Nigeria’s mortgage finance sector seen to expand 14.6% in 2017 despite high defaults

The Nigerian mortgage finance sector has been projected to expand 14.6 percent in 2017 despite macroeconomic challenges of labour volatility, high interest rates and growing defaults, which have seen non-performing loans grow to about 55 percent in the last four months.

A recent market intelligence report cited by FBNQuest analysts, indeed projects an annual expansion of 14.6 percent in mortgaged households in Nigeria this year just as Algeria and Egypt are expected to expand 16.3 percent and 18.9 percent year-on-year respectively.

Mortgage financing in the country is suffering from soft demand on the back of high interest rates as well as squeeze in consumers’ purchasing power as a result of the prevailing economic environment.

However efforts by the Federal Government and assistance from the World Bank may help expand the sector in the year despite the obvious challenges.

The FBNQuest analyst said though they believe that high average cost of mortgages of above 20% is also a contributory factor to the weak asset quality positions of mortgage firms, the FGN recently launched a N1.3 billion refinancing loan in collaboration with the Nigerian Mortgage Refinancing Company for civil servants, may offer a bright note to an otherwise bleak situation.

The first phase of the FGN initiative is expected to capture 5,635 civil servants, though the effective implementation of the scheme will depend largely on state governments for swift land approvals.

Also cherry to would be house owners is the fact that the World Bank has recently set aside a US$300m fund to assist with Nigeria’s mass housing projects, which would be facilitated by the Nigeria Housing Finance Programme.

Private sector-led efforts are equally salutary to the sector.

Efforts from the private sector include the “Easy Home” initiative of Lafarge Africa. Over the past three years, 30,000 nationals have benefitted from this scheme.

Lagos State has keyed into the scheme and aims to deliver 200,000 housing units over the next five years; the housing deficit in Lagos is estimated at three million.

“In anticipation of the capital releases from this year’s budget, we expect a pickup in activities within the construction sector as well as visible results from the FGN’s housing projects,” the analysts projected.

According to the budget, N57bn has been allocated for capital expenditure to the housing sector.

Increasingly, affordable housing in Nigeria has been difficult to obtain especially as squeeze in consumers’ purchasing power as a result of the harsh economic environment, which has tamped down demand.

For income-earners engaged in homeownership schemes via mortgaging, the process is hugely expensive due to volatile high interest rates.

“We struggle to see how the FGN will bridge the country’s housing deficit over the medium-term,” the analysts noted, adding that in addition to the increased prices of building materials, property developers have cited the lack of skilled labour in construction as a major issue.

On default, the analysts fear that it may worsen going by growing job losses and the recent NBS data indicating that unemployment rate in the country rose to 14.2% as at end Q4 2016.