From the stroke of midnight on January
1st, 2014, Nigerians should be able to access more affordable mortgages
according to Dr. Ngozi Okonjo-Iweala, the Minister of Finance and the
Coordinating Minister of the Economy. The Minister’s New Year present to
Nigerians is based on the expected launch of an Institution known as Mortgage
Refinancing Company (MRC) next month.
The primary aim of MRC is to support mortgage originators such as the
Mortgage Banks and the regular banks to increase mortgage lending by
refinancing their mortgage loan portfolios.
The envisaged scenario using a very
simple example is that, if a bank for instance lends out N1billion on
mortgages, it has to wait until the mortgagors (borrowers) start paying back
before it can lend again. But if the same bank goes to the MRC to ‘sell’ the
mortgages, it will have another N1billion to lend again and the cycle is
repeated again and again. So the limited liquidity (cash banks can lend as
mortgages) presently experienced now should be eased.
Where
is MRC getting its money from?
The World Bank is assisting the
federal Government to set up the MRC with financial support of $300 million
(N48billion).This soft loan under the bank’s International Development Association
concessionary lending window is at zero per cent interest and is repayable over
40 years after a ten years moratorium. Other sources of funds will come from
equity contributions from part owners in the institution like the International
Finance Corporation and long term bonds which the MRC will issue. Experts are
optimistic that this kind of long term funding will help ameliorate the
mismatch of funds, where short term funds were used to create long term
mortgages.
Current
mortgage blues
The mismatching of funds is just one
of the numerous issues that have resulted in an abysmally low rate of mortgages
in the country. For instance, in his 2013 Ministerial press briefing, Mr Hakeem
Muri-Okunola, Permanent Secretary, Lands Bureau, Lagos State, revealed that
only 1,039 applications for registration of mortgages were received in 2012.
Considering that banks and Primary Mortgage Institutions (PMIs) limit mortgage
funding to locations in Lagos, Abuja and Port Harcourt only (with Lagos leading
the others with a significant gap) and that a substantial number of those
mortgage applications were for corporate mortgages, it would be right to say
that mortgages are virtually non-existent in the real estate space. Presently
there are about 80 PMIs, each of them involved in mortgaging based on its
ability. Only about five of them are engaged in the business of giving
mortgages with most of these five limited to the National Housing Fund (NHF)
business – getting 4% funds from FMBN loan with onward lending to borrowers at
6%. The maximum loan amount under the NHF is N15m and so it is not adequate for
a very large number of real estate transactions. Out of 20 Nigerian Banks only
six currently run a structured mortgage program, while four others have run
mortgage programs in the past but have stopped while all offer mortgages more
as a strategy to get or keep prominent customers. Those who offer mortgages do
so at quite strenuous terms: minimum of 25% equity contribution with interest
ranging from 18% to 24% per annum with numerous sundry fees. If you get a
N30million mortgage for 15 years at 20% interest, you will have to pay about
N530,000 per month for the next 180 months. For those who have done the math,
it comes to about N95million! Not surprisingly, there is a high level of
default and this in turn makes mortgage lending very unattractive, especially
as the banks complain that the courts are skewed in favour of a defaulter and
it is extremely difficult and costly to realize (sell) the house when the
mortgagor fails to meet his obligations.
Will
the MRC be the solution?
The theory behind the MRC intervention
is that better liquidity will result in more mortgages and this will push
interest rates down. But what kind of rates should Nigerians expect? We spoke
to several experts and while a range of 12% to 16% per annum was given, no one
was brave enough to suggest single digit rates. The challenge however is even
at these rates; repayment by the ordinary Nigerian might not be ‘affordable’
given the high cost of apartments. CASTLES Lifestyle always finds it difficult
to profile properties for the Budget Property column which looks at properties
that are N5m and below. It is quite difficult to find apartments with ‘mortgage
friendly’ titles for under N35m and so setting the MRC alone might not bring
affordable mortgages because there aren’t affordable houses. Other experts have
expressed caution because of the macro economy with double digit inflation etc.
and the micro economy of the banking sector where preference seems to be more
for Government securities and fees rather than lending. They are sceptical if
the MRC alone will convince the bankers to look more at lending to earn their
profits than the other safer investments. Perhaps the PMIs with their stronger
capital base will now be the real dominant force in mortgage lending in this
dispensation. All in all, granted that there are challenges, the MRC is a great
first step by the Government to intervening in the mortgage market and it is up
to operators – developers, PMIs, banks, estate practitioners etc. to take
advantage of this new development.
- CASTLES' WEEKLY
- CASTLES' WEEKLY
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