Housing anywhere in the world is a basic necessity, which in the order of human needs, ranks third after food and clothing. Whereas housing anywhere in the world is a basic necessity, which in the order of human needs, ranks third after food and clothing. But in Nigeria, it is a luxury accessible by only the rich who constitute less than 10 percent of the country’s over 200 million population.
Access to affordable housing in Nigeria is crippled by among other factors the lack of a non-functioning mortgage system, high cost of property development buoyed by the country’s 42-year-old Land Use Act. A poll of mortgage rates in 40 African countries shows that Nigeria has one of the highest interest paid for housing loans at 25 percent per annum, and is only less than Guinea (26%) and Zambia (32%).
Nigeria’s ballooning inflation rate, which quickened to a 48-month high in February, is the key reason for the high mortgage rate in Africa’s most populous nation, analysts say. Countries like Morocco, Senegal and Egypt ride on record-low inflation rate to post an average mortgage rate of about 5 percent per annum, five times less than Nigeria’s 25 percent.
The gradual upward movement of prices due to inflation is a reflection of the overall economy and a critical factor for mortgage lenders. When the price level rises, each unit of the naira buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money. Mortgage lenders generally have to maintain interest rates at a level that is at least sufficient to overcome the erosion of purchasing power through inflation to ensure that their interest returns represent a real net profit.
If Nigeria wants to bridge its housing deficit and enable mortgage access to its country’s 46 million people who are employed yet cannot afford to buy a house, it would have to first achieve a single-digit inflation rate, Victor Ndukauba, deputy managing director, Afrinvest, says.
Despite various policies and strategies adopted by the Nigerian government to combat Nigeria’s housing crisis, the country still has one of the lowest homeownership rates in Africa and requires over N300 trillion to bridge its housing deficits of over 20 million units.
“To address the housing challenges, you need to have a mortgage industry and it has to be at an affordable interest rate,” Funke Okubadejo, director, real estate, Actis, notes. A typical mortgage rate in Nigeria ranges between 7 and 10 percent for Federal Mortgage Bank of Nigeria (FMBN) and between 15 and 25 percent for commercial mortgage institutions, making it one of the highest in the world.
The major issues that continue to affect housing delivery in Nigeria, which also account for the wide demand-supply gap, include constraints related to the high cost of securing and registering secure land title, according to Nasir el-Rufai, Kaduna State governor. “The cost of building a house is the same, whether you are building in Victoria Island or Ikorodu, but it is the land value that drives the cost of properties high,” Adekunle Abdul, Managing Director, Metro & Castles Homes, a real estate development company, states.
Enacted in 1978 during Nigeria’s military regime, the Land Use Act, which has not been reviewed in the last 42 years, was signed to curb land speculation but is now a key driver for the astronomical rise in land cost.