A rallying economy and higher levels of liquidity are helping to put Nigeria’s real estate sector on the path to recovery, although infrastructure shortfalls and a lack of affordable offerings in the mid-market range could still curb growth.
On March 20 the Mortgage Banking Association of Nigeria (MBAN) said it was seeking an agreement with the Central Bank of Nigeria (CBN) and the National Pension Commission to allow the country’s pension funds to invest in the mortgage market.
Improving access to credit is seen as key to solving the housing deficit, which stands at 17m units, according to official estimates. The gap between demand and supply is set to widen if left unaddressed, given the rapidly expanding population, which is set to reach 400m by 2050, up from its current level of around 180m.
The MBAN told media outlets that it hopes the proposal will help free up money held by pension fund managers, which is estimated at around N7.5trn ($20.9bn) as of the end of 2017, according to the National Bureau of Statistics. Of these funds, 69.2% are invested in either federal government bonds or Treasury bills, with the balance sitting with the stock market, banks or corporate bonds.
If the MBAN’s application to regulators is successful, it could free up liquidity for investment in individual projects or real estate investment trusts.
In a separate development, the state-backed Nigeria Mortgage Refinancing Company (NMRC), which supports housing market growth by providing funds to private sector financiers for home loans, is looking to boost credit availability in 2018 by taking advantage of lower borrowing costs and floating a N11bn bond ($30.6m) with a 15-year maturity.
The NMRC is also looking to debut on the sukuk (Islamic bond) market by offering a N1bn ($2.8m), sharia-compliant bond later in the year.
Higher liquidity availability comes as Nigeria’s economic recovery continues to gain momentum.
After five successive quarters of contraction, the economy moved out of recession in the second quarter of 2017, expanding by 0.7%, which was then followed by growth of 1.4% and 1.9% in the third and fourth quarters, respectively. The economy expanded by 0.8% last year, while the IMF forecasts growth of 2.1% in 2018.
An improved economic performance should boost demand in the housing sector, as gains are expected to support wage earners and improve affordability.
Together with improved access to real estate lending, a rebound in the economy could open the door for many prospective home buyers in the mid-level entry segment, industry figures say, with many finding it difficult to access the market in recent times.
A key factor curbing those opportunities has been the high rates of interest charged by commercial lenders on loans for housing credit. According to the CBN, average prime and maximum lending rates for February stood at 17.5% and 31.4%, respectively, considerably higher than the central bank’s benchmark lending rate of 14%.
However, lower inflation, which inched down for a 13th consecutive month in February to 14.3%, has prompted speculation that the CBN could cut its key rates, reducing the cost of credit charged by commercial banks.
Despite these positive signs, a rise in the level of non-performing loans (NPLs) in the mortgage segment during the slowdown has made lenders cautious about extending credit to buyers entering the property market.
As of the end of 2017, at least 55% of the N94bn ($261.8m) loans dispersed for buying homes were classified as NPLs, according to data from the Deposit Insurance Corporation.
Another hurdle to faster property development is the slow provision of blocks of land with essential utilities, according to the Real Estate Developers Association of Nigeria.
Some of the key infrastructure issues the federal government has been called on to address include utilities connections and the provision of road access to sites under development.
According to data from the Ministry of Power, Works and Housing, up to 90m Nigerians remain without access to electricity, while many others face disruptions to supply.
To improve the situation, some sector stakeholders have called for the government to step back from direct involvement in housing provision and focus on the rollout of services, which many say would reduce developers’ costs and make housing units more affordable.
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