07.04.2018 Views

BusinessDay 08 Apr 2018

Create successful ePaper yourself

Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.

C002D5556<br />

Sunday <strong>08</strong> <strong>Apr</strong>il <strong>2018</strong><br />

34 BDSUNDAY<br />

SundayBusiness<br />

Diversification through<br />

mortgage for economic growth<br />

There appears to be a<br />

slow down on the discourse<br />

on diversification<br />

through which the<br />

federal government<br />

seeks to refocus the economy<br />

towards non-oil sectors such as<br />

agriculture and manufacturing<br />

which are noted by the government<br />

as major growth areas with<br />

low hanging fruits.<br />

This is to be expected as oil price<br />

has climbed several steps up in the<br />

last twelve months. The country<br />

only thinks of alternatives when<br />

there is a drastic fall in oil prices<br />

which it has chosen to stay with<br />

as the mainstay of the economy.<br />

But that is simply a sure way of<br />

postponing the evil day.<br />

So good that agriculture and<br />

manufacturing top considerations<br />

for diversification, but it worries<br />

that the originators and promoters<br />

of diversification are yet to<br />

recognize that economic growth<br />

can happen when mortgage and/<br />

or real estate, which is the fulcrum<br />

around which the mortgage system<br />

revolves, is factored in their<br />

calculation.<br />

In other economies, the mortgage<br />

industry makes significant<br />

contribution to economic development.<br />

In Nigeria, this is not the<br />

case because no consideration is<br />

given to its potential. This lack of<br />

consideration explains why mortgage<br />

finance as a percentage of<br />

Gross Domestic Product (GDP), till<br />

date, remains as low at 0.5 percent,<br />

leaving it several steps behind other<br />

emerging markets such as Mexico,<br />

Malaysia and South Africa where<br />

mortgage contributions to GDP are<br />

as high as 10 percent, 25 percent<br />

and 29 percent respectively.<br />

There is no-gain-saying that<br />

mortgage has all the potential to<br />

contribute to the growth of the<br />

economy, but for it to do that, all<br />

the obstacles to its own growth<br />

have to be tackled. The relative<br />

‘newness’ of the industry, lack of<br />

understanding of its dynamics and<br />

operational models by many Nigerians,<br />

and poor appreciation of the<br />

need and the ultimate benefit of<br />

keeping money in a mortgage bank<br />

are some of the militating factors.<br />

Experts are of the view that<br />

a flourishing mortgage banking<br />

industry is an effective tool in the<br />

hands of the government as the<br />

industry will help in regulating the<br />

economy in the desired direction.<br />

But the federal government, in all<br />

the things that are being said about<br />

diversification of the economy<br />

to steer it away from the current<br />

challenges, doesn’t seem to pay<br />

attention to the mortgage sector. If<br />

government really wants to stimulate<br />

the economy, a reduction in the<br />

interest rate will be a master stroke<br />

as, all things being equal, more<br />

people will embrace mortgage loan<br />

to buy houses, leading to increased<br />

activities in the construction sector.<br />

Because of the identified obstacles,<br />

many primary mortgage banks<br />

(PMBs) are going through very difficult<br />

times, such that some are still<br />

unable to meet up with the capital<br />

requirements in the industry.<br />

“If government pays a closer attention<br />

to the PMBs by removing<br />

some of the obstacles that they<br />

have such as the drawbacks of<br />

the Land Use Act of 1978 which<br />

essentially vests land ownership in<br />

the hands of the state governors;<br />

the right to easily foreclose on delinquent<br />

borrowers, ease of creating<br />

a legal mortgage and perfecting<br />

titles and the ease of falling back on<br />

their collateral to recover bad loan<br />

etc, this sector will surely improve<br />

significantly”, a mortgage operator<br />

observed recently.<br />

The operator who did not want<br />

to be named, insisted that until all<br />

these issues are resolved in a way<br />

that encourages the provider of<br />

capital, in this case the mortgage<br />

bank, the sector will not grow as<br />

desired and he hopes that when<br />

these obstacles are removed, the<br />

supplier of mortgage will allocate<br />

more funds towards the provision<br />

of home loans while home buyers<br />

will better appreciate the implication<br />

of prompt interest and capital<br />

repayments as well as ensure discipline<br />

on the part of the people.<br />

Okika Ekwem, a US-based realtor,<br />

affirms that the poor capital<br />

Talking Mortgage<br />

with<br />

CHUKA UROKO<br />

(<strong>08</strong>037156969, chukuroko@yahoo.com)<br />

base of the PMBs is inadequate.<br />

He however, dismissed the idea of<br />

a fixed capital base for mortgage<br />

institutions. To say that a mortgage<br />

institution should have a fixed base<br />

of, say N10 billion, is wrong because<br />

that amount is too meagre; even<br />

N100 billion is also meagre given<br />

the kind of projects they are to<br />

finance.<br />

“The Federal Government needs<br />

to come in, look at what is happening<br />

in other civilised world and copy.<br />

These days, copying is no longer<br />

an act of deception but actually<br />

something that is done even in the<br />

civilised world”, he said.<br />

In the civilised world, according<br />

to him, there is secondary market<br />

for real estate financing where<br />

commercial banks or individual<br />

brokerage banks lend money to<br />

people and thereafter sell the securitised<br />

certificate to the secondary<br />

market and come back again to lend<br />

to individuals.<br />

Given the size of Nigeria as a<br />

mortgage market, the growth<br />

of this industry is possible if the<br />

Federal Mortgage Bank of Nigeria<br />

(FMBN) plays the role of a regulator<br />

while the federal government,<br />

through the Central Bank of Nigeria<br />

(CBN), empowers the PMBs more.<br />

Arguably, the Nigerian mortgage<br />

industry needs more well<br />

established and well funded PMBs.<br />

Meckson Innocent Okoro, an estate<br />

manager, explains that this is<br />

to discourage the concentration of<br />

these institutions only in urban centres.<br />

“When the number of PMBs is<br />

increased to say five in each state,<br />

access to housing finance will also<br />

be increased.<br />

“The PMBs must be positioned<br />

to champion the whole issue of<br />

affordable or social housing for the<br />

low income earners in the country.<br />

Anything the country wants to do<br />

without a functional mortgage system<br />

that can guarantee homeownership<br />

for a good number of people<br />

will not succeed”, he reasoned.<br />

Continuing, he said: “We are talking<br />

about housing which is capital<br />

intensive and so must have capable<br />

institutions to finance it; increased<br />

homeownership will, one way or<br />

another, contribute to the country’s<br />

GDP which translates to economic<br />

growth”.<br />

Property<br />

Logic<br />

With Akhigbe Dominic<br />

A<br />

few years ago, I took a<br />

rent of an apartment<br />

somewhere in Mainland<br />

Lagos; I paid the<br />

sum of six hundred thousand<br />

naira as total incoming rent with<br />

four hundred thousand naira as<br />

recurrent rent. During one of<br />

the (then) Environmental Sanitation<br />

Saturdays; my Landlord<br />

and I were whiling away time<br />

after supervising the cleaning of<br />

Affordable housing and the run away cost of<br />

building material; a convenient paradox<br />

the surroundings and the drainages.<br />

My landlord was an accomplished<br />

man who was ready<br />

to share his experience anytime,<br />

anywhere and any day. He is a<br />

very educated man with a Ph.D in<br />

his field of endeavor. I still recall<br />

how he told me that he bought<br />

the entire two plots on which<br />

the imposing edifice situates for<br />

N4000 in 1982. He said the entire<br />

house comprising of six plats<br />

and a potter’s lodge from start<br />

to finish was built for N80,000<br />

in all. In fact; he further informed<br />

me that this same land was his<br />

most expensive of all his landed<br />

properties. This is N120,000 put<br />

together! However, my rent for<br />

the Apartment which I rented in<br />

the same house was N400,000<br />

then.<br />

The above scenario can be<br />

argued and situated within the<br />

corridor of time factor. After all;<br />

!980 is about four decades ago!<br />

Inflation and other determining<br />

factors can be adduced to<br />

wrestle this long past period.<br />

However, I can still remember<br />

that in 2015 or thereabouts; a<br />

bag of cement was hovering between<br />

N1100 and N1200. The 6<br />

inches block was in the neighborhood<br />

of N90 and N100. Today, a<br />

bag of the same cement sells for<br />

between N2900 and N3000 . A 6<br />

inches block sells for about N190<br />

and N200 while 9 inches block<br />

sells for N200 to N210 depending<br />

on location. Other building<br />

materials have become very<br />

prohibitive. A square meter of<br />

Gerrard Steptile Roofing is about<br />

N2900. The long spam aluminum<br />

roofing sheets goes for between<br />

N19,000 and N20,000 a bundle<br />

of eighteen sheets. We are not<br />

talking of electrical fittings, ceiling<br />

or the other components.<br />

The situation has become very<br />

disturbing.<br />

Affordable Housing has become<br />

a mirage. Indeed, is it possible<br />

to make Housing affordable<br />

with this abominable cost of<br />

building imputes? The answer is<br />

very clear. You cannot expect a<br />

man to spend over N10,000,000<br />

(excluding the cost of the land)<br />

to erect a two bedrooms flat and<br />

give such an apartment out for<br />

anything affordable. You do not<br />

give what you don’t have.<br />

The big question is, can this<br />

situation not be remedied? Am<br />

sure it can. This is possible if the<br />

government creates the enabling<br />

environment for investment.<br />

Regulations can be put in<br />

place to manage the activities<br />

of manufacturers who sometimes<br />

want to take advantage<br />

of the helpless consumers and<br />

make abnormal profits thereby<br />

pricing their products out of<br />

reach. Policies that tend to<br />

encourage monopoly in favor<br />

of specific classes of people<br />

should be repealed.<br />

When this administration<br />

came into power, it was said<br />

that the president invited one of<br />

the largest manufacturers of cement<br />

and cautioned him against<br />

bogus profits that are capable<br />

of undermining the Affordable<br />

Housing policy of government.<br />

It was further said that the president<br />

also threatened to direct<br />

a forensic audit of the business<br />

activities of this same company<br />

except prices were managed<br />

in a manner that would make<br />

cement affordable. Like magic,<br />

cement prices dropped with a<br />

huge quantum. After a while; the<br />

status quo returned. This same<br />

investor practically stifled the<br />

business activities of some other<br />

investors in this sub-sector by<br />

promoting monopolistic tendencies.<br />

Just every other unwholesome<br />

practice that has gone<br />

unchallenged in this country is<br />

attributed to this same business<br />

magnate. This manufacturer has<br />

become a colossus. He practically<br />

dictates the flow of prices<br />

of cement in Nigeria today. The<br />

popular excuse is that it is expensive<br />

to do business in our climate.<br />

A fifty kilogram of cement<br />

now sells for N3000 excluding<br />

logistics!<br />

...to be continued.

Hooray! Your file is uploaded and ready to be published.

Saved successfully!

Ooh no, something went wrong!