Interest rate, hindrance to reduction of housing deficit

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Minister of Power, Housing and works, Mr. Babatunde fashola

By Adewumi Ojo

Efforts in reducing Nigeria’s housing deficit may be far from achievable due to high interest rate being charged by mortgage and commercial banks.

Findings by Nigerian NewsDirect revealed that an average interest rate being charged by this economy supporting institutions stands at 25 percent which is far from flexibility.  The rate, coupled with the complexibility in accessing this financial aid adds more salt to an already existing sour in the building industry.

Statistics released recently by the Central Bank of Nigeria showed that lending rates banks charged for montage related loans stands at high rate.

The data released by the apex bank indicated that the margin between deposit and lending rates was over 25%.

It showed that commercial banks charged between 13 and 29 percent for prime lending rates while maximum lending charges ranged between 19.9% and 30 percent.

This and government unfriendly policies serves as a stigma to the actualization of modest shelter for the populace.

Findings revealed that developed countries such as Britain was able to surmount housing problems as a result of it flexible mortgage system which has its interest rate stand at maximum 5percent interest rate for 25-30years. Most of the foreign banks also offer an introductory rate of under 1percent for the first two years.

Mortgages constitute successful emerging markets, which serves as a far predominant means through which people acquire houses.

A former President of Nigeria Institute of Quantity Surveyors (NIQS), Agele Alufohai at 2017 National Built Environment Conference (NABECON) organized by Nigerian Institute of Building and Council of Registered Builders of Nigeria (CORBON) stated that mortgage is crucial to the development of every nation’s infrastructure and for economic sustainability.

“Mortgage is critical to construction because all over the world, houses are expensive development, for an overwhelming majority of people in the world, it is the single biggest investment they will ever make in their lives.

He said mortgage brings shelter to the people and propel individuals to live a sustainable life.

“Mortgage accelerates or brings forward the purchase of homes by hundreds of thousands, if not millions of citizens. In developed and successful emerging markets, mortgages are by far the predominant means through which people acquire houses.

Mortgage constitutes about 10 percent of the assents or loan portfolios of banks in the west, rising to 20percent for some banks. In Nigeria less than 3percent of homeowners acquires or builds through mortgages”.

Nigeria with a population of about 180million is facing housing deficit of over 17million, the target of reducing this may be far from achievable. The nation commercial capital, Lagos state alone is estimated to have a deficit of over one million.

In closing the gap of housing deficit in the country, the Federal Mortgage Bank of Nigeria (FMBN) posited that the country need to build 720,000 units of houses per annum at a cost of 56 trillion naira per annum.

Indications also emerged that total assets and liabilities of all mortgage finance institutions in the country is only N97 billion with 10billion naira being contributed into the National Housing Fund.

Alufohai observed that more funds needed to be mobilized into the funds so that Nigeria could have more access into it and have more opportunity of building houses.

“It is much better to mobilize funds so that 45percent of Nigerians could get mortgages at 14per cent than only 2percent of Nigerian access mortgages through the NHF”.

Recently, some state of the federation moved out of National Housing Fund, which at such block their access to the fund or benefits that its entails. This position has further complicated the move towards the provision of housing unit by state housing corporations.

The National Housing Fund (NHF) was established by Act 3 of 1992 to enable Nigerians in all sectors of the economy, particularly those within the low and medium income levels who cannot afford commercial loans town houses by contributing 2.5 percent of their monthly salary to Federal Mortgage Bank of Nigeria.

In a chat with Nigerian NewsDirect, the immediate past president of Association of Town Planning Consultants of Nigeria (ATOPCON), Tpl. Olaiya Afolabi, said accessing loans in the construction industry is cumbersome which is serving as a major difficulty facing developers.

He said interest rates being demanded by most of the financial institution is high and not in line with the nature of construction project. He said it’s a situation that has been worrisome to  most developers and builders which many has perceived as a stumbling block to the goal of reducing housing deficit in the country.

“Over the years the construction industry has been badly hit with the interest rate that is being charged by banks and all that, and in many case banking system in Nigeria most of them are not set up for  construction activities, construction is long term in nature compared with other forms of economic activity that are short term in nature and by nature of construction industry which is long term in nature, you can use short term loan to finance such project because of its long term process, and the short term one we are talking about, the interest rate is very high  and cannot support construction activities. It’s unfortunate that the federal mortgage bank and the rest of them are not working the way they should.

Tpl. Olaiya said the major step government can take in giving room to efficiency and sustainable funding that will attract both local and foreign builders and the entire public is for the government to establish a construction Bank that will help in construction projects.

“I will support any move that will give room to construction activity at a single digit interest rate as compare with the boggy digit that we have in the country now. The construction bank which will be at low level interest rate will be an immense contribution to the construction industry in Nigeria and the economy.”

Similarly, the Association of Housing Corporation of Nigeria in its 44th Annual General meeting urged the federal government and central bank of Nigeria to provide revolving housing fund and inject a minimum of N500 billion into the real estate sector at a single digit interest to develop the housing sector.

The situation of high interest coupled with high cost of building materials has resulted to high cost of securing houses in the country particularly in the urban area.

With an urbanization rate of 4.39 percent, demands for affordable housing will remain strong for both on rentage and permanent basis.  Mortgages institution is charged with the responsibility of administering and serving as a financial backbone to real estate investors. But the shadow has been the focal point of the undertakings thereby making it an unachievable target.

Until constructively visited, high interest rate may continue to frustrate effort in providing and securing affordable houses for people in the country

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