Further to my recent article on the limiting effect of the Nigerian mortgage system, a lot of Nigerians agreed with my point of view and admitted that something should indeed be done about both our mortgage and lending structure generally. I however believe that for people to get the true picture of the damage caused annually by our current lack of affordable and accessible lending and mortgage structure, we have to result to numbers (numbers never lie).
To begin this, it is important that we establish a few very simple assumptions. It has been said continually that for Nigeria to meet the current housing deficit of over 17 Million housing units, a minimum of 1 million houses must be built consistently over the next 17 years.
Let us assume that we are able to deliver 1 million houses per annum and spread same over all geo-political zones in the country. These could be apportioned as follows: 400, 000 units to the lower class (since they constitute the majority), 300, 000 to the lower middle class (2nd largest class in dire need of housing), 200, 000 to the upper middle and 100, 000 to the upper class (just so we don’t leave anyone out).
For this whole exercise to make sense, our point is that there must be affordable mortgage for everybody (both rich and poor) and available construction finance for developers at an affordable rate as well (regardless of the class they wish to build for). We propose 7% mortgage for off takers (buyers) repayable over 25 years and 9% interest rates for construction finance (remember these are all just assumptions).
Below is a table showing the price points of the houses, assumed equity contribution required (30% of sales price), outstanding 70% to be provided by the mortgage institutions and tenure of mortgage. Please note that the purchasing power is per family (i.e. combined income) and not per individual.
Table 2.1 below shows a simple mortgage analysis (following our assumptions above). It shows expected mortgage payable per housing unit, interest payable per housing unit and total amount to be generated just on interests by the financial institutions. We’re looking at N1, 679, 880, 000, 000, N2, 362, 410, 000, 000, N4, 724, 940, 000, 000 and N5, 249, 970, 000, 000 respectively (hope you know these are all in Trillions). This is what the expected revenue will look like for the banks on 1 million housing units if interest rate is at 7%.
Since we talked about construction finance to develop the 1 million houses, at 9% interest rate table 3.1 shows you what the figures look like per class of construction. Focus however is on the potential profits of; N180 Billion, N270 Billion, N450 Billion and N540 Billion respectively to be generated for the provision of construction finance for developers for 1 year. Imagine doing this for 17 years.
The last table, 4.1. shows the expected potential sales on 1 million housing units, expected profit and profit expected per unit. The table shows total turnover of N267 Trillion just on real estate if we can achieve production of 1 million housing units per year.
If you understand how the economy machine works, kindly imagine the ripple effect an annual turnover of N267 Trillion from just one sector will have on a broke economy. Remember that for a house to be built there is a huge value chain involved. I mean, how many nails will it take to build a million houses, how many bags of cement, how many doors will be needed, what about roofing sheets, windows, iron rods, sand, stones, wood etc. Hope you’re beginning to get the picture.
Based on all the tables and analysis above, the conclusion is basicly yours. However, recently Nigeria’s Minister of Housing was giving a speech on what he has done in the power sector and the progress he has made so far about road constructions (since he’s also the Minister for Power and Works) and he said nothing has happened so far this year on housing because the government doesn’t have enough funds to start building houses. Terrible mistake sir. It is not the government’s primary job to build houses. It is therefore not supposed to be Mr. Babatunde Raji Fashola’s main job as Minister for Housing. Your job sir is to put in place the right housing policies and ensure that same are enforces. Let the CBN know what you require to make the Real estate sector come alive and paint the right picture for all financial institutions as well as foreign investors so we can have the required funds for local developers to go to work on these projects. Establish standards, set up monitoring teams to ensure compliance and do whatever we will need to get the dream accomplished.
For God’s sake, let’s wake up from this deep sleep and stop loosing these huge amount of potential revenue that can solve our financial troubles and get us back on course to being the most viable economy in Africa.
My opinion generally is that a country with the potential to generate this much revenue annually hasn’t earned the right to call itself broke and therefore has no business looking for the easy way out when we can change our current situation by simply putting the right policies in place. Our problem for a long time now has been our unwillingness to exert our mental prowess and do basic things we all know to be right.
We have to get out of this mess for the sake of our children and children’s children. May God help us and give us the wisdom to fight for our rights.
I remain yours