Nigeria Real Estate and Mortgage Banking and Housing Finance in Nigeria

Nigeria was recently reported to have overtaken South Africa to become the largest economy in Africa after overhauling the GDP data in over two decades. As of today, Nigeria is the 24^th largest economy in the world. A bulk of that GDP has to be contributed by the increasing construction and modern development activities in the Nation of the Super Eagles. And as the World Bank has extended an IDA Loan of US$300 million to Nigeria Mortgage Refinance Company Plc. (NMRC), we can expect the housing market in Nigeria to commence its ascent to flourishing.

NMRC

The official GDP figures of the African Continent in Year 2013 revealed that Nigeria had a GDP of $503 billion, which is nearly double the South Africa’s GDP of $350 billion. The country is set to make history as the NMRC has been set to be up and running as a private sector Company. Any mortgage refinance company is a secondary market vehicle for long term funds that are provided to mortgage lenders. And in the case of Nigeria, this could provide the much needed bridge between a functioning secondary market and extending the maturity of liability base of funding for Deposit Money Banks i.e Mortgage and Commercial Banks in this wise.

Though the NMRC is the brainchild of the Mortgage Banking Association of Nigeria (MBAN), its take-off was subsequently facilitated by the Federal Government through the Federal Ministry of Finance; and it is expected to have a future in the long term in the private sector. Generally, as such institutions in the World, NMRC has its Shareholders in the Mortgage Banks; Commercial Banks, MOFI, SWF, IFC and Shelter Afrique mainly for the purpose of Mortgage refinancing. Mortgage Liquidity Companies provide direct funding through mortgage buying or through lending. NMRC will also provide liquidity support to lenders.

Focus on Standardization and Risk Management

Mortgage Originating Banks in Nigeria will definitely leverage on the facilities of NMRC, especially the ones that have healthy liquidity but low in long term funding. Depending on the conditions of the market, NMRC will focus on self funding through issuance of standard Bonds with five or more years tenors and since NMRC will be the central refinancing channel, it will bring standardization to the Nigerian market. Standardization in a market accounts for greater transparency along with creating information systems on the market. As a result, this will improve the consumer regulation and risk management, and will reduce the risks in mortgage lending.

NMRC will strengthen the secondary mortgage market by promoting access to finance for affordable housing and the lending of local currency to bring much needed reforms to mortgage lending. On the face of it, NMRC has huge responsibilities to bring about a change in the housing market and mortgage refinance in Nigeria. However, once its succeeds in doing so, then expect the Nigerian real estate to become one of the dominating markets in Africa.

Benefits of NMRC

One of the most important benefits that the NMRC will bring to the housing market is the reinvigoration of the construction and housing sectors. The mortgage company will increase the provision of affordable housing throughout the nation; promote liquidity in the real estate market and provide a secondary mortgage market. This in return will increase the number of people that are able to build homes or purchase at affordable rates throughout the country as this is one of the major concerns that Nigerians had for a very long time. In fact the real estate market in Nigeria suffers a deficit of 16 million housing units. But with NMRC, they look to offer 30% deposit with 70% loan to value ratio over a period of the next 20 years. This of course will depend on the age of the property and other key factors, but overall these reforms come as good news of the Nigeria housing market.

According to the report, 14 Pilot States are earmarked for the initial phase of the program, and the Governors of these States have all agreed to supporting the foreclosure arrangements, fast track land titles, procedures for transfer and provide service plots. NMRC is supposed to create in excess of 200,000 mortgages within the next five years at gradually reducing interest rates. This is more good news as Nigeria has one of the highest interest rates on Mortgage Loans.

The NMRC is looking to provide support to the bottom of the economic chain, as the Federal Government plans to restructure the Federal Mortgage Bank. This will help in providing lease-to-own and rent to own options to the mass population. This idea is to help Nigerian families own homes, with a long term view of attracting foreign investment to the region.

The economy of Nigeria is dynamic, and the NMRC will facilitate creating more jobs for architects, engineers, electricians, painters, plumbers, interior designs, and much more. The NMRC will provide the Nigerian real estate as well as the economy with overall benefits, to add value to the already strong GDP.