1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

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