the role of fmbn in the development of the nigerian mortgage market a paper presented by mr. gimba...
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THE ROLE OF FMBN IN THE DEVELOPMENT OF
THE NIGERIAN MORTGAGE MARKET
A PAPER
PRESENTED BY
MR. GIMBA YA’U KUMO, MD/CE, FMBN
AT THE
1ST ASO HOUSING EXHIBITION & CONFERENCE
17TH – 18TH MARCH, 2011
2
INTRODUCTION
Housing sector plays a critical role in the development of an economy. It not only affects the welfare of the citizens but also the performance of other sectors of the economy.
It is one of the three most important basic needs of man, the others being food and clothing.
Consequently, greater attention is being given by governments in the delivery of affordable housing to its citizenry, through
- Assistance in finance (via aid, subsidy or grants or combinations)- Assistance in provision of infrastructure
The focus on housing finance has been very prominent, because housing provision requires huge capital outlay which is often beyond the capacity of the vulnerable medium/low income groups.
3
OVERVIEW OF HOUSING IN NIGERIA
720,000 housing units required yearly to meet MGD Goal on housing
Huge housing deficit estimated at 16m units
Estimated mortgage financing gap of over 56 trillion Naira
4
Nigeria Benin Rep Libya South Africa Brazil Colombia USA0
10
20
30
40
50
60
70
25
61
41
56
6361
70
(%)
OVERVIEW OF HOUSING IN NIGERIA
Low homeownership rate of 25% compared to 70% in the USA, 63% in Brazil, 61% in Benin and 56% in South Africa
5
OVERVIEW OF HOUSING IN NIGERIA
Real estate sector in Nigeria contributes only about 0.5% of the total GDP, while in developing countries contribution is about 60% and between 30-40% in emerging economies
CHART 1: Real Estate sector contribution to GDP has stagnated over time CHART 2: Real Estate sector growth has underperformed real growth and non-oil growth
ratesSource: National Bureau of Statistics Nov 2010
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10REAL ESTATE SECTOR CONTRIBUTION TO GDP (2009-Q3'10)
0
50
100
150
200
250
300
350
400
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'100
5
10
15
20
25
30
Non-Oil Growth Real Growth Real Estate
CHART 1 CHART 2
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THE MANDATE OF FMBN
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FMBN MANDATEFMBN was established to -
MANDATE 1: Encourage the emergence and growth of a viable secondary mortgage market to service the needs of housing delivery in Nigeria
MANDATE 2: Link the mortgage market to the capital market for sustainable long tenored funding and become a prominent capital market operator through issuance of debt and Mortgage Backed Securities (MBS)
MANDATE 3: Mobilize domestic and foreign funds into the housing finance subsector
MANDATE 4: Collect and manage the National Housing Fund (NHF) in accordance with the NHF law
8
PERFORMANCE ON MANDATE
MANDATE 1: Encourage the growth of a viable secondary mortgage market in Nigeria- Successful refinancing of 9,525 mortgages valued at N26 billion created by Mortgage Loan Originators in the 1st tranche of the N100 billion Mortgage-Backed Bond programme to sell
FG non-essential residential houses in the FCT in Year 2007
- The expected refinancing of about 6,533 outstanding mortgages valued at N14 billion in the 2nd tranche
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PERFORMANCE ON MANDATE
MANDATE 2: Link the Mortgage Market to the Capital Market
- The Federal Mortgage Bank of Nigeria is registered as an issuing house by the Securities and Exchange Commission (SEC)- FMBN is recognized as an issuer of mortgage-backed instruments by the Federal Government of Nigeria- FMBN’s mortgage-backed bond (MBB) continued to retain its ‘AAA’ rating
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PERFORMANCE ON MANDATE
MANDATE 3: Mobilize foreign and domestic funds- FMBN is recognised as a first-choice investment conduit by foreign investors- FMBN is exploring opportunities of issuing debt instruments in local and international capital markets in collaboration with international financial institutions- Investor profile include global banks, international investment firms, conglomerates, foreign housing corporations, etc.
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PERFORMANCE ON MANDATE
MANDATE 4: Collect and manage the National Housing
Fund (NHF)- Significant increase in the number of registered participants which reflects growing confidence in the Scheme
+ 26 states now participating, from only 3 in Year 2002
+ all 24 banks participating, etc.- Willingness to expand access channels to NHF mortgage originations e.g. PFAs, insurance companies, MFBs- Steady increase in total annual collections and disbursements
(see next slides)
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MANDATE 4: Collect and manage the NHF:
NHF Collections
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 -
10.00
20.00
30.00
40.00
50.00
60.00
70.00
Year
Bil
lion
s of
Nai
ra
• NHF collections of N31.8b realised between Jan ’08 - Dec ’10• That is, 49% of cumulative collections from Jan ‘92 to Dec ‘10
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97 98 99 00 01 02 03 04 05 06 07 08 09 100.00
10,000,000,000.00
20,000,000,000.00
30,000,000,000.00
40,000,000,000.00
50,000,000,000.00
60,000,000,000.00
70,000,000,000.00
80,000,000,000.00
90,000,000,000.00
ESTATE DEVT LOANS NHF LOANS
MANDATE 4: Collect and manage the NHF:
NHF/PMI and Estate Development Loans
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NHF CONTRIBUTIONS REFUND: Cumulative of N942,662,263.88 refunded to 50,522
contributors LOAN RECOVERY:
– Total of N4,063,480,982 recovered on classified facilities in past 24 months
RESEARCH & DEVELOPMENT:– To bridge the knowledge gap on the housing situation, in
2010 FMBN’s Research & Documentation Unit carried out -• a survey on housing delivery in the FCT and • a market survey of building materials in all geopolitical zones of the
country.
OTHER ACHIEVEMENTS AS AT DEC
2010
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FMBN: STRATEGIC FOCUS & PLANS
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Consolidate on capital market activities – with issuance of subsequent tranches of its N100 billion bond
to refinance sale of FG non-essential residential houses in FCT– To issue mortgage bonds based on FMBN’s financial strength
and/or government guarantee - To take advantage of investor appetite for bonds
Support legal and regulatory framework review– Amendment/replacement of unfriendly housing-related laws – Collaborating with National Assembly Committees on Housing
Consolidate NHF collection and funding operations- Increase in NHF collections by compliance of non-
participating state & local governments, the organised private sector & the self-employed
- Creation of 8 Zonal Offices for more effective coverage- Introducing NHF e-collection platform pilot scheme for FCT
MDAs
17
Commencement of Commercial Lending Operations: - using capital market resources applied as market-
determined, risk-based priced loans Expand mortgage financing to non-salaried
informal sector- which contributes as much as 65% of GNP, 90% of
new jobs in the country, 80% of all non-agricultural employment and 60% of urban jobs [Vanguard, Sept 2008]
- Service delivery channels are trade groups, unions and housing cooperatives, microfinance institutions
Encourage formation of housing cooperatives - To expand mortgage finance to target groups
(teachers, nurses, mission groups (e.g. Catholic missions, organised Islamic organisations), trade groups, etc.
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Attract foreign funding & investments - Interests by American, Chinese, Korean & Saudi
Arabian investors - Strategic advantage as a FG-Sponsored entity for
investors to channel investments into local economy Introduction of Innovative Mortgage-related
Products- Mortgage and Title Insurance
• to mitigate mortgage-credit risks for lenders • Increases/stimulates mortgage originations • Advantage of lower costs of mortgages (affordability) based on
higher volumes
- Real Estate Investment Trusts (REITs)- Covered Bonds- Rental Market Development Products- Securitisation
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FMBN:THE CHALLENGES
Institution/Country (Year) Paid-up Capital (‘000)
Total Liabilities(‘000)
Cagamas Holdings Berhad – Malaysia (2009) US$49,309 US$9,811,535
Hong Kong Mortgage Corporation Ltd. (2009) US$256,862 US$6,808,213
Sociedad Hipotecaria Federal – Mexico (2008) US$342,235 US$4,760,743
National Housing Finance Corporation – South Africa (2010)
US$117,788 US$93,628
Canada Mortgage & Housing Corporation (2009) US$25,196 US$265, 629
Average Paid-up Capital for selected Institutions US$158,278
Federal Mortgage Bank of Nigeria US$16,367 US$352,241
1. INADEQUATE CAPITAL BASE: Low capitalization in comparison with similar
secondary mortgage institutions worldwide- FMBN’s capital base is currently equivalent to US$16m compared to an average of US$158m held by similar secondary mortgage institutions
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2.HIGH COST AND DELAY IN MORTGAGE PERFECTION
11.9%
0%
1.3%
9.2%
11%
11.9%
13.4%
13.9%
15.0%
15.3%
16.9%
22.2%
23.6%Cross River
Lagos
Ogun
Anambra
Sokoto
Kaduna
Abia
Enugu
Kano
Bauchi
Abuja, FCT
Ghana
Saudi Arabia
Cost (% of property value)Stamp duty Legal fees Other costs
Cost To Register Property – Administrative Fees Vary
WB: Doing Business Report
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2.HIGH COST AND DELAY IN MORTGAGE PERFECTION CONT…
WB: Doing Business Report
150
180
75
90
75
60
60
60
38
42
19 38
60
63
82
89
104
130
174
102
213
229
2
9
Abia
Anambra
Sokoto
Ogun
Kaduna
Enugu
Bauchi
Lagos
Cross River
Abuja, FCT
Kano
Sudan
New Zealand
Time for consent Time for other procedures
CONSENT DELEGATED
CONSENT GRANTED BY GOVERNOR
Time (days)
Governor’s Consent – Bottleneck To Registering Property
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3. NEED TO REVIEW CBN PRUDENTIAL GUIDELINES FOR REAL ESTATE LENDING
To be more conducive to the long-term nature of mortgage lending
4. POOR INFORMATION STRUCTURES Investment in information infrastructure to
improve lenders’ capability to assess risk– Credit Bureaus– Real Estate Information Agencies – Property Valuation Companies
5. COMPLIANCE WITH THE NHF ACT By banks, insurance companies and
organised labour- only 3.5m out of 50m workers are registered- employers not remitting deductions to FMBN or not deducting at all
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THE WAY FORWARD…FMBN commends Aso
Savings & Loans Plc for the initiative to organise a forum for stakeholders to showcase products and services
FMBN appeals to stakeholders in the housing industry to work together towards the collective goal of ensuring that every Nigerian owns a home at affordable prices
“…everyone deserves a home”
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THANK YOU
FEDERAL MORTGAGE BANK OF NIGERIA PLOT 266 CADASTRAL AOCENTRAL BUSINESS AREAABUJAwww.fmbnigeria.org