EXPANDING AFFORDABLE HOUSING BEYOND GOVERNMENT SUPPORT TO ADOPTING MARKET-DRIVEN FINANCIAL INNOVATIONS PRESENTATION BY ARC. AHMED DANGIWA MANAGING DIRECTOR/CHIEF EXECUTIVE, FEDERAL MORTGAGE BANK OF NIGERIA [FMBN] AT THE 11TH ABUJA HOUSING SHOW JULY 2017

FMBN PRESENTATION - ABUJA HOUSING SHOW 2017 INTRODUCTION I am pleased to speak on ‘Expanding Affordable Housing Beyond Government Support to Adopting Market-Driven Financial Innovations’ The subject matter is premised on the understanding that: Presently, Government plays the major role in Housing Finance Consequently, the contribution and impact of the private sector to Housing is sub-optimal The future of Nigeria is however dependent on a virile market-driven or private sector-led Housing Sector Reality is however that, as dominant as Government intervention is in Housing delivery, the bulk of activities for housing delivery is informal! 90% of residential housing construction in Nigeria is through incremental, self-development The bulk of housing finance is informal, leading to unplanned (slums) development in urban areas, driven by the high urbanization growth rate of about 5% per annum FMBN PRESENTATION - ABUJA HOUSING SHOW 2017

WHAT ROLE DO GOVERNMENTS PLAY IN HF? Basic roles of Government are Regulator- of players, financial institutions, generally determine the ‘rules of the game’ Enabler - provides industry-wide policy direction, ‘an enabling environment’, stimulates activities Facilitator – grants subsidies, provides guarantees and is insurance provider Sponsor – charters or/and funds market players (GSEs) The role of Government in the Nigerian Housing Sector has changed over time Pre-independence to early independence – funding and direct construction More recently, Government is shifting ground to only providing an enabling environment and is leaving the initiative for driving housing delivery to the private sector International Experiences: In most markets, Government’s role increased to manage the 2008 global financial crises Intervened in troubled financial institutions, tightened regulations, strengthened lending guidelines, etc. US Experience: US Government placed its GSEs (Fannie Mae & Freddie Mac) under receivership of the Federal Housing Finance agency US Government is however yet to scale back control despite economic recovery GSEs – Government Sponsored Entities FMBN PRESENTATION - ABUJA HOUSING SHOW 2017

RECENT INITIATIVES FOR MARKET-DRIVEN HF CBN recapitalisation of PMBs Minimum capital requirements of N5b and N2.5b for national and regional PMBs Reduced nos of PMBs to 40 (7 national, 33 states) from over 82 The National Housing Finance Programme (NHFP) Collaboration between the FG Ministry of Finance, CBN and the World Bank Programme included the establishment of the NMRC CBN guidelines provides for the establishment of additional private mortgage refinancing companies in Nigeria towards enhancing the secondary mortgage market The Family Homes Fund (FHF) A private sector-driven financing initiative To use Real Estate Investment Trust (REIT) structure to raise funds from local and international markets FMBN PRESENTATION - ABUJA HOUSING SHOW 2017

PREREQUISITES FOR A SUSTAINABLE MARKET-DRIVEN HF Strong players and a bigger market Both at primary and secondary markets PMBs’ recapitalization (N2.5b/N5b), how successful? Must develop ‘down market’ products to integrate 85% of potential homebuyers who need for first homes FMBN recapitalization to N500 billion! Info symmetry requirements House price indexes – to provide real house price values Borrowers credit information (credit bureaus) Rating agencies - to rate issuing institutions and instruments for investing publics Legal and regulatory framework review lien enforcement title issuance and approval Amend the Land Use Act (LUA) and rejig land registry practices for cost and time effectiveness FMBN PRESENTATION - ABUJA HOUSING SHOW 2017

PREREQUISITES FOR A SUSTAINABLE MARKET-DRIVEN HF Creating an asset-backed capital market and appetite for investments Common underwriting standards to achieve uniformity of loan products Achieve ‘true’ sale of mortgage assets from mortgage originator (without need for Governor’s Consent) Bankruptcy remoteness from mortgage originator Pension funds are a viable source of investment capital for housing Macroeconomic stability/improvements Inflation – controlled and reduced Interest rates – target achieving a single-digit regime Forex rates – need to be more favourable in view of foreign components of building materials and cost of offshore funds FMBN PRESENTATION - ABUJA HOUSING SHOW 2017

AFFORDABIILTY AS A CHALLEGE TO A MARKET-DRIVEN HF Affordability Lowest achievable cost to deliver the cheapest house by a formal developer in Nigeria is USD10,000 (N3.6m) - CAHF Housing Report 2016 But demand is weak high population below the national poverty line at 46% low purchasing income (minimum wage of N18,000 or $50/month) high down payment requirements (as high as 25%) high mortgage lending interest rates of between 16%-32% To reduce the cost of delivering affordable housing by 20-50% - McKinsey Global Institute, Oct 2014 Unlock land at the right location (the most important lever) Reduce construction costs through value engineering and industrial approaches Increase operations and maintenance efficiency, and Reduce financing costs for buyers and developers FMBN PRESENTATION - ABUJA HOUSING SHOW 2017

ROLE FOR FMBN IN A MARKET-DRIVEN HF FMBN Act fully provides for it to: Accept deposits and savings from institutional depositors Issue securities (including debentures and bonds under FG guarantee) Issue promissory notes and other bills of exchange to raise funds from financial institutions Requires FG support via guarantees and recapitalization to effectively play in the market Historically, Governments use its sponsored-entities to build a market-driven Housing Sector Such entities have the mandate to bear the risks associated with new markets Eg. In 2007, FMBN was charged to issue first Mortgage Backed Bond (MBB) in sub-Saharan Africa Total of N38 billion issued in 3 tranches during the course of the programme to refinance over 10,000 mortgages FMBN PRESENTATION - ABUJA HOUSING SHOW 2017

FMBN PRESENTATION - ABUJA HOUSING SHOW 2017 CONCLUSION The future a HF in Nigeria is a market-driven structure To achieve this, Government needs to create an enabling environment The greatest challenge for a market-driven HF is Mortgage Affordability Despite its status as a Government-Sponsored Enterprise, FMBN is legally empowered to drive market-driven HF in Nigeria Requires FG support in guarantees and recapitalisation Its mandate to administer the NHF Scheme will continue to address social housing FMBN PRESENTATION - ABUJA HOUSING SHOW 2017

THANK YOU FEDERAL MORTGAGE BANK OF NIGERIA PLOT 266 CADASTRAL AO CENTRAL BUSINESS DISTRICT ABUJA www. fmbn.gov.ng info@fmbn.gov.ng ...everyone deserves a home FMBN PRESENTATION - ABUJA HOUSING SHOW 2017