When
PROPERTY
Tayo Odunsi
Rethinking Housing Finance
As standard methods of housing finance struggle in developing economies , new models must be created
“
I joined the property industry 20 years ago , the housing deficit was 17 million units . I hear it is still 17 million units today ,” chimed a leading real estate expert at the start of a speech on the state of the Nigerian real estate sector amidst growing laughter . He would go on to confirm what almost every attendee knew – that the deficit was much larger and there was much work to be done .
In Nigeria , housing tends to cost up to 50 to 70 % of the average household ’ s income especially where located in the major cities . In most cases , this mammoth percentage is spent on renting and not ownership , as the obstacles to home ownership are too daunting for the larger population to take on .
To start with , land prices are often too high and when this is surmounted , design costs , building approvals and construction costs are next in line to battle the intending homeowner .
But that ’ s by no means the end of the story . The Nigerian property market until recently experienced a boom that lasted about 5 years during which hundreds of thousands of houses were traded in every nook and cranny of the country . These were both cash and credit transactions largely executed by the upper and upper middle class of the society . But this boom did little to reduce the housing deficit of the country as the beneficiaries were seldom first time buyers . Most deals were of existing homeowners who were merely moving into bigger or betterlocated houses . In other cases , buyers were investors growing their rental property portfolio . Understandably , this segment of the market is more attractive to financiers since loans granted to the upper and upper middle class are less likely to be subprime than if granted to lower placed citizens .
However , where funding is not made available to a wider range of citizens , the housing problems are bound to prevail . A country with a significant housing shortage is clearly not on a sustainable growth trajectory and this is where creative housing finance models can be very beneficial . Some major problems hampering the success of housing finance in developing countries like Nigeria include the adequacy of title security , repayment capacity and the credibility of the borrower . The three challenges posed above can be scaled by rethinking
6 invests . ng - MARCH / APRIL 2017
housing finance models .
Prof . Muhammad Yunus , the microfinance expert and Nobel peace price winner through his research and work in Bangladesh demonstrates that loans granted even to the very poor can have high repayment rates if well structured . Prof . Yunus through the Grameen Bank gave loans to the poorest of the poor in Bangladesh and members of “ solidarity groups ”. These groups ensured each borrower repaid the loans given to them as the repayment of a members loan , guaranteed that another member would also be given a loan in the next season .
Another fundamental and practical aspect of Prof . Yunus ’ credit model is that the loans must be properly and realistically matched to the expected cash flows of the borrower . Where this is done , it reduces the factors that instigate a default .
While the issue of title adequacy and collateral poses a major challenge in traditional housing finance models , more creative models may accept variations of title as adequate . For example , where a land owner seeking to obtain a loan or mortgage doesn ’ t have a registered title but has the title document of the previous owner , a declaration of trust or a non-recourse guarantee from such previous owner should suffice as sufficient documentary security . Additional agreements confirming the mortgage can be executed to further give financiers comfort where necessary .
Having experienced the traditional housing finance model for so long , many may view these ideas as impractical and difficult to apply to the Nigerian situation and this may be true . But what ’ s also true is these ideas are surely rethinking housing finance and it ’ s only by so doing will we birth the solutions to Nigeria ’ s housing deficit akin to Prof . Yunus solving a critical micro credit shortfall in Bangladesh .
Tayo Odunsi is CEO of Northcourt real estate ; a real estate services company focused on research , advisory , brokerage and facility management . Tayo is a Chartered Surveyor with over 10 years of professional real estate experience . Tayo enjoys soft rock , gardening and mentoring young people . He can be reached at tayo . odunsi @ northcourtrealestate . com