November 3, 2020
by CSL Research
A Business Day report says the Nigeria Mortgage Refinance Company (NMRC) has cconcluded a N10 billion 7.20% Series 3 Fixed Rate Bond to boost funding for affordable mortgage. According to the report, the net proceeds of the exercise will be used to refinance eligible mortgage loans originated by the participating mortgage lending banks. NMRC boss Kehinde Ogundimu noted that the bond issuance would result in a substantial decrease in mortgage interest rate and would translate to some cost reduction for the real estate developers who usually borrow short term at a high cost to fund long-term projects. The 2020 Bond issuance comes under the company’s NMRC N440bn Medium Term Note Programme and follows its 2018 N11 billion 13.80% Series 2 Bond and its very first N8bn 14.9% Series 1 Bond issued in 2015.
Data on housing in Nigeria is sparse. However, it is common knowledge that Nigeria has a huge housing deficit. The high cost of mortgage lending, the relatively short tenure of mortgage loans, and bureaucracy related to land acquisition are major hindrances to the development of the mortgage market. The NMRC is a public private partnership with strong private sector participation which includes commercial banks, primary mortgage banks, private equity investors and international finance institutions notably the World Bank and the IFC with a mandate of promoting the availability and affordability of housing to Nigerians.
The National Housing Fund (NHF) was established in 1992 by the NHF Act to mobilise funds for the provision of affordable residential houses. Under the Act, employers deduct 2.5% of the monthly basic salary of all employees and remit this to the FMBN. The FMBN manages the NHF and disburses funds to accredited Primary Mortgage Institutions (PMIs) for on-lending to contributors to the scheme, who can borrow to build, purchase or renovate existing homes. NHF loans attract a minimal interest rate of 6.0% and a longer tenor than retail mortgage loans from banks, which typically attract double digit interest rates and a tenor of between 5-7 years. Like most schemes managed by public institutions in Nigeria, however, accessing the NHF loans hasn’t been seamless.
Whilst we laud the NMR’s efforts to boost liquidity in the real estate industry, we note that the impact of COVID-19 on the finances of consumers in Nigeria has been very significant with many people losing jobs and others taking steep pay cuts. Thus, we expect new home acquisitions to become less of a priority. In addition, we expect corporate demand to wane with many businesses struggling with cashflow problems. This is added to the fact that legacy issues such as elevated cost of building materials, Land acquisition difficulties etc. still remain major stumbling blocks to growth in the real estate sector.