In January 2014, the Nigerian government announced its establishment of the Nigeria Mortgage Refinance Company (NMRC), a state entity that will provide long-term, low-interest financing to local lenders, to encourage them to ramp up their mortgage offerings for end-users. The new firm is the latest in a long line of affordable housing initiatives the government has launched since 2011. Addressing Nigeria’s acute housing shortage – especially in the low- and middle-end market – has been a major focus over the past half decade. “Developers are currently trying to figure out how to build homes for this market while still turning a profit,” Olufemi Oyinsan, head of commercial broking at Broll Nigeria, a major property investment firm, told OBG. “Given the existing demand and the country’s rapidly changing demographics, there are huge opportunities here.”
Nigeria’s total housing deficit is enormous, standing at an estimated 15m-20m units as of late 2013, according to government data. In Lagos, the country’s largest urban area and one of the fastest-growing cities in the world, around 70% of the population lived in slums as of early 2014, according to Lagos State authorities. Key contributing factors to this in recent years include rapid population growth, a high rate of urbanisation, and an underdeveloped and costly mortgage market.
The launch of the NMRC in early 2014 is widely expected to have a positive impact on this last issue. The government has also carried out several of its own affordable housing development projects in recent years, and more are in the works. Given these efforts and rising levels of private sector interest in the sector, Nigeria’s housing market has the potential to expand 10-fold in the near term, according to an early 2014 statement from the coordinating minister for the economy and minister of finance, Ngozi Okonjo-Iweala. “There is a huge amount of pent-up demand for housing in Nigeria right now,” said Michael Chu’di, Ejekam, Lagos real estate director at Actis, a global private equity firm. “The question is, How can the government and the private sector work together to ensure affordability of highquality housing for citizens at all income levels?”
Demographics & High Costs
Nigeria’s current housing deficit is the result of a confluence of long-term demographic, economic and property trends. As of the end of 2013, Nigeria was Africa’s most populous country, at around 170m people, according to the World Bank. This figure is expected to grow exponentially in the coming years: long-term UN forecasts show the population could reach 289m by 2050, a compound annual growth rate of 1.44%, making it the 8th-largest country in the world.
Another big factor is the population’s youth. According to World Bank data, as of mid-2013 an estimated 43% of Nigerians were under 15, and some 63% were under 24. Up to 50% of the working-age youth population is unemployed, compared to around 24% of the population as a whole, according to the National Bureau of Statistics (NBS). Ensuring that Nigeria’s large youth population has access to jobs and housing is a major long-term challenge.
A number of factors have contributed to the high cost of real estate in Nigeria, particularly in Lagos, Abuja and other urban areas. These include high land prices, numerous taxes, fees and other bureaucratic costs, rising labour costs and high prices of building materials. Nigeria is also home to one of the most expensive constructions markets in Africa (see Construction overview). Under the Land Use Act of 1978, most of Nigeria’s land was nationalised and handed off to various government entities, which continue to control much of the country today.
The high price of real estate means most residential properties are out of reach for all but the wealthiest Nigerians. Despite becoming the largest economy in Africa after a rebasing of the nation’s GDP figures in early 2014, income inequality has increased in recent years. According the NBS, as of the end of 2012 – the latest data available – around 61% of Nigerians lived on less than $1 per day, up from 52% in 2004. The poverty rate is especially high in Nigeria’s northern states, where security has recently become a key concern.
The high cost and general inaccessibility of mortgages has been another deterrent to developing residential real estate. The country’s mortgage market is underdeveloped and underutilised: according to the World Bank, from 2004 to 2010 just 44,000 mortgages were issued in Nigeria, with an average size of N5m ($30,500). The ratio of outstanding mortgages to GDP was 0.6% in Nigeria at the end of 2011, compared with 31% in South Africa and an average of about 50% in European countries.
Most local commercial banks have an extremely low tolerance for mortgage lending risk. Interest rates range from 18% to 30%, depending on the applicant’s finances and the housing type sought. Most mortgages are very short term, ranging from one to six years, and banks generally require a high equity contribution from borrowers. Finally, just 25-35% of Nigerians had a formal bank account as of late 2013, meaning the majority of the population has no credit history and is ineligible for most loans.
A New Institution
The establishment of the NMRC is widely expected to boost access to mortgage loans across Nigeria. According to OkonjoIweala, “The NMRC is expected to pull down lending rates for housing from the current spread of 20-23% to the low double digits, or at least to a high single digit.” While the new entity plans eventually to source most of its financing from the private sector, it will initially subsist on a $300m loan that was jointly administered by the federal government and the International Development Association. The loan has an interest rate of 0% and a 40-year tenor with a 10-year grace period. Additionally, the NMRC has announced plans to float a N50bn ($305m) round of bonds as soon as possible, followed by regular fixed-income issuances for the foreseeable future.
The firm will deploy this capital in three ways: by buying up bundles of mortgages from commercial banks and reissuing them on more favourable terms; establishing guaranteed mortgage facilities for lowincome borrowers; and developing new microfinance products for housing. The goal is to provide Nigerians with 20-year mortgages at interest rates in the 4-9% range. By easing access to lending, the government hopes that, in time, the NMRC will enable the construction of 75,000 new homes a year, generating 300,000 direct and 488,000 indirect jobs.
The new NMRC is expected to have a positive impact on many existing housing programmes in Nigeria. In the first quarter of 2012 the Federal Mortgage Bank of Nigeria (FMBN), which was restructured in the early 2000s, turned a profit for the first time since it was set up in the years leading up to independence in 1960. The state-run bank is involved in a range of initiatives aimed at boosting accessibility to housing loans and the construction of affordable housing.
By early 2014 the FMBN had provided financing for 50,000-60,000 new affordable housing units since 2010, according to government data. Much of this cash was sourced from the National Housing Fund, a federal account fed by mandatory donations from employees in the public and private sectors. Speeding up construction of new units is a key objective: under the National Housing Policy launched in 2012 by the Federal Ministry of Lands, Housing and Urban Development, the government plans to build 500,000 new units by 2016. As of early 2014, the plan was widely considered behind schedule.
The NMRC, which is being touted as a new and potentially large source of financing, could have a knock-on effect in this area. In time, the new firm could also serve as a major source of financing for projects by the Federal Housing Authority, a parastatal under the FMLH, and state authorities, many of which operate their own housing programmes.