Homeownership in Nigeria remains a struggle. Given the choppy macro terrain, purchasing power has been severely subdued, making it difficult for income earners to purchase houses. The cost of property development in Nigeria is relatively high, with around 70% of building materials imported. The alternative to outright purchase, mortgage financing, is arduous and far from budget friendly as the cost of borrowing in Nigeria is expensive due to volatile and high interest rates.
According to the Centre for Affordable Housing Finance in Africa, Nigeria’s homeownership rate in 2016 was estimated at 25%.
Meanwhile, industry sources suggest that the ratio of mortgage loans to total GDP remains extremely low at 0.5%, compared with 80% in the UK and 31% in South Africa.
Given that the job market remains fragile, we do not expect Nigeria’s mortgage loans to GDP ratio to double in the near term as the number of potential mortgagors would have declined on the back of increasing unemployment.
In an attempt to boost mortgage financing through the National Housing Fund, the Federal Mortgage Bank of Nigeria has made strategic moves towards accessing the database of the Federal Inland Revenue Service. The thinking is to ramp up compliance by ensuring that companies make their mandatory contributions to the fund.
An FGN initiative geared towards boosting homeownership is the Family Home Fund (FHF), which has recently kicked off in eleven states. This fund falls under the government’s social investment programme and is worth US$100m. The World Bank and AfDB are core contributors.
The FHF was designed to cater to low-income earners. A monthly salary earner of N30,000 qualifies. We assume the mortgage loan through this fund will be single-digit.
Another homeownership scheme (My Own Home) was introduced recently by the CBN. It is designed to promote mortgage and financing literacy. The scheme is to have a tenor of 15 to 25 years, depending on the age of the borrower and their income level.
There are also public-private partnership initiatives geared towards boosting affordable housing units. The “Easy Home” initiative of Lafarge Africa is one such: 30,000 nationals have benefited from the scheme since it kicked off.
We have indicated several challenges within the mortgage industry. Unless bottlenecks like the high cost of funds and limited provision of longer duration loans are tackled, we doubt that Nigeria’s mortgage industry will pick up significantly over the near term.