Securitization and Unitization of Real Estate Market May Be Key to Affordable Housing in Nigeria

Securitization and unitization of the real estate market are emerging as viable alternatives to promote mortgage financing in Nigeria. Despite efforts by the government to establish a vibrant mortgage market and primary mortgage institutions, the sector has yielded little results. Industry experts believe that a deliberate mass participation by the investing public, rather than a central policy thrust, is necessary to ensure the provision of cheap and affordable mortgages and houses for low and middle-income earners. With the recent Central Bank of Nigeria's (CBN) searchlight on bank's risk disclosure management, commercial and mortgage banks have been momentarily confined to a zero issuance of long-term facility, the best option for housing finance. Finance and housing development experts are now promoting the use of stock exchange-based vehicles to drive the property sector.

Key Takeaways:

• The National Housing Fund Decree No. 3 (1992) attempted to provide long-term loans to mortgage institutions for on-lending to contributors, but it has yielded little results.
• Industry observers note that the problems associated with mortgage finance and re-finance within the housing delivery process in Nigeria are complex and may require alternative solutions.
• Securitization, a process of converting properties or debt into notes and securities, can facilitate massive involvement in the housing delivery process and promote the provision of cheap and affordable mortgages.
• The existence of a fiscal discipline in the commercial banking system is necessary for the securitization system to thrive, but the current economic situation in Nigeria may hinder its implementation.
• The recent CBN cleansing may influence the economy and impact the securitization system, but the issue of transparency is highly needed for the new deal to work.
• The stock market can provide perpetual capital for the development of a vibrant mortgage system, reducing reliance on debt financing and improving corporate debt-to-equity ratios.

Statistics:

• The Central Bank of Nigeria's (CBN) searchlight on bank's risk disclosure management has resulted in a zero issuance of long-term facility for commercial and mortgage banks.
• The National Housing Fund has gathered funds over the years, but it is yet to release them to a few healthy primary mortgage institutions (PMIs) due to the lack of fiscal discipline in the commercial banking system.
• The interest rate in the current mortgage arrangement in Nigeria is between 6-9 percent, while access to available funds at a lower rate of 3-4 percent, as seen in other parts of the world, would be necessary for the above interest regime.
• The issuance of equity securities can provide perpetual capital for the development of a vibrant mortgage system.

Sources:

• Daily Champion, November 23, 2009
• AllAfrica Global Media (allAfrica.com)