Mortgage financing of home ownership in Nigeria: The challenges and the way forward Presentation by: ‘Niyi Akinlusi (President MBAN) @ 11th Abuja Housing Show

Presentation outline…… The Housing Sector in Nigeria Challenges Way Forward Recent Developments

The Housing Sector

Inadequate/ poor housing reflects poor economic status of a nation. The Housing Sector Housing sector plays an important role in a nation’s economy and a priority globally Inadequate/ poor housing reflects poor economic status of a nation. Development of housing sector directly affects citizens with multiplier effects on other sectors. Home ownership requires huge capital outlay usually unaffordable for low and medium income. For economic and social reasons, the current government is paying more attention to home ownership.

The Housing Sector Sources of housing funds Pension and Insurance Funds Specialized Institutions (NMRC, MWFL) Federal/State Government Federal Mortgage Bank of Nigeria Primary Mortgage Banks (PMBs) Commercial Banks A developed housing sector has significant impacts on citizens by Providing shelter A decent house impacts on productivity as a result of improved health and social well being A Store of value as a durable asset (wealth creation) A measure of standard of living.

Opportunities for mortgage delivery The housing sector represents a growth reserve for the Nigerian economy with immense potentials An above average global population growth at 2.8% An estimated 17 - 20 million housing deficit in the country Only 5% of existing housing stock are estimated to be financed by mortgages Industry is under-developed with total asset of N390bn as at 2016 representing 0.24% of GDP compared to 70% in other Countries One of the fastest urbanization rates in the World at 4.8% Source: CBN: Developing mortgage sub-sector

Potentials of the Mortgage Industry Mortgage assets is the largest financial asset class in the World. The US housing market is worth about USD29 trillion It is capable of growing the Nigerian GDP to 70-80% of its present size Increase in stock of affordable housing would accelerate the growth of Nigerian middle class, deepen the Nigerian market & increase aggregate demand Investment in housing construction would accelerate growths in other sectors on the value chain. Contribute to the social and political stability Source: CBN: Developing mortgage sub-sector

SUPPLY AND DEMAND DYNAMICS IN THE NIGERIAN HOUSING MARKET

The Housing Sector ….Challenges

Dearth of mortgage finance Challenges of Housing Financing Dearth of mortgage finance Limited supply of loanable funds with long duration. High inflation rate Instability of macroeconomic indices – exchange rate, unemployment, per capita income Mortgage infrastructure deficits, have heightened industry risk Low returns has caused several PMB to either upscale to commercial bank or downscaling to MFB. The percentage of mortgage loans to Gross Domestic Product (GDP) is very low, i.e. less than 0.5% compared with what obtained in other climes Investors are discouraged from injecting more capital due to the low profitability. U.S. - 63 % U.K- 64 % Germany – 55% Thailand -15% SA - 20% India – 5% Ghana - 3 % (Source: CBN)

Cumbersome Legal Regulatory Framework for Land Acquisition Challenges of Mortgage Financing Other Challenges High Interest Rates due to high cost of funds. Complex and expensive process of property titling and land ownership. Inadequate cadastral system constraining mortgage finance. Weak legal regulatory framework Absence of effective Foreclosure Law Cumbersome Legal Regulatory Framework for Land Acquisition Inadequate Housing Stock for Affordable Housing Lack of infrastructure with high cost of real estate development High cost of building materials Low savings culture of Nigerians

The Housing Sector …way forward

…..the way forward De-risking the sector to attract private capital. Deepen the mortgage market and continued standardization of mortgage process and promotion of financial inclusion. Fixing mortgage infrastructure deficits. De-risking the sector to attract private capital. Continued diversification of the economy for stable macro economics. Reduced Transaction costs and easing cumbersome process of registration and perfection of titles and legal mortgages The Land Use Act (1978) which makes it mandatory to obtain Governor’s Consent on all Mortgage transactions, both at the Primary and Secondary Market Levels should be amended. Institution support for mortgage repayment and servicing. Continued standardization of mortgage process Review of Mortgage Related Laws in the Country and passage of the Bills e.g. foreclosure law, securitization, Mortgage Asset Registry Mortgage Asset Management Initiative.

The Housing Sector …recent developments

Mortgage Warehousing Facility Limited Recent Developments in the Nigerian Mortgage sector Mortgage Warehousing Facility Limited (pre-finance) Long Term Funding Secondary Mortgage Market Federal Housing Loan Board Recapitalization FG Initiatives Ease of doing business Initiative Foreclosure Law and Improved Land Registration system In progress in 21 states Economic Recovery

Recent Developments in the Nigerian Mortgage sector Uniform Underwriting Standards Informal, Self-employed and Non-Interest Sector Uniform Underwriting Standards Uniform Underwriting Standards Review of Operational Guidelines of PMB Review of Operational Guidelines of PMB Stabilizing mortgage Sector Recapitalization Capacity Building for mortgage sector

Mortgage Banker’s tariff Recent Developments in the Nigerian Mortgage sector Others: Rent 2 Own Mortgage Banker’s tariff Improved Repayment & Collection System (ADD & BVN) Collateral Replacement Indemnity (CRI) – Equity Insurance Diaspora Mortgage Default Insurance