Recession: Housing sector funding to the rescue

“The Federal Government is trying many options to pull the economy out of recession. The Finance ministry believes that mortgage institutions have the wherewithal to fund the housing sector as part of ways to revitalise the troubled economy and create jobs. Stakeholders also believe that stability in the exchange rate and the provision of more funds to the mortgagors will boost the effort at bridging the nation’s 17 million housing deficit, reports COLLINS NWEZE.

IN line with the Federal Government’s assurance to rescue the dwindling economy, its economic team members are back on the drawing board to map out strategies.

Since the economy slipped into recession late last year, all government’s decisions and policy direction have  been shaped by discussions on how to revamp the economy.

The eggheads are not onlyworking to avert depression but to ease the pains unleashed by the recession on the citizenry with remedial intervetions.

In its second quarter report last year, the National Bureau of Statistics (NBS) confirmed that the economy was in recession. As expected, the economic output declined for the second consecutive quarter as the Gross Domestic Product (GDP) contracted further by 2.1 per cent year-on-year in the second quarter from 0.4 per cent in the first quarter.

There was a glimmer of hope from International Monetary Fund (IMF) reports that projected 0.8 per cent GDP growth for the country this year. The projection fell a little below World Bank’s projections of one per cent growth for the year. Both projections are signifying economic recovery from the prevailing recession.

In the global economic outlook report released last month, the IMF also projected Nigeria’s economy to grow at 0.7 per cent (representing 4.26 per cent) in 2018.

Despite the prevailing GDP figures, the ministry of Finance has seen opportunities in harsh economic situation.

As part of ways to revitalise the economy, the ministry has initiated steps to finance the country’s housing deficit, estimated to be between 17 and 18 million units. With the stimulation of activities in the housing sector, there will be jobs for the population, the ministry said.

According to the ministry, the role of the housing sector in a country’s welfare has not been fully recognised. Its impact on the housing sector is not only on the well-being of the citizenry, but also on the performance of other sectors of the economy. Since the early 1970s, adequate housing provision has engaged the attention of most countries, especially the developing ones.

In Nigeria, statistics show that a minimum of N59.5 trillion would be required to bridge the 17 million housing units gap. The shortfall, which did not cover the cost of providing infrastructure, translated to an average of N3.5 million per housing unit to remedy the situation.

Restating the government’s resolve to diversify the economy from oil, Finance Minister Mrs. Kemi Adeosun, described the opportunity in mortgage financing as a key segment of government’s infrastructure funding project.

Her ministry’s intervention in the sector is the Family Homes Fund (FHF) designed to help the country overcome its housing deficits. The fund, an innovative private sector- driven financing solution, will bridge the rising housing deficits in the country. The scheme, which comes at a single digit interest rate, has a target to achieve at least 40 per cent of its total housing stock at N7.5 million or less, a post on the fund’s website explained.

“The aim of the programme is to channel funds from savers to borrowers so that builders have the required capital to construct and prospective buyers can access credit to purchase homes. Ultimately, the fund aims to accelerating the development of the domestic mortgage industry such that the scheme will become entirely private sector-driven in the medium to long term. The fund will also actively promote local content thereby supporting the extensive value chain across the local construction industry and creating jobs,” a report on the fund’s website said.

The fund operates as a Public Private Partnership (PPP) and targets to raise N1 trillion starting with N500 billion. It will be structured as a Real Estate Investment Trust (REIT) and will be professionally managed to stimulate funds from the private sector, pension funds, insurance funds, multilateral agencies and impact investors. The blended pool of long-term funds will be channeled towards providing financing for affordable housing development and mortgages to Nigerians.

Besides, the fund aims to enable developers offer family homes priced from N2.5 million, extending up to N18 million, delivered in a ‘ready to occupy’ condition, with essential services such as water and power connected.

The fund will equally attract low cost in local and international capital, including domestic pension and insurance funds, to complement the Federal Government funding. The blended pool of funds will be channeled towards lending to qualifying private sector developers and equity participation in developments.

To reverse the housing deficit, the Nigeria Mortgage Refinance Corporation (NMRC) was also established to provide funding for the housing and construction sectors. The NMRC has been able to provide a uniform underwriting standard for the mortgage market.

The Central Bank of Nigeria (CBN) said that the Mortgage Refinance Companies (MRCs) are required to have a minimum of 50 per cent of their investment in debt obligations, issued or guaranteed by the Federal Government or any of its agencies.

Some players in the construction industry have insisted that with the current state of the economy, providing funding to bridge the housing deficit will create jobs, deepen economic development and ensure speedy economic recovery.

They believe that the success in the provision of affordable housing depends on the seriousness and commitment of stakeholders, especially the government.

The Manging Director of Rockviews Properties Limited, Ikenna Sochie, commended the government for its attention on the 17 million housing deficit, including  its renewed drive to boost infrastructure for affordable housing delivery.

“It is not the delivery of housing that is a problem, but the infrastructure. I urge the government to take away the aspect of infrastructure building from developers, then housing will come in easier and ensure that more Nigerians come out of slums and live in appropriate houses,” Sochie said.

He noted that commercial bank loans, being preponderantly short-term, cannot encourage the deposit money banks (DMBs) to provide funds to mortgage institutions.

Sochie explained: “The emmerging key issue therefore, revolves around how to ensure adequate long -term lending by financial institutions, rather than the prevailing  short -term lending practice. Another related issue is the inability of the financial institutions to mobilise resources effectively for low-income housing.”

According to him, his firm has a plan to interven not only by building for the upper income earners in the society, but giving preference to those on the lower rung of the financial pyramid, majority of whom, are affected by the housing deficit.

He said that bridging the deficit scheme can create over two million jobs in the construction sector, adding that the states and local government authorities could participate through financial commitments, land donations, provision of infrastructure and tax rebate among others.

Sochie blamed the housing deficit on the government’s inability to provide decent shelter fitted with modern facilities like running water, stable electricity and sanitary needs for its citizenry. The need to address the shortfall, he added, “remains a good means of stimulating the country’s economy”.

He said: “The government must  stimulate the economy by pumping a lot of money into circulation.  Every recessive economy needs a stimulus as we can see from around the world; an injection of cash into the economy in the hands of spenders. This acts as stimuli.

“The money being spent at all levels at the same time will promote buying and spending to revive the economy. This ability to spend creates the  needed monetary activity.  The construction of houses will stimulate growth, which will assist in creating jobs. The stimulated economy will  invariably translate to GDP growth.”

 

Forex crisis and pricing

The sliding value of the naira against the dollar has pushed up building cost. There has been a  rise in building the prices of materials,  which have gradually raised the cost of undertaking housing projects.

Afolabi Abiodun, a developer, said  the N3.5 million he initially made for the completion his house has increased to N6 million due to the increase in the prices of iron rods, cement, granite, sharp sand and labour cost.

He urged the government to make a concerted effort to stabilising the local currency against other currencies and  cut the prices of building materials.

According to him, the way forward will be for the government to enhance the capability of local manufacturers of building materials, take immediate steps to boost power supply and boost foreign exchange availability. He urged the government to cut the prices of cement and other building materials.

Other stakeholders urged the government to provide the infrastructure required to support the development of affordable estates, including roads, access to water and electricity, promote favourable government policies, including the provision of affordable mortgage facilities for the acquisition of houses.

They also pushed for a reduction in the cost of consent and other fees on the transfer of land; removal of bureaucracy and difficulties in obtaining building and other regulatory approvals for the construction of affordable housing and the high cost of building materials and over dependence on imported building materials.

They believe that the three tiers of government must approach the provision of affordable housing with seriousness and greater commitment for the drive to succeed.

The Managing Director/Chief Executive Officer, Brent Mortgage Bank Limited, Kola Abdul, noted that housing provision required huge capital outlay, which according to him, could be beyond the capacity of the medium income/low income earners. He urged for adequate funding of the sector.

Speaking in Lagos at the launch of  mortgage products developed by his company, he said adequate housing provision, has, over the years, remained one of the three most important basic needs of mankind – the others being food and clothing.

Besides, millions of families live under sub-optimal conditions and the government must create a housing scheme that facilitates housing credits for households that otherwise would not have access to credit-granting institutions.

A mortgage banker, Abiodun Fatokun, said the government has a responsibility to create jobs for the citizenry.

Fatokun said: “The issue of job creation is a tool used to evaluate the health of any country. Besides, the employment rate is key to national growth and efforts must be constantly made to keep the work force constantly employed for nation building. And the construction of houses is the most effective way of stimulating the economy as it has massive employment abilities.

“The construction industry supports and encourages the local industry by employing a lot of the low income earners optimally. It also keeps the artisans off the streets and therefore, assists in keeping a ceiling on majority of the expected crime from them. This is a good and positive function of job creation.”

The provision of affordable houses for millions of families and the improvement on the standard of living make the housing initiative a win-win investment for the government and the citizenry.

 

The way forward

Stakeholders insist that the financing of national housing programmes should be viewed primarily as a national responsibility. The private sector should be encouraged to provide investment funds for housing units for the middle and upper-medium  income earners.

A sustained public support, individual initiative and labour movement involvement, would, however, be required in housing and community development for the low income group.

They urged the government to create an enabling environment to stimulate private sector participation in long-term housing finance. This includes the provision of physical infrastructure, enhancing the health and competitiveness of mortgage institutions and the development of property rights.

The capital and money markets  must be re-engineered to cope with the renewed challenges in the provision of mortgage financing.

They said that FMBN must be restructured and strengthened as a viable financial institution with the capacity to enhance efficient housing finance development.”

Source: The Nation