BusinessDay 08 Apr 2018
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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.