Nigeria's housing problem is simple: there are not enough of them. Building houses, however, has proven trickier than you would think.
The Real Estate sector is fairly large, accounting for 8% of Nigeria's GDP at the end of 2016, having enjoyed a boon between 2010 and 2014. Despite that, a swelling population and increasing urban migration have fuelled a perpetual deficit driven by soaring demand.
Housing For All?
Just how many new housing units does Nigeria need? In 2016, the government suggested 17 million additional housing units.
We are nowhere near that number. The Economic Recovery & Growth Plan, the government's flagship long-term plan, aims to construct 10,000 housing units each year by 2020. A drop in the ocean.
Naturally, the private sector would be expected to pick up the slack, mainly through mortgages. How have these fared in Nigeria? Poorly.
The first national mortgage policy in the 70s was established to provide long-term credit facilities to prospective home-owners via banks and other mortgage institutions. Penetration of the scheme was low, mainly because the rates were too expensive for most people. And cost remains an issue – it is no wonder that less than 3% of Nigerians have a mortgage.
Now, the Nigeria Mortgage Refinance Company (NMRC) is the primary wholesale mortgage vehicle in the country. The way it works is that loan applicants apply to mortgage institutions based on uniform underwriting criteria set by the NMRC. Only three years old, the agency has made considerable strides without solving the dilemma of making cheap long-term loans available to the masses.
It seems like mortgages in Nigeria suffer from a structural problem; those with the greatest need are less likely to afford one, especially with the high interest rates in the country.
So, the problem isn't necessarily a lack of funds, but the unavailability of cheap finance. By nature, mortgages are long-term liabilities, making them problematic in an environment with high interest rates. Imagine paying a 15% in interest on a 30-year mortgage; by the end of the period, you are likely to have paid at least five times the original price of the house.
Add in Nigeria's short-term lending culture and the high cost of real estate construction in the country – no thanks to high cement prices and difficulties in acquiring land – and "affordable housing" becomes a pipedream.
Alternatives have arisen in the absence of a robust mortgage financing framework. Some are technology-driven; Fibre.NG facilitates monthly rent payments in a country where paying rent upfront remains the norm. Meanwhile, some private mortgagers focus on a high-margin business by providing short-term real estate loans to prospective home-owners at relatively high rates.
How can land be owned by another man?
Other challenges remain. Nigeria's ancient land laws are unconducive for real growth in the sector, and the problem of property rights is one of the fundamental challenges in the industry.
In Nigeria, land belongs to the government. Specifically, state ownership of land in Nigeria can be traced to the 1861 Treaty of Cession which was a move by the government to acquire land compulsorily for public purposes.
State ownership of land is not a problem; Singapore, a country celebrated for property rights, also has a state ownership structure. The difference is that it also has land in leasehold, freehold and perpetuity. This structure proves some security and confidence that land will remain in your possession regardless of regimes (depending on the type of ownership you possess of course).
In 2014, Nigeria scored 35 on the Global property rights index. Singapore scored 97. Singapore also has the second highest rate of home ownership in the world (91% in 2016), Nigeria has just 25% (2015). Better property rights would lead to home ownership, in time.
A tale of two cities
In reality, Nigeria's real estate market is a tale of two segments: an over-supplied premium end for high-income earners and an under-supplied mass market for affordable housing. The high-end market, inclusive of commercial property, has struggled in recent years while the lower end of the market still has a large deficit.
In terms of impact, attention should focus on the less glamorous, but more important affordable housing market. This is also the thought articulated by the government in the EGRP. Its Family Homes Fund, a public-private partnership to provide social housing has an expected fund target of ₦1 trillion and hopes to build 2 million housing units by 2020. Again, not enough, but a step in the right direction.
Finance provides another way for the average Nigerian to help, too. You can buy into Real Estate Investment Trusts (REITs), a form of collective investment schemes which pool capital from investors to construct or acquire real estate. Investors receive returns from the income generated by the asset (e.g. rent). REITs are growing in Nigeria but remain underappreciated compared to other countries.
On their own, neither REITs nor the Family Homes Fund can be a panacea. Nigeria must amend its legal and economic structures for real estate to thrive. This is the only way Nigerians would be able to afford to put a roof over their heads.