The Impact Of Mortgage Institutions On The National Housing Policy And Development In Nigeria

Project and Seminar Topics with material for Banking and Finance

Abstract

The subject matter of this research work examined the impact of Mortgage institutions on the National housing policy and Development in Nigeria. This study also examined the effect of mortgage finance and National Housing Fund on Nigerian Citizens towards acquiring their own houses. The work outlined and appraised critically the contributions of Federal Mortgage Bank of Nigeria and Primary Mortgage Institutions to Housing Development in Nigeria. The data for the research work were collected by the use of primary and secondary sources Primary sources of data collection embrace questionnaire, secondary sources on the other hand include data from review of related literatures, journals, and seminar papers. Relevant hypotheses were formulated and tested.

The findings showed that Federal Mortgage Bank of Nigeria is a mortgage finance institution and has been assisting a considerable number of Nigerians with cheap housing loans for the past 46 years. The Federal Government promulgated the National Housing Fund Decree No 3 of 1992, primarily to address the constraint to the mobilization of long term funds for housing development and to ensure that Nigerians have access to housing loans at affordable rates of interest. Conclusively, if the system can press forward along these lines, and Banks and the NHF operating constraints are removed, the general picture of the mortgage industry and housing delivery will be fundamentally different, in few years to come.

Chapter One

1.0 Introduction

1.1 Background to the Study

Housing is widely and globally regarded as one of the basic of human needs for human existence which transcend the provision of shelter but including infrastructures and other supporting facilities like schools, health, etc. Agbola (2005) posited that, the house is an institution created for a complex set of purpose beyond provision of shelter. He further opined that, it is a social unit of space where every human being resides, irrespective of age, sex and status differences. This fact had not been lost to government, according to Arayela (2005), under the third National Development Plan (1975-1980), the Federal Government of Nigeria proposed to build 202,000 housing units all over the country, comprising 8000 units in each of the State capitals, with the exception of Kaduna and Lagos States which were allotted 4000 and 46000 additional units respectively, which were not realized. In spite of the intention, Agbola (1998 & 2005) noted that the period of third National Development Plan was when housing units became more scarce and costly, relative to income and as such described the period as abysmal failure. This implies that part of the reasons for the failure was that the houses were designed and built to completion through contractor, before being handed over to prospective users, without their respective inputs into the process thereby favoring the high and middle income groups. Accessing long-term credit facility for acquisition or development of personal homes has been a great challenge among the Nigerian low income earners. Available Long-term credit facility for home acquisition or developments for the low income group in Nigeria are basically from the Nigeria Housing Fund (NHF) and the Private Financial Institutions (PFIs). The NHF operates on a depository arrangement whereby civil servants and self-employed persons contribute part of their monthly income into the Fund through their respective employers or by direct payment into the Federal Mortgage Bank of Nigeria (FMBN) in order to access the appropriate credit/loan facility. Events have however, revealed that few contributors to the Fund have benefited from the mortgage loan, because the NHF is inadequate in providing for the housing needs of its contributors (Ozili (2009). He further noted that the pre-conditions for accessing loans are not affordable to the low income group and the poor. This however led to the emergence of PFIs providing mortgage credit/loan facility to prospective home-owners and property developers. Kuroshi, Mallo, Mosaku and Anigbogu, (2008) observed that interest rates chargeable on credit facility provided by Private Financial Institutions are usually very high and on a very short repayment tenor. CBN (2009) revealed that the recent global financial crisis on the Nigerian financial system have also affected mortgage financing in Nigeria.

Thus, Nigerian banks have adjusted their respective interest rates against the financial crisis while the Central Bank of Nigeria has in turn adopted new policies for the Nigerian financial system as a result of the crisis. However, Kolapo and Amaefule (2009) and Spio-Garbrah (2009) are of the view that such policies may further create impediments to accessing credit for home acquisition and/or development by prospective home owners. The likely impediments identified included liquidity problems and the emergence of shadow banking. What had become obvious is that the goal of the National Housing Policy of 1991 at ensuring that all Nigerians own or have access to decent, safe and healthy housing accommodation at affordable cost or price has not been achieved. Perhaps, that was why Agbola (2005) states that there exists a yawning chasm between the magnitude of demand and the capacity of supply. This gap had resulted to individuals resorting into self-help approach. The self-help approach had been aided by personal equity/cooperative formations or whole/ part subsidy by employers of labour through loans or mortgage financing that is backed by securities and/or cooperative mechanism. Low income/wages, high lending rates, tax requirements, difficulties in land administration and mortgage transactions etc have been identified as the greatest impediments to credits/loan facility and that drift to the peri-urban areas are most of the time driven by lack of adequate fund to compete in main urban Centre’s with all its implications for other supporting facilities or lack of them. This forms the basis for the research problem, taking into consideration.

Therefore the provision of house has always being a major concern. Individual effort to build or own a house nowadays has been subject to a number of constraints. The high cost of land (especially in the urban area), high cost of building materials (most of which has to be imported) couples with the mobility to raise the required funds have contributed hindrances to housing policy in Nigeria.

1.2 Statement of the Problem

Housing has been universally accepted as the second most important essential human need, after food. Housing in all its ramifications is more than mere shelter since it embraces all the social services and utilities that make a community conducive to live in. The problems of housing in Nigeria are enormous and complex, exhibiting apparent and marked regional differences. In most of our urban centers, the problem is not only restricted to quantity but also to the quality of available housing units and environment. The result is been manifested in homes through overcrowding and increasing pressure on infrastructural facilities as well as rapid deteriorating environment. The scenario is only slightly different in the rural areas where the problem is primarily not just that of poor quality of housing but also that of inadequate infrastructural facilities like roads, drainages, water, power supply, etc. Another important characteristic of both the urban and rural scenes is the absence of the basic needs of the poor and the low-income group. It has been estimated that over ninety per cent (90%) of the country’s population are of the poor and low income group.

Problems of housing in terms of quality and quantity appear to be the same all over the world but more worrisome in third world countries. The needy have less access to housing while the less needy have greater chances of accessing housing. The shortage of housing is one of the factors responsible for the poor environmental quality across Nigeria. In 1991, the national housing policy was promulgated in order to propose possible solutions to the housing problems in Nigeria. Twenty-two years on, millions of Nigerians are still homeless while many others are living in indecent houses. Reliance on quacks is one of the major setbacks in the industry because of acute shortage of skilled personnel in various trades and the large multinational firms employ few skilled personnel while the absence of large real estate development companies with access to the relevant technology and financial muscle to develop cheap houses on mass scale culminated with proliferation of low quality contractors. For example while former president Olusegun Obasanjo was in office he made the present Ondo State Governor Dr Olusegun Mimiko who happens to be a medical doctor by profession the minister of housing and urban development. This shows how insensitive our leaders are in the usage of technocrats in every field of human endeavor as it relates to the development of a nation like Nigeria. The operation of the financial institutions, commercial banks, finance houses, merchant’s banks didn’t help matters as many caused their savings to distress and liquidated there by creating a big distortion in the saving culture of the masses. The poor response to NHF in terms of voluntary savings is not unconnected to the poor performance of these institutions in the 90’s. The researcher identifies as the major challenges; poor implementation, corruption, bureaucracy/bottleneck system and political instability. It recommends housing finance, cooperatives, use of local building materials, and development of infrastructure, policy implementation and review of the housing policy as possible solutions to the housing problem in Nigeria.
The purpose of this study is to review the impact of National housing policy on housing development in Nigeria. It is hoped that at end of this study, the hidden facts or problems about making a policy in the National housing development is to be revealed and to be tackled effectively.

1.3 Aims and Objectives of the Study

No doubt. National housing policy is the corner stone of developing housing in Nigeria (majorly rural areas). Nigeria as a whole is made up of a large number of rural dwellers. The people in the rural area needs loan facility from the federal mortgage bank of Nigeria (FMBN) to reduce the hardship involved in acquiring or security houses, because housing is very important to every citizen of Nigeria and future generation as we high in percentage in the population of the country everyday.

The main objective of this research work is to examine the impact of national housing policy and the mortgage institutions on housing development in Nigeria.

The other specific objectives are to:

Appraise housing policy in Nigeria.
Examine the role of financial institutions in granting loans for housing.
Access the problems confronting people in obtaining housing loan.
Reveal the impact of loan decree.
Reveal the impact of Nigeria housing fund.
Highlight its future prospect and development.

1.4 Scope of the Study

This study will examine the historical background of housing policy in Nigeria, the development of the programmes, the role of Mortgage institution in financing housing scheme.

This study will also look inward into its likely impact in the economy and problem for the policy of government. The prospect of the housing policy will be well enumerated

1.5 Statement of Hypothesis

Hypothesis 1

Ho: Mortgage institution has no effect on the development of housing in Nigeria.
Hi: Mortgage institution has effect on the development of housing in Nigeria.

Hypothesis 2

Ho: National housing policy has no impact on housing delivery in Nigeria.
Hi: National housing policy has impact on housing delivery in Nigeria.

1.6 Definition of Terms

National:

This is refers to as a combination of states in a country.

Policy:

It is described as a categorical expressions, statements or directives from a higher authority indicating the patter of behaviors and conduct of individuals in n organization.

Mortgage:

A legal agreement by which a bank or similar organization lend money to someone to buy a house.

Institution:

This is large organizations that are set for a particular purpose.

Mortgage institution:

This can be described as an organization license to see into the building business in Nigeria.

Housing Delivery:

Involves the production of new houses, renovation of existing ones and the distribution of new and old houses to all consumers. Its components include land and infrastructures, construction technology, labour and management, building materials, housing finance, distribution methods and monitoring evaluation.

National Housing Trust Fund:

Is a dedicated fund for housing finance established by the Federal Government of Nigeria as one of the key strategies towards the realization of the goals of the National Housing Policies of 1991, 2001 & 2006. It started as contributory fund (NHF) established by decree 3, 1992 with Nigerian workers, banks, registered insurance companies and federal government of Nigeria as contributors. It later metamorphosed into NHF sometime in 2005, due to labour union agitation arising from their inability to benefit from their respective contributions into the fund. The fund further made it mandatory for certain categories of workers to contribute certain percentage of their respective monthly income into the fund before they could benefit from as participants to enable them build, buy, or improve or renovate their houses.

The Federal Mortgage Bank of Nigeria (FMBN):

Is the financial institution established by Decree 7 of 1977, with a take-of capital of about ₦20 million, which was later increased to ₦150 million in 1979 and supported by the World Bank to attain a capital of about ₦600 million. This led to the construction of housing units in about eight States of the Federation of Nigeria during the 4th National Development Programme (1980-85).

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary

During the early colonial period, the housing activities and policies of government focused essentially on the provision of quarters for the expatriate staff and for selected indigenous staff if specified occupations like Railway, Police and so on. This period saw the establishment of government residential Areas (G.R.A) as well as a few “African Quarters”. No effort was made by the government to build houses for sale or rent to the general public and little was done to allow the growth of settlement outside the government ordinance (CAP95), the Lagos Executive development board (LEDB) was created in 1928 and charged with effective planning and development of Lagos
Housing situation became worsen immediately after independence, housing sector was rejected in plan of Government due to the outbreak of civil war in 1967, the housing situation deteriorated further in the war affected area as energy and resources were concentrated further in the war. After the end of the civil war, federal Government establish various housing scheme for instance in 1971, federal council on housing in 1971 National programs, in 1973 federal housing authority e.t.c but they did not intervene positively in the housing scheme.
As a result of the failure of these various housing policies, the federal ministry of housing urban development and environment in conjunction with the world bank assisted urban development and joined hands together to provide funds for housing development in Nigeria was established by degree No7 of January 28th 1977, it’s primary functions is to give loan to individual or corporate body for construction or renovation of building. The institution failed to perform it’s function, it was later mode as the apex bank of Mortgage institution.

Some of our people are illiterate and they must be educated with regards to the efforts of Government to provide house for everybody before the year 2000AD. They must be encouraged to participate in National housing fund (NHF) because a lot of benefit can be derived from it. Government should provide infrastructure to the rural areas to reduce urban immigration, more cooperatives, use of local building materials, development of infrastructure, policy implementation and review of the housing policy as possible solutions to the housing problem in Nigeria.

5.2 Conclusion

There is no gain saying that fact that housing is one of three basic needs of man. It is essentially for this that housing has remained central to all the National Development efforts of the government. The threshold of the PMls following the promulgation of Decree no 53 1989 was seen as a panacea for the age-long housing crisis and a supplement to the myriad policies of government. It is therefore discernable that many challenges await this institution. A paramount challenge for the PMls has to do with restoring public confidence and credibility damage in recent past due to several factors such as how capital base, outright fraud by operators lack of professionalism, and the general hostile economic environment among others. In a sense, hopes and aspirations of Nigeria of affordable housing was rekindled by the emergency of the PMls only to be dashed by the myriad of problems which engulfed the industry and actually rent a large number of them out of business. It is also worthy of mention that the shortfall in supply of housing stock in especially the urban centers and towns for which past housing the centre-piece of the activities of primary mortgage institutions (PMls).

According to a school of thought, the emergency of PMls was timely considering the unprecedented pre-occupation of the government in the provision of too many utilities for the citizenry. There have been many unexplored business opportunities that abound in both the housing sector and housing finance sub-sector that needs the adventure of entrepreneurs to explore them of economic returns for which the government lack the initiative to do. These opportunities ranged from housing finance consultancy, large scale commercial estate development and land development.

The PMls render services as both facilitator as well as channels for the disbursement of the National Housing funds to beneficiaries. By implication, the PMls are to the mortgage industry what commercial banks are to the money market. The PMls are expected to fill the apparent vacuum that has existing over the years in the provision of adequate housing finance services which is best undertaken by professionalized and specialized mortgage institutions like Union Homes Savings and Loan Plc.

5.3 Recommendation

The target of the Nigerian Mortgage Banking reform which is the re-engineering of the services of the primary mortgage institution and repositioning it for sustainable economic growth and development is greatly achievable if the items on the reform agenda are followed religiously. The intention to recapitalise the primary mortgage institutions (PMIs) and introduce the secondary mortgage companies (SMCs) is laudable and welcome development. The promotion of professionalism and good corporate governance in mortgage banking will raise the capacity of the management and staff operating in the subsector and also bring about good relationship between managers, shareholders and stakeholders of the institutions. Apart from establishing the structure through which the mortgage institutions will set out and achieve their objectives, the mean of controlling and monitoring performances for results will also be determined.

The Nigeria mortgage banking sector will have it good and will face the challenges of funding the housing gap with the implementation of the mortgage reform agenda. A re- engineered mortgage banking sub-sector will contribute in no small measure to sustainable economic growth and development in Nigeria. The based on the discussions in this paper, the following recommendations are hereby made:

The operators and all stakeholders in the mortgage banking sub-sector should all embrace the mortgage reform agenda of the Central Bank.
The operations of the National Housing fund (NHF) should be reviewed in order to solve its problems and to conform with the dictates of the new National Housing Policy and the mortgage banking reforms.
The Central Bank of Nigeria through the pilot of the reform programme, the CBN’s other financial institution Department (OFID), should brace up in its regulatory and supervisory responsibility towards mortgage banking.
The secondary mortgage companies to be introduced should be well structured toward efficient performances and services.
Mortgage bankers should continue, in all ways, to make themselves relevant to economic realities in Nigeria by contributing meaningfully to the rejuvenation of the Nigerian economy.
Mortgage institution covered by the reform programme should endeavour to invest in modern technology for effective and efficient mortgage services.

Project Material Download