WILL N5 BILLION RECAPITALIZATION FOR PMIS IMPROVE HOUSING DELIVERY?
As the national housing deficit is put at above 15 million units, which requires a whopping N35 trillion to finance , there seems to be light at the end of the tunnel as the Central Bank of Nigeria (CBN) recently mandated all the Primary Mortgage Institutions (PMIs) to recapitalize to the tune of N5 billion.
The measure is to help shore up the capital base of these mortgage institutions so as to enable them meet up with their primary goal of financing housing projects.
According to the president of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Bode Adediji, the recapitalization of the primary mortgage institutions would go a long way to improve the housing situation in the country since one of the major problems in the housing sector is paucity of funds.
He explained that if the mortgage institutions could be well capitalized the perennial housing shortage would become a thing of the past. This is against the background that the PMIs have been remiss in its duty which resulted in a greater number of the population living in slums, shanties and other sub-human habitat. Little wonder then that the acute national housing deficit is put at above 15 million units, requiring a whopping N35 trillion to finance.
According to World Bank report, to meet up Nigeria's housing need, a minimum of one million housing units should be built annually. However, realizing this figure is like a fleeting illusion that could be pursued but can never be attained, as not up to one-twentieth of the figure is being built. That is why if the right steps are not taken and urgently too, a greater percentage of the population would find themselves going back to the dark ages when human beings were living in the bush and on trees.
It is therefore, based on this shocking realization that some people viewed the CBN's recapitalization order to the PMIs as both laudable and long overdue. However, there are still some skeptics who argue that mandating the PMIs to recapitalize now is a mission impossible considering the fact that the stock market is yet to recover from the global economic recession which led to its crash two years ago.
This school of thought further said that the CBN ought to have looked at the facts on ground before coming out with such policy.
However, there is a general agreement among opinion holders that the Nigerian mortgage institution is far from performing up to expectation. They agreed that with a population of over 140 million, mortgage should naturally be one of the major drivers of the economy.
However, this would have been possible if successful governments have brought out policies that would develop the housing sector and implement such polices to the fullest. Such policies would have included the development of housing economy as well as the introduction of social housing. But out of the estimated 10.7 million existing housing units in the country, statistics have shown that about 88 per cent are self-built with little or no mortgage attachment. That is why mortgage facilities are of no consequence to the nation's Gross Domestic Product (GDP).
That is why Adediji sees the recapitalization mandate as a welcome development , saying that the greatest challenge in the industry is finance. His words: 'The housing sector is poorly financed and this is not a good omen because a country's citizens are assessed or rated by the kind of houses they live and not by the type of cars they drive or the type of clothes they wear. If the PMIs are recapitalized, all things being equal, by this I mean infrastructure and the price of building materials, it would go a very long way in reducing the housing deficit in the country.
As I have always said, the problem with governments in the country is not policy formulation. I have always given it to them because they are very good at that. But my worry is in the implementation. Successive governments in the country have come up with programmes that would have helped to turn the housing sector around for the better. But where are those programmes today? They went with the governments that announced them but could not implement.
That is why I still believe that buried in the government archives are policies and programmes that would help to make Nigeria heaven on earth. We don't even need to make more policies. All we need is to go and unearth them and begin to implement.'
Supporting Adediji, an estate developer, Ibidire Adetunji -Lams, who is also the Chief Executive Officer of Fresh Palms Limited, said that the recapitalization of the PMIs would be the best thing to happen to the housing sector of the economy.
He said that developers in Nigeria have the know-how to replicate the structures in Dubai here in Nigeria if they have the capital. Adetunji-Lams said that immediately the PMIs begin to assist developers with credit facilities as reasonable rate, the economy would make a quantum leap to join the league of the super economies, saying that the economy of the United States and Britain is to a larger extent housing driven.
He said that if government could address the issue of escalating prices of building materials as well as the lack of infrastructure, affording housing would still be possible.
Nigeria's housing problem is even worsened by the inaccessibility of the only somewhat viable mortgage institution in the country and that is the Federal Mortgage Bank of Nigeria. A country with 36 states has just one federal mortgage bank which is tucked away in the Federal Capital Territory (FCT) to finance the housing projects of the elite in New York, London, Johannesburg, Dubai and other major cities of the world while those who have no roofs over their heads in Osogbo, Dutse, Ogbomosho, Ikwere for instance, are left to their own fate.
Cash and carry
The NIESV boss lamented that the cash and carry economy in the country is one of the reasons why mortgage does not function .He opined that if the mortgage system is entrenched in the country, it would go a very long way in redefining the cash and carry culture.
He added: 'Well, I see the mandate given to the primary mortgage institutions to recapitalize as a welcome development. As a player in the housing industry, I can tell you that the greatest challenge that we have in the industry is finance. The housing sector is poorly financed and this is not a good omen because a country is accessed or rated by the kind of houses they live and not by the type of cars they drive or the type of clothes they put on.
If the PMIs are recapitalized, all things been equal, by this I mean infrastructure and the price of building materials, it would go a very long way in reducing the housing deficit in the country. As I have always said, the problem with governments in the country is not policy formulation. I have always given it to them because they are very good at that. But my worry is in the implementation.
Successive governments in the country have come up with programmes that would have helped to turn the housing sector around for the better. But where are those programmes today? They went with the governments that announced them, but could not implement. That is why I still believe that buried in the government archives are policies and programmes that would help to make Nigeria heaven on earth. We don't even need to make more policies. All we need is to go and unearth them and begin to implement.'
He said that the failure of the housing sector to thrive is one of the reasons why there are mass unemployment and insecurity in the country.
According to him, if the sector begins to thrive, it would have a positive chain reaction in the economy, as it would bring employment, self worth and stability of families and longitivity. Adediji said that the reason there is crisis in the homes is because of discomfort, adding that if the issue is addressed, Nigeria would be a happy place to live.
He said unemployment had been on the increase because most of the economic policies of government are not geared towards job creation, adding that economic policies must be deliberately targeted at empowering housing development and the youths who are the productive segment of the population. While the housing sector grows, it would create jobs, and when youths are empowered, they engage in production.
The NIESV boss posited that the operating business environment is not favourable for housing development, which is the catalyst for economic growth, adding that even the oil and gas companies are crying. He said government is made to erroneously believe that the global economic meltdown accounted for the nation's economic woe and the unemployment problem, 'but I dare say it is not true, it is because we didn't place premium on employment generation through a policy of empowering the youths to be productive and further generate employment.According to him, one of such policies should be targeted towards the development of mass housing in the country.
Adetunji-Lams said finance has been the bane of housing development in the country.
He noted that it was as result of this that some developers have introduced installments in the payments of lands and completed housing units. Adetunji Lams said that had it been that the PMIs are well recapitalized and they are discharging their duties reasonably, salary earners would not be going through hell before they would have houses of their own.
He said that even the National Housing Fund which was set up to make house ownership less cumbersome has disappointed the subscribers as it is now easier for a camel to pass through the eye of a needle that for a subscriber to own a house through the scheme.
He said that since the CBN has decided to wade into the housing crisis which is assuming a threatening dimension by asking the PMIs to recapitaize, the apex bank should also try to ensure that the mortgage institutions would make their loans reasonable, advising that what happened to the commercial banks should also be guarded against.
His words: 'I see the mandate by the CBN that all the primary mortgage institutions should recapitalize as a welcome development and a move that would help to address the financial problem in housing delivery in the country. Up till now, most Nigerians, especially the salary earners depend on the National Housing Fund for housing. It is obvious that the NHF facilities is grossly inadequate to meet the housing needs of most populous black nation in the world.
We, the developers in the real estate industry are feeling the crunch of the crisis and that is why on a daily basis, we are trying to see if we can bring out measures that would make housing affordable to the masses. If you go to some highbrow areas like Lekki, Ikoyi, Maitama and others, you would see structures that have been completed long ago but still lying vacant. The problem is because nobody is buying and one bad thing about this is that most of these housing projects were executed with borrowed funds. And on a daily basis, the interest on the loan is accruing.
At the end of the day, you will see the developer running a very big loss, if he did not get into trouble with the bank that gave him the loan. That is why many housing projects have been taken over by banks' receiver managers due to the inability of the developers to meet up with their financial obligations to their financers. That is why some developers have introduced payment on installments to prospective buyers so that it would not be hard on them and again as a way of encouraging them to show interest as bulk purchases scare them away'.
The Fresh Forest boss said that if it in countries where mortgage is functioning, the pains and troubles which developers go through to build houses would not be there.
He said that CBN should make sure that it would not lose its focus on the primary mortgage institutions until the sector is developed, as it is one that could turn the economy of the nation to the next level.
According to him, Dubai is today the cynosure of the world because of the housing structures being put in place there.
He said that developers in Nigeria have the know-how to replicate the structures in Dubai here in Nigeria if they have the capital.
Adetunji-Lams said that immediately the PMIs begin to assist developers with credit facilities as reasonable rate, the nation's economy would make a quantum leap to join the league of the super economies.
'The economies of the United States and Britain are to a larger extent housing-driven. That is why the mortgage institution crashed in the US, its economy all came down crashing like houses built on sand and that was what triggered off the last global economic recession. That tells you how strong housing economy is. Nigeria with a population of 140 million can comfortably have housing as one of its major revenue earners if it can organize the mortgage sector to function as it is doing in advanced countries. It would not have anything to do this. It is only in Nigeria that people buy houses and pay cash, buy cars and pay cash. And that is why there are a lot of armed robbers as cash are flowing up and down.
That is even why kidnappers operate. If we are not operating a cash society, how can kidnappers ask for N250 million ransom? Where would the money come from? If it is in advance countries, they cannot do it because there would no cash to pay. The highest you can give is your credit card, which they cannot even use. That is why over there, they don't kidnap for monetary gains but rather to make other demands.'
He said that the mortgage system if given the enable environment to thrive would also usher in a cashless society, which is a real sign of development.
According to him, for Vision 202020 to become a reality, government should cause mortgage system to be entrenched so that crime and other vices would be reduced to the barest minimum
However, there are those who feel that the N5 billion recapitalization would not change much in the housing delivery sector. One of them is Hussein Momoh, an executive director with JFA Nigeria Limited
According to him, recapitalization of the PMIs is not the issue but doing business with recapitalized fund.
He said that the commercial banks operators were mandated to recapitalize by the apex bank and at the end of the day, those who really need the money were left in the cold.
Momoh said that government should look for other direct ways of assisting the housing industry instead of going through the financial institutions as they have over time proved to be the enemies of those in the real estate industry through exploitative loans.
He said that if government could address the issue of escalating prices of building materials as well as the lack of infrastructure, affording housing would still be possible.
'I am certainly not excited about the order given to primary mortgage institutions to recapitalize because I feel that as far as Nigeria is concerned, accessibility of funds is a distant relation of recapitalization. All of us were in this country when the commercial banks were compelled to recapitalize. At the end of the day, what difference did it make to the small business operators? The small timers were left in the cold while the banks chase after those who have already made it. I feel that is likely what is going to happen when these PMIs recapitalized. Instead of giving small real estate developers grants, they would be chasing after multi-nationals.
The record available to me shows that there are about 10.7 million existing housing units in the country. If you check this figure with the population of the country, you would realize that a lot of Nigerians are homeless or are living in overcrowded environment. That could be why infectious diseases like Cholera become endemic before they could be checked'.
He said that government should try to take urgent and serious action in the housing industry so that more housing would be provided to address the issue of over crowding and its dire consequences.
He also called for the decentralization and recapitalization of the only secondary mortgage institution in the country, that is the Federal Mortgage Bank of Nigeria.
According to him, the secondary mortgage bank has not done much to deliver on its mandate and has lost huge sum of money to housing developers and state government housing corporations.
According to him, a situation where a single secondary mortgage bank is serving 140 million people is not the best. He said that to make matters worse, the financial institution is most of the time starved with funds, thereby incapacitating it from delivering on its mandate.
The former Chairman of Nigeria Institute of Building, Lagos State Chapter, Kunle Awobodu, said that the lack of funds is not the only problem plaguing the housing sector. According to him, there are other issues like the Land Use Act and legal framework which can enable a mortgage operator to recover an asset when there is default.
He said that one of the reasons why foreign inventors find it difficult to invest in Nigeria is because they have the mindset that this is a nation where somebody can easily go foul of the law and get away with it.
According to him, since we have a government that does not keep to agreement, there is always this fear that somebody can default on an agreement and go scot free because there is no effective legal framework in place to call him to order.
'I want to say that the challenges in the mortgage sector is not only that of finance. I acknowledge the fact that finance has been a big hindrance to their delivering on their goals. But there is also the issue of legal empowerment to boost performance. For instance , in Nigeria today, there is no enabling law to guide a mortgage operator to recover assets if there is a default. Going by this, it therefore means that every operator must be cautious in giving out loans.
That is why you see situations where people claim that some financial institutions have funds but refuse to give loans. The fact is that they are taking very big risk in giving out the loans because if there is default, there is no law to assist them to recover the assets. Even if there is such law, you know how the country's judicial system operates and there is a saying that foolish people make lawyers rich. So, instead of giving out loans that would at best end up in long litigations, some of them decide to stay out and keep their peace.
He also said that the time given to the PMIs to recapitalize was wrong since the Stock Exchange where they would have gone to raise capital is in tatters. According to him, going by the ever increasing housing deficit in the country, it is imperative that government should intervene by taking direct actions like providing stimulus to real estate developers as wells as putting in place price control board for building materials. He said that the current 20 per cent increase in tariff on the importation of cement is one of those things that would hinder the desire of Nigerians to have roofs over their heads.
According to him, instead of ameliorating the suffering of the masses, government is adding to it adding that the incessant cases of building collapse in some major cities in the country is an off-shoot of high cost of building materials, most especially cement and reinforcements. He said that some people by trying to minimize cost end up reducing the quantity of materials they use.
Awobodu called on government to equip the Standards Organization of Nigeria with the right tools to enable them discharge their duties creditably. He also said that specialized banks such as construction bank should be set up and recapitalized to take off the problem of funding in the housing industry.