Nigeria is set to make history in its housing finance with the recent reforms in the Mortgage Banking Subsector and the entire Housing Finance landscape as a whole. With a fast growing economy and a rapidly proliferating and urbanizing population, a revamp of the inefficient housing and Housing Finance System has long been overdue.
With a well functioning Housing Finance System, an effective Housing Policy and necessary institutional infrastructure coupled with its high population of vibrant and active labour force, Nigerian has the potential to become the frontier of investment for Mortgage Banking and Housing Finance. One of the biggest investment opportunities is evident in the housing deficit in the country, which is currently estimated to be in excess of 16 million units and estimated requirement of about 720,000 housing units to be constructed yearly to deflate this deficit.
The investment potential of the Mortgage Banks/Housing Finance Sub-sector in Nigeria is very enormous, considering the recent developments, evidenced by the reforms in the various existing financing structures particularly the National Housing Fund (NHF), recapitalization of the Mortgage Banks, a review of the comprehensive National and Urban Housing Finance Policies and the successful take-off of the Nigerian Mortgage Refinance Company (NMRC) Plc. All these have set the stage to create a conducive investment atmosphere and an enabling environment to ensure that the Mortgage Banks/Housing Finance Sub-sector in Nigeria is attractive to foreign investors.
Implementation of the Nigerian Housing Finance Programme
Although Nigeria has experienced strong economic growth in recent years, this has been limited in the case of the Mortgage Market, primarily due to lack of long-term funds, as well as very high transaction costs involved in land/title transfercum registration and mortgage loan foreclosure. However, there had been a steady increase in mortgage lending activities since Year 2006, and to further deepen and broaden the scope, the Nigerian mortgage market has recently undergone significant reforms which resulted in the Revised Guidelines issued by the Central Bank of Nigeria (CBN) in Year 2011; and the implementation of the Nigerian Housing Finance Programme (NHFP) in Year 2013. The NHFP is expected to address long-term funding constraints through the Nigeria Mortgage Refinance Company (NMRC) Plc, a public-private partnership mortgage liquidity facility launched in January 2014. Further reforms were aimed at making mortgage lending procedures more effective, improving portfolio risks management, easing mortgage transactions, and streamlining foreclosure procedures.
Recapitalization of Mortgage Banks
To enhance the mortgage market through a deepened housing finance and promote the spread of Mortgage Banks across the country, the CBN stipulated new Capitalization requirements of N5 billion and N2.5 billion for Mortgage Banks with National and State Authorization Licences respectively. While the National Mortgage Banks are allowed to operate in any or all parts of the Federation, the State Mortgage Banks are restricted to operate in only the States where they have their Head Offices. The recapitalization exercise was initially scheduled for a 13-month period from November 2011 to December 31, 2012; however, its conclusion was postponed twice – first to April 30, 2013 and later to December 31, 2013. This was to afford all affected Mortgage Banks sufficient time to exercise the options for capital raising, business combination or downscaling. The deadline for recapitalization was finally extended till June 30, 2014.
Following the conclusion of the recapitalization exercise, the Mortgage Banking Sub-Sector currently has Thirty-Five (32) Mortgage Banks, which would be higher when the Central Bank of Nigeria (CBN) finally releases the final figure. Deriving from the above, Ten (10) Mortgage Banks operate with National Licences while Twenty-Two (22) operate with State Licences across 25 States of the Federation and the Federal Capital Territory. The consolidation/reforms of mortgage banking sub-sector is a welcome development, as the Mortgage Banks constitute crucial strategic partners that would drive the activities in the sub-sector with the recently launched Nigeria Mortgage Refinance Company (NMRC) Plc.
Establishment of Nigerian Mortgage Refinance Company (NMRC)
The effective role of Securitization i.e. packaging streams of cash flows from mortgage loan repayments in promoting the emergence of secondary markets for mortgages in developed economies has inspired Developing Countries to explore the avenue of Secondary Mortgage Markets to access funds for housing finance in order to reduce housing shortage significantly. Developing Countries had since recognized the fact that a vibrant secondary mortgage market can provide distinct benefits including deepening its capital market activities within the framework of a housing policy that responds to the dictates of the private sector with measured risk exposure for industry participants, among others.
The Nigeria Mortgage Refinance Company Plc (NMRC) was established to address the issue of a functional, capital market-based mortgage liquidity facility. NMRC is a Public-Private Partnership (PPP) arrangement between the Federal Government of Nigeria via Federal Ministry of Finance Incorporated (MOFI) and Sovereign Wealth Fund (SWF) and Private Sector, specifically the Mortgage Banks, Commercial Banks and International Financial Institutions such as IFC and Shelter Afrique. It was implemented as a component of the Nigerian Housing Finance Programme facilitated by the Federal Ministry of Finance in collaboration with the Central Bank of Nigeria (CBN), Federal Ministry of Lands, Housing & Urban Development (FMLHUD), the World Bank/IFC and Mortgage Banking Association of Nigeria (MBAN).
NMRC is a vehicle set up to provide mortgage lending/originating banks with increased access to liquidity and longer terms funds in the mortgage market. It is an intermediation vehicle, that would be a veritable source of long-term funding to mortgage originators by issuing high quality corporate bonds for investment by institutional investors, particularly Pension Funds Administrators (PFAs). Subsequently, it would bridge the funding cost of residential mortgages and promote the availability and affordability of good housing to Nigerians.
In addition, it is envisaged that NMRC would rationalize the pricing mechanisms through its developmental efforts and lower the cost of mortgage loans. Currently interest rates remain high, resulting in the spread of mortgage lenders being high due to in-efficiencies in pricing credit, interest rate risks and liquidity premiums. Subsequently, it would be the focal point for change by eliminating current impediments to mortgage lending. The creation of NMRC would also stimulate the supply of affordable housing in Nigeria, since one of its targets is to increase the number of mortgage loans originated in the country from 20,000 to 200,000 in the next Five (5) years.
Recently, the Nigerian Mortgage Refinancing Company (NMRC) signed a Memorandum of Understanding (MoU) with a US-based investment firm, Cantor Fitzgerald, for the investment of $1bn (about N200 billion) in the Mortgage Banking/Housing Finance Sub-sector in Nigeria. Cantor Fitzgerald is a global private investment firm with strong expertise in asset-backed mortgage securities and the firm has also made arrangements to build 10,000 houses in Kaduna, Lagos, Enugu and Abuja within the next one year. The entry of international investors into the Mortgage Banking/Housing Finance Sub-sector is an indication of the success of the efforts of all industry stakeholders to create an enabling environment for both local and international investors to participate and this will no doubt boost the performance of the Sub-sector and serve to encourage other willing investors to tap its existing vast potential.
According to the Nigerian Former Finance Minister and the Co-ordinating Minister of the Economy, Dr. (Mrs) Ngozi Okonjo-Iweala, the signing of the MoU is a very significant moment for the Nation. In her words, “Cantor Fitzgerald’s presence in Nigeria shows that our mortgage strategy is attracting the right kind of attention from the right kind of people around the world and this will deepen and diversify and ultimately reduce the cost of mortgage and housing in Nigeria,”. The mortgage sector in developed economies and vibrant emerging economies has been a potent force in their respective economies because of the huge job opportunities they have provided and the significant multiplier effects their activities have generated on the overall economy. With the recent strides in the Nigerian Mortgage Banking and Housing Finance Sub-sector, Nigeria has set sail on a journey to transform the mortgage banking and housing finance landscape and also with significant improvement in the Construction/Housing sector at large.
Skye Bank Building