approved the $300 million liquidity facility for that. The objective for that is to use this as an instrument to drive the housing sector. We are doing this by taking 14 pilot states that have promised to make land available. The states will provide certificate of occupancy in weeks, not months. They have to meet all these criteria in order to participate.”

Also, as part of efforts to address the difficulty faced by businesses in accessing finance in the country, the finance minister reiterated that the federal government would soon set up a development finance institution to wholesale money to commercial banks and specialised banks, in order to support the private sector.

She explained: “We will create this institution in the next 18 months. The African Development Bank (ADB) is putting in another $400 million into it. We are trying to raise the money to do it long-term and at reasonable interest rate so that we can bring down the cost of borrowing.
“When we get this, it will drive down the cost of finance. We are not going to dictate to banks how much they charge; we will simply put up a system that will provide enough resources for long-term financing. A lot of multilateral institutions are supporting us and this thing is going to happen. So give us 18 months.”

According to Okonjo-Iweala, with the successful sale of the power assets, the federal government has launched a private sector-driven power market by selling off the power assets.
“We still have 11 power companies to sell through the National Integrated Power Projects, after we have disposed all those assets. We are keeping transmission and on that transmission, an emergency programme to make sure we keep up the transmission has been launched. We are to raise $1.9 billion to get that moving so that even on that one, we have on our hand, we are not slacking.

“We have raised $1.5 billion of the $1.9 billion needed for emergency transmission. The African Development Bank has agreed to put in about $400 million into that emergency cash raising over the next three years, World Bank will put in $700 million and others are coming in to support us. Part of the money from the Eurobond is going into that,” she declared.

The finance minister insisted that corruption was not the biggest problem in doing business in the country. According to her, “Our revenues and gross domestic product growth that were so volatile in the past are no longer so. The economy is doing well, it is strong. We may experience cash flow problems from time to time, but that does not amount to an economy that is not strong.”