By Olumide T. Agunbiade
In development terms, the last few years
of the 20th century and the first few years of the 21st
century have been a total failure. Housing is one of the basic of human needs.
The provision of houses through the creation of mortgages is taken for granted
in developed countries; however, remains a major challenge in developing
countries, especially in Nigeria.
A recent research revealed that Nigeria and United
Kingdom have two things in common – overcrowding and housing deficit. According
to a report on Nigerian Housing Sector aired a few years ago on African
Independent Television (AIT), it was stated that between 1973 and 2006, the Federal
Housing Authority (FHA) built only 30,000 housing units nationwide.
In 2010, just 103,000 homes were built in England – the
lowest since 1923 – though 232,000 was supposed to be built per year. Nigeria
has a large and ever increasing housing deficit which stood at approximately 8
million housing units in 1993 and 12 – 14 million in 2007.
According to a recent BBC report, the UK government has
agreed to build 3 million homes between now and 2020 with 1.8 million new homes
set to be constructed on Greenfield sites, a target area for development. A
recent estimate puts Nigeria’s housing deficit figure higher at 16 – 17
million. “At an average cost of N2.5 million per housing unit, Nigeria would
require N35 trillion to fund a housing deficit of 14 million housing units.” said
Olusegun Adeniji of Federal Mortgage Bank of Nigeria (FMBN).
Several factors have been identified as responsible for this
shortage. According to Mohsin Khoda, a Land Acquisition Manager with Kings Land
Global Investment Company based in Dubai, “Supply is limited while demand is
high due to increase in population.”
In United Kingdom, the expansion of European Union (EU),
migrant workers, increased divorce rate, longer life expectancy and
overcrowding of the major cities had been identified as the reason for the shortage.
Apparently, Nigeria’s urban housing problem manifest in overcrowding, slum
housing, poverty and widespread institutional mediocrity.
According to a report
from the House of Representatives, only 37% of Nigerians own houses and the
country’s population has increased since 1991 from 88.9 million to 160 million.
If we take the current population figure of 160 million and assume 30% of the
population as working adults, we have 48 million estimated working adults;
assuming about 40% or 19.2 million of the working adults qualify for mortgage
loans, and assume an average house final selling price at about N3 million for
a 2bedroom flat, the possible size of the mortgage market is close to N58
trillion.
By these statistics, it is obvious that there are tremendous
opportunities in the Nigerian housing sector waiting to be tapped. One of the
major housing policy initiatives was the policy on affordable housing that was
initiated in 1979 by the Shehu Shagari Administration. The policy though
laudable was unable to meet the nation’s housing needs because it was based on
unsustainable tenets that houses will be provided by the government.
Apparently, it is necessary to leverage on the resources
available in the private sector, while also encouraging foreign investment. The
government (Federal and State) should focus on providing a favorable investment
climate, infrastructure, and mortgage insurance to first time home buyers and
low to middle income earners.
Though there are huge potentials in the Nigerian market, it
is obvious that a difficult investment climate where laws to protect the
sanctity of contracts and insecurity are far from adequate. Sadly, this hampers
private participation and foreign investment.
Recently, Nigeria’s reforms have led to a reduction in the
time required to complete the process of property registration from 274 to 80
days, but a lot still needs to be done because it takes only a day in some
developed countries.
Obviously, investors are comfortable in environment where
registration is automated and procedures are minimal, and will be glad to
invest in such places. Automation though important, should be accompanied by
changes in work culture in government registries. The time taken is definitely
unacceptable if the nation want to attract private investment
The fees paid to register property in
Nigeria are extremely high and have some non-transparent components. These fees
add to the cost of houses and usually take such houses out of the reach of
people in the lower bracket. The government should devise ways of reducing fees
paid by people at the lower strata of income.
Also, there is a shortage of skilled manpower that can take
the mortgage industry to the next level. Capacity has not been built over the
years because the mortgage sector did not really exist and the conditions were
not favourable for long-term lending as it would have led to asset-liability
mismatch.
Globally, lenders, investors, and borrowers prefer a stable
economy where decisions can be taken without any apprehension. Inflation should
be kept at manageable levels, interest rates must tend downwards, and other
macro variables should be stable.
As inflation and interests rates decline, banks and pension
funds will be encouraged to look less toward government securities and more
towards the private sector to invest their assets. Hence, mortgage and mortgage-based
investments would stand to benefit if the macroeconomic environment can
continue to improve.
There are several reports on delays in receiving permits for
construction. The procedures are complex and expensive. This encourage illegal
construction and squatter settlements with its attendant health and
environmental issues as visible in cities in Nigeria such as Makoko in Lagos
and some satellite towns in Abuja to name a few.
Clearly, reforming licensing requirements - particularly by
reducing the processing time as well as decreasing the costs – would not only
increase the size of the formal construction sector but also reduce the cost of
housing construction, thereby increasing the availability of homes to a broader
segment of Nigerian society.
One of the major barriers to reducing housing deficit in
Nigeria is the tax burden. The imposition of Value Added Tax (VAT) at various
levels of housing development process adds significant costs as much as 30% to
the cost of a house, even before fitting fees and stamp duties are taken into
consideration.
Tax exemptions, deferrals and tax holidays on materials or
similar tax-related provisions have been used successfully in other countries
for low and moderate income earners. These incentives can be used successfully
in attracting investors into the housing sector.
Lack of primary infrastructure such as roads, water,
electricity etc, accounts for about 30% of housing cost. In most cases,
investors have to provide infrastructure which invariably increases the cost of
the houses they build. Government should provide it if the nation must achieve
her objective of providing affordable housing.
A key factor that has led to the high construction cost and
housing deficit in Nigeria has been the restriction on the importation of
cement. While Nigeria does not produce enough cement domestically to meet
demand, imports have been restricted and subject to a process of quota
allocation. This has led to sharp increase in the price of cement.
In order to bring down materials cost and stimulate
construction, as well as reduce housing deficit, the government should continue
its reconsideration of restrictions on the importation of cement and other
building materials or conduct more research on how our local materials such as
clay and other materials can be of benefit to construction in Nigeria.
Clearly, reducing housing deficit is achievable, but the
necessary ingredients have to be in place. Investors can be attracted to
difficult environments if there is convincing evidence that reforms will
improve, the investment climate will be implemented and if government provides
mortgage insurance to first time home buyers who do not have credit history and
to low and middle income families.
The Federal Housing Authority (FHA) could be restructured to
become the government sponsored entity that will be responsible for providing
mortgage insurance while the Federal Mortgage Bank of Nigeria (FMBN) can pool
the insured mortgages and sell them in the capital market to provide liquidity.
Besides, the absence of foreclosure law has been cited by
some investors and financial institutions as the reason for not investing in
the housing sector. Though the incidence of foreclosure in most countries is
generally low, it is important for investors to know that they can take
possession of their collateral and recover their loans as quickly as possible.
In conclusion, adequate shelter has always been one of man’s
basic needs; it is a significant component for human survival and a useful
barometer for gauging societal development. As a unit of the environment, it
has a profound influence on the health, efficiency, social behavior,
satisfaction, productivity, and general wellbeing of the individual and the
entire nation. The need to ensure decent and affordable housing to the people,
particularly to the low and middle income earners, is central to the
achievement and improvement of both human living standards and national
development.
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