“Housing projects involve huge capital investments which can be enhanced by financial assistance especially when it is undertaken by private developers.”
Our correspondent, Bimbo Adenrele, looks into issues why there are impediments in obtaining loan facilities in Nigeria particularly from banks and other institutions. Other issues involve how well orientated are housing stakeholders to approach the right source of funding and how they can create housing plans that will attract financial assistance like loan facilities.
Housing is crucial to human existence because a homeless person will find it difficult to live a normal comfortable life. Hence housing involves everybody to be proactive. The government and private developers must increase their effort to provide mass housing to match the ever increasing population.
Mr. Idris Fonahanmi a mortgage and brokerage consultant as well as an advocate for climatic change proffers insights to the reasons behind the impediments in obtaining loan facilities particularly from commercial banks, the right source of housing funding and how to maximize housing units to cater for the Nigerian populace.
According to Mr. Fonahanmi in terms of loan facilities regarding housing, the primary mortgage bank is better than the commercial bank because mortgage banks have the capacity to give long term funding at low interest rates because they are licensed to do mortgage and mortgage related matters like housing and construction. Moreover, he said real estate and individual mortgages require long term funding and mortgage banks can service loan facilities for as long as even 30years with lower interest rate. On the other hand, he said commercial banks are not structured for long term projects. He explained that commercial banks give short term loans and higher interest rates. He disclosed that primary mortgage banks are legally and constitutionally better in housing and construction projects.
He noted that impediments in obtaining loan facilities in commercial banks occur because they are created to make profit. He said to make profit you have to cover your cost. He disclosed that the overhead cost carried by banks is enormous like they pay interest to individuals who deposit in their banks. Also, he said they pay their staff and in terms of energy they run their banks with diesel from morning to evening. He stressed that they are not NGOS so they recover their costs through the high interest rates they give to their borrowers. He noted that banks have different fees and charges like professing fee, administrative fee, documentation fee, search which borrowers who are desperate for loans will accept. He disclosed that approaching commercial banks for housing and construction long term loans is a mismatch.
Furthermore, he disclosed that the challenges posed in housing are generated because people in housing and construction do not have adequate funds to do long term. However, FMB gives long term funds and this can reduce this challenge in the housing and construction sector. Mr. Fonahanmi said housing projects require long term loan facility because for illustration you can not build 500 housing units with infrastructures that are habitable within six months or one year. He added that how many commercial banks have the muscle to give huge amount of money to finance such construction. He stressed that for banks to give huge funds they must be buoyant and people who will access the funds must also give verifiable profitable projects.
Mr Fonahanmi emphasized that the primary mortgage banks should be encouraged in terms of partnership. He said commercial banks want to finance houses in urbans and not rural areas where the poor people are highly concentrated. He mentioned that in Abuja areas like Nyanya, Masaka, Bwari, Kubwa and Airport Road are where majority live and not Maitaima, Asokoro and Wuse where commercial banks love to concentrate. He emphasized that commercial banks should be able to identify the base of the poverty pyramid where poor people dwell and this level has lots of markets. He disclosed that mass housing is the only way to solve the challenge of housing in Nigeria.
Moreover, he said that all must be proactive in investment in rural areas and localizing materials to reduce cost of housing, which is another great impediment on its own. He noted that his father for instance built his house in Ikare Akoko in the fifties with mud, clay and roofing sheets. He said they made use of material from coconut. He emphasized that we must think of alternatives to substitute materials. He disclosed that if the cost of input is low the output too will be low. He said the demand of a lot of people will be satisfied. Mr. Fonahanmi advised that Government expenditure is key in terms of infrastructure. He encouraged the Federal Government to give developers some exemption or reduce their taxes on vital materials like steel. He stressed that the Government should be able to provide infrastructures like roads and power supply in terms of accessing rural areas. He advised developers to have creative plans to attract people like NGOS who are interested in housing for the poor. He encouraged them to approach the State Government to service lands for mass housing for the poor or civil servants in rural areas especially outskirts in Lagos for instance Badagry and Ikorodu areas. He said this will help in averting rural urban migration. Also, he stressed that they must be ready to accept the conditions laid down by the Government. He said developers should explore World Bank financing projects and Sukuk which are profit sharing and not based on interest.
The key factors to tackling the impediments in obtaining funds for housing projects is first reorientation of stakeholders in the right source to get funds at lower interest rate which reduce cost of housing. Likewise it is necessary for stakeholders and financiers to leave their comfort zones to the rural areas where the poor are concentrated and provide mass housing which is paramount to tackling housing challenges. Lastly, all must be proactive in creating and exploring creative plans in housing in a bid to put an outright end to housing loan impediments in Nigerian banking sector.