SHA’ABAN 25, 1429 A.H.
TUESDAY AUGUST 26 2008
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Mortgage banking & home ownership in Nigeria
By Sean Akinrele
Owning a home is usually the reasonable dream of every adult. In the 21st Century, citizens’ ability to realise this dream is probably a major indicator of the strength and relevance of a nation’s socio-economic structures. Developed Societies see housing as necessary adjuncts of politico-economic engineering. To articulate and achieve this goal all the national sectors and agencies are motivated or compelled to participate and contribute. This is based on recognition of housing as a basic need and ‘right’ of every citizen. This perhaps underpins the United Nations Habitat program that most member nations have adopted with varying shades of success and sincerity. Nigerians however, have a different and unpleasant story to tell.
Recently, two clients engaged me to prospect for landed property on Lagos mainland. They sought to leverage the recent ‘conversion’ of our bloated, sorry consolidated banks to mortgage finance. Each sought mortgage loans from separate banks and being ‘high net-worth’ were well received. However, on advice, each requested of their banks details of their monthly obligations under the mortgages without the usual ‘bankernese’ and fine print.
In one case for a mortgage loan with 15 year tenure, the mortgagee was expected to pay about N0.3million monthly including interest. Mathematics was never my strongest point, but a simple calculation revealed that over 15 years, the mortgagee would have paid N54 million if he did not miss out on any monthly instalment. If he did, your guess is as good as mine about the compound ratio at which the interest would have been calculated. Interestingly, the property value is just N25 million, out of which the mortgagee is to provide 20%.
The second case is similar except the property value is N55 million out of which the buyers required N40 million from the bank. At the end of 20 years, they would have paid the bank over N72 million assuming they were making the same monthly payments to service the mortgage. Though the monthly payment is meant to reduce after some years, yet a considerable amount would nevertheless have been paid before this; but for argument’s sake, I’ll stick to my above scenario.
As indicated above, bank mortgages as currently structured cannot be serviced by the average worker outside the blue chip companies (Oil & Gas, Telecoms, and banking). Even in these cases, such mortgages are best entered into with caution in Nigeria’s uncertain work environment.
Mortgage loans within the context of Home Ownership schemes are primarily a commercial but secondarily social service offered by banks under special governmental regulation and incentives. The aim from my observation of other climes is to provide citizens with access to cheap long term funds to finance their home-ownership dreams. The intention is to enable a mortgagee achieve his home-ownership dreams whilst paying towards this a periodic amount slightly higher than the rent payable to a Landlord for a comparative property. This differs from the purely commercial transactions where a borrower puts up his property as collateral to secure credit for his business or private purposes. This is a layman’s understanding of mortgage services within this article’s context; I stand to be corrected.
The housing sector is an area Nigerian banks could make a serious social impact. Today, despite the difficulties in land registration created by the Land Use Act of 1978, there is a boom in this sector spearheaded by private entrepreneurs. The banks have proved late converts in this area, but have begun to finance large building developments for sale to the public. This is commendable, but still falls far short of what they can do.
Bankers’ excuses for this state of affairs are legion. The truth in my humble opinion lies in banks preference for short term business and thereby quick profits to long term projects and slower profits. That is a true capitalist orientation. Unfortunately, it is also a short-sighted orientation. The greater percentages of Nigerians in need of housing are outside the ‘high net worth’ group able to service the existing mortgage repayment schedules of the various banks in Nigeria.
Government’s ineptitude and indifference on this issue is even worse. The several ‘interventions’ of Federal and State governments have had little impact on the average Nigerian. Public Housing schemes have generally been swallowed up by Public officials and their cronies. This has left those who really need the homes no alternatives but to rent these ‘low cost’ or ‘medium cost’ homes from the new landlords as tenants at prohibitive costs.
The Federal Mortgage Bank of Nigeria was dead on arrival. The National Housing Fund Scheme has been worse. Few of those who registered and serviced the scheme could surmount the legal and financial hurdles to accessing its benefits. Even after fulfilling the requirements of accessing the N5million (maximum) loan available under the scheme, you will still contend with avaricious Primary Mortgage Institutions (PMIs) who are exclusively its processing agents. Reportedly, some process and receive the funds from FMBN (where it’s available) and roll it over continually whilst making the beneficiary believe it’s not been disbursed. Today, the scheme is in need of a serious makeover; procedurally as well as in its disbursable limit.
However, with excess money available to burn in their vaults; the Big 25 Banks are showing some interest in the sector. However, they still target up-end customers. A realistic mortgage plan that’s structured within the pockets of the average civil servant, teacher, and worker will work if approached with humane professionalism. The myth that Nigerians are scammers I’ve found largely untrue. Many bank defaults are often as a result of unfair practices by bankers themselves. In other cases, there are elements of internal collusion in several ‘bad debts’ reported across the banking landscape.
Dr. Tai Solarin’s People’s Bank showed that if treated fairly low/mid income earners will generally respect their bank obligations. An owner/occupier Mortgagee will hardly default on facility securing his family shelter. However offering mortgages at rates precluding an average worker meeting them on his honest income, foists on him a catch 22 situation.
Even when facilities are granted to private developers, the cost of funds to service the bank facility becomes a major portion of the retail price of the property and can more than triple the profit of the developer himself. In 2003, I was involved in studies that showed that with less than N2 million, tasteful 2/3 bedroom semi detached bungalow apartments were possible on laid out estates if the high cost of funds could be significantly reduced or eliminated.
However, my observation of our nation’s peculiar banking landscape often leaves me perplexed and ‘scatter-whelmed’. Today, the two main industries that flourish whatever the political or economic temperature are the banks and churches. Our banks seem more conscious of the bottom-line than social impact. They appear more interested in promoting programs and activities with questionable socio-economic impact than creating and promoting wealth and societal well being. Where they do show some presence, a closer look often reveals a Shylock like motivation and intent in securing a pound of flesh from their ‘hapless’ customer.
This view may appear harsh to those who fail to see beyond the publicised hype and inventive public relations gimmicks often seen in Nigerian media. I do not mean that no good comes out of our banking sector; however, I do respectfully assert that its social and community impact leaves much to be desired. I also accept that banks are not charitable organisations, but business entities set up for commercial profit. However, the experience of our Niger Delta region and the Oil majors reveal that commercial profit alone cannot power any business concern. Failure to realise and make concrete provisions to assist the community in which we operate can have devastating consequences in the long term.
The question is: three years after the banking consolidation, where is the much expected social impact of our nations consolidated banks? What we observe are banks manifesting signs of financial constipation. Many reasonably expected increased funding of the real sector, lower interest rates, inventive and aggressive banking packages to encourage private entrepreneurship; and yes… the vexed issue of SME funding. However, what the banks often belch to the public reminds you of a room of smoked mirrors: the more you look the less you see.
Seán Akinrele is a Solicitor and Advocate of the Supreme Court of Nigeria; http://www.akinrelegroup.com
Source: nigeriavillagesquare.com
