In the face of a housing deficit that numbers millions of units, Nigeria is working to increase home ownership by improving access to credit and reducing development costs for low-income housing.
Easing mortgage access
In March the federal government announced it would waive an initial 10% payment on mortgages below N5m ($15,700) administered by the state-owned Federal Mortgage Bank of Nigeria (FMBN), targeting future homeowners taking out mortgages in the low-to-mid price range. The average cost of a mortgage is $18,000, with interest rates at around 19% as of September, according to the Centre for Affordable Housing in Africa.
The move comes on the back of the creation in September of the government’s Family Homes Fund. The mandate of the N500bn ($1.57bn) fund is to keep mortgage rates for affordable housing at well under the average 23%, targeting 9.99% payable over 20 years.
With prospective buyers required to put down an initial deposit of 10% to qualify for these home loans, 70% of the mortgages are expected to go to houses priced between N2.5m ($7900) and N4.5m ($20,000).
Financed by the Sovereign Wealth Fund, federal government bonds and Bank of New York, the scheme will work as a public-private partnership. It is also expected to promote the development of primary mortgage institutions, which tend to have a narrow banking licence and are generally reliant on wholesale funding, making them more vulnerable in times of financial or economic crisis.
These changes will come as welcome news to many Nigerians, with half of the population living on less than $1 a day. Furthermore, the minimum wage is currently around $60 per month, meaning home ownership is often out of reach for those in the low- to middle-income wage bracket.
A standard mid-level apartment in an urban area, for example, can cost roughly $100,000, with rent averaging around $5000 a year, according to the Centre for Affordable Home Financing in Africa, leading to a home-ownership rate of 25%.
Meanwhile, the mortgage penetration rate stands at about 0.6% of GDP, as per World Bank data, which although low by standards in more developed economies, puts Nigeria roughly in line with many other large African markets.
Low mortgage uptake is attributed to lack of awareness and cost, as high interest rates can make mortgages too expensive for middle- and low-income earners.
In order to begin filling the country’s existing deficit of 17m housing units projected by the World Bank and to meet the increase in demand, the government will need to support the construction of 170,000 units per year over the next decade.
With almost half of the country’s 184m-person population residing in cities and urbanisation growing at an annual rate of 3.75%, demand for affordable houses is also set to remain strong.
To address this problem, the FMBN signed a memorandum of understanding in January with the Real Estate Developers Association of Nigeria (REDAN) and pan-African finance institution Shelter Afrique to establish a $2bn affordable housing fund.
The money will help to finance the construction of a targeted 10,000 homes annually over the next decade by distributing $200m per year to developers. In addition, the signatories of the MoU expect the construction work generated by the funding to create more than 150,000 jobs.
“We agreed that we needed to bring in Shelter Afrique to work in partnership with REDAN to make available some funds over the next 10 years by providing REDAN members with the necessary construction finance that is required to drive the national housing model,” Richard Esri, acting managing director of FMBN, told media during the signing ceremony.