Homeownership in Nigeria remains a struggle. Given the choppy macro terrain, purchasing power has been severely eroded, making it difficult for income earners to purchase houses. The cost of property development in Nigeria is relatively high, with around 70% of building materials imported. Nigeria’s housing deficit stands at 17 million units and the estimated cost of bridging this gap is N59.5trn. Industry estimates suggest that about 100,000 new houses are built each year in Nigeria, compared to the estimated demand for 700,000 units.
Mortgage financing, the alternative to outright purchase, is arduous and far from budget friendly as the cost of borrowing in Nigeria is expensive due to volatile and high-interest rates. According to the Centre for Affordable Housing Finance in Africa, Nigeria’s homeownership rate in 2016 was estimated at 25%. Meanwhile, industry sources suggest that the ratio of mortgage loans to total GDP remains extremely low at 0.5%, compared with 80% in the UK and 31% in South Africa.
The high average cost of mortgages of above 20% is also a contributory factor to the weak asset quality positions of mortgage firms. Given that the job market remains fragile, it is unlikely that Nigeria’s mortgage loans to GDP ratio will double in the near term given that the number of potential mortgagors could decline on the back of increasing unemployment.
Industry sources suggest that due to the country’s housing deficit, tenants spend about 60% of their disposable income on rent compared with 30% recommended by the United Nations. Given the current squeeze on consumers’ pockets, this has become more difficult for Nigerian nationals and is putting immense strain on the country’s property market.
An FGN initiative geared towards boosting homeownership is the Family Home Fund (FHF), which has recently kicked off in eleven states. This fund falls under the government’s social investment programme and is worth US$100m. The World Bank and AfDB are core contributors. The fund will be deployed to drive mortgage finance via a model by which developers will build special houses to the FG’s stated specifications. The Fund will bridge the affordability gap by providing long tenor mortgages at single-digit rates to qualifying first time home buyers within targeted household income thresholds.