August 11, 2022/Coronation Research

Housing supply remains inadequate in Nigeria. Official records place the country’s housing deficit at 28 million units. According to the latest national accounts, the real estate sector grew by 5.3% y/y in Q1 ‘22 and has averaged a growth rate of 5.6% over the past eight quarters.

Housing finance remains in its infancy. Nigeria’s mortgage/GDP ratio of 0.6% compares with South Africa’s 23%, Tunisia’s 10.6% Kenya’s 2.1%, and Ghana’s 0.8%. 

According to the FGN’s national development plan (2021-2025), the FGN intends to improve access to affordable housing by constructing between 500,000 – 1 million houses per year. The goal is to boost the real estate to GDP ratio to 8.4% y/y by 2025. It is currently 4.4%.

We note that there are several priority sectors and so the FGN has competing claims for its limited budgetary funds. In the 2022 budget, the FGN allocated N12bn to the national housing program, compared with N11.9bn allocated last year.

Additionally, N10bn was allocated to social housing scheme (family homes fund), N2.1bn for new social housing in Iponri Lagos State and N1bn for new prototype housing scheme in Niger and Lagos states.In July ’22, the MPC/CBN raised the policy rate to 14% in an attempt to combat rising inflation. The headline inflation is currently 18.60% y/y.

As at June ‘22, prime and maximum lending rates were 12.9% and 27.6% respectively vs 11.96% and 27.37% in the previous month. According to the CBN, mortgage loans to the private sector by primary mortgage banks (PMBs) stood at N198.3bn in June ’22 vs N187.8bn in the corresponding period of 2021.

The Federal Mortgage Bank of Nigeria (FMBN) is the principal public financing institution, tasked with addressing housing challenges in the country. The bank provides national housing fund (NHF) loans at 4% interest to accredited PMBs for on-lending at 6% to NHF contributors over a maximum tenor of 30 years. This is in addition to providing estate development loans to private developers, state housing corporations and housing cooperatives.

Furthermore, the bank provides a rent-to own mortgage scheme whereby the period for rental payment is 30 years with an interest rate of 7% of the property price. Other mortage products offered by FMBN include; home renovation loans, construction loans and diaspora mortgage loans.

Since 2017, the FMBN has issued c.4,985 mortgages and disbursed home renovation loans valued at N49.3bn to 60,500 beneficiaries. We understand that the construction of at least 9,500 affordable housing units across the country were financed by FMBN.

Similarly, the Nigeria Mortgage Refinance Company (NMRC) is expected to deepen the primary and secondary mortgage markets by providing liquidity to the mortgage market and enhancing the maturity structure of the industry’s loans. As at December ‘21, NMRC disclosed that it had refinanced mortgage loans totaling N21.1bn compared with N17.4bn in 2020.

Public-private partnerships (PPPs) targeted at mass housing schemes should be encouraged. Although there are commendable steps with regards to this collaborative effort, there is still vast room for improvement. The Federal Housing Authority (FHA) recently completed 1,016 affordable housing units in select locations across the FCT, Bayelsa and Cross River. To expand this project to other states such as Imo, Rivers and Lagos, the FHA has
considered leveraging PPPs.

On a separate note, it is worth highlighting that the Nigerian Exchange Group (NGX) recently raised c.N72bn (USD167.9m) for real estate companies quoted on its platform. Furthermore, NGX intends to launch an “impact board” to support the listing of social bonds that would raise capital to meet housing sector needs.

Funds held by pension fund administrators (PFAs) can be channeled towards providing affordable housing. As at June ’22, assets under management (AUM) totalled N14.2trn. However, funds allocated to the real estate and real estate investment trust (REIT) asset classes account for less than 2% of total AUM. PFAs could consider increasing their exposure to funds or companies in the housing value chain, pursuant to PENCOM investment guidelines.

Bespoke instruments such as mortgage-backed securities would also assist in capital formation and reduce the housing deficit.

Another challenge faced by the housing sector, is the lack of a robust housing database. There is a silo-working approach regarding data gathering within the sector. Developers, real estate agents and financers tend to build their respective in-house database but seem reluctant to share publicly due to concerns around market share expansion. Meanwhile, data collected by regulators with oversight on investment, urban development, and participation in property markets is not readily available in the public domain.

The dearth of data contributes to the sluggish pace in home ownership and affordable housing initiatives. The rising cost of building materials poses as another challenge impacting housing supply and affordability.

The heavy reliance on imported inputs (such as, building materials) used for construction exposes the sector to pass through effects that emerge from exchange rate depreciation. Industry sources suggest that c.55% of building materials are imported.

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