Homeownership in Nigeria remains a struggle. Given the choppy macro terrain, purchasing power has been severely eroded, 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. Nigeria’s housing deficit stands at 17 million units and the estimated cost of bridging this gap is N59.5trn. Industry estimates suggest that about 100,000 new houses are built each year in Nigeria, compared to estimated demand of 700,000 units.
Mortgage financing, the alternative to outright purchase, 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.
The high average cost of mortgages of above 20% is also a contributory factor to the weak asset quality positions of mortgage firms. Given that the job market remains fragile, it is unlikely that Nigeria’s mortgage loans to GDP ratio will double in the near term given that the number of potential mortgagors could decline on the back of increasing unemployment.
Industry sources suggest that due to the country’s housing deficit, tenants spend about 60% of their disposable income on rent compared with 30% recommended by the United Nations. Given the current squeeze on consumers’ pockets this has become more difficult for Nigerian nationals and is putting immense strain on the country’s property market.
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 fund will be deployed to drive mortgage finance via a model by which developers will build special houses to the FG’s stated specifications. The Fund will bridge the affordability gap by providing long tenor mortgages at single digit rates to qualifying first time home buyers within targeted household income thresholds.
The initial delivery target is up to 100,000 units, rising to 500,000 units per annum within three years. Nigerians with monthly disposable incomes as low as N30, 000 will be able to benefit from the scheme. Already about nine states are supporting the scheme by giving land and certificate of occupancy. Other states are expected to follow suit as the fund gathers momentum.
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. It is assumed that the interest rate will be single-digit, however, the exact figure is undisclosed. The CBN has appointed nine microfinance banks to implement this housing finance scheme.
On a state level, the housing deficit in Lagos State alone is estimated at three million units. The Lagos State government aims to develop 20,000 housing units over the next three years. This initiative will be modelled as a rent-to-own scheme, which will afford first-time home buyers with a verifiable source of income the opportunity to own their homes. Successful candidates will be required to pay 5% of the total value of the property as a down payment while the balance is to be spread over a ten year repayment period. The scheme is an improvement on the previous administration’s Lagos home ownership mortgage scheme, which required an initial deposit of 30% of the total cost.
There are also efforts from the private sector which includes the “Easy Home” initiative of Lafarge Africa. Over the past three years, 30,000 nationals have benefitted from this scheme. Lagos State has keyed into the scheme and aims to deliver 200,000 housing units over the next five years.
These schemes are laudable, however, if the real economy cannot feel the direct impact of increased affordable housing they may appear fruitless. As it stands, the middle class find it difficult to secure houses that are located in close proximity to city centres. The housing units obtainable for this social class are usually in the outskirts due to their earning capacity which by the way is relatively decent.
In Lagos, housing units in prime areas such as Ikoyi and Victoria Island are not particularly affordable for the working population. Interestingly, the vacancy rates in these area are high with little or no signs of price adjustments to suit consumer pockets. Perhaps, bridging the national housing deficit could lead to a dip in pricing as increased supply would push demand downwards and eventually result in lower prices for both rent and outright purchases.
The weakening of the naira over the last few years presented Nigerians in the Diaspora with opportunities to invest in the country’s property market. However, increased activity is expected across the property market (both demand and supply sides) as the economy slowly recovers.
To drive growth, social intervention initiatives such as mass housing are required. Apart from creating shelter, the ripple effect it has through its potential job creation is vast, capable of lifting low-income earners to the middle class.