News Column

How Mortgage Refinance Scheme Works - Affordable Housing Chairman

August 18, 2014

Ben Atonko

The Federal Government on Thursday July 31, 2014 launched the first tranche of 10,000 mortgages for affordable homes scheme across Nigeria in Abuja. The modus of this private sector driven programme still remains hazy to many Nigerians. Arch. Mr Ezekiel Nya-Etok, Alternate Chairman, Ministerial Committee on Federal Government 10,000 Affordable Homes Project and Chairman Forum for Affordable Housing Project spoke with Daily Trust on intricacies surrounding the novel scheme.

The first tranche of the 10,000 mortgages for affordable housing has been launched. What does this mean?

NMRC [Nigerian Mortgage Refinance Company] is a refinancing company that works directly with mortgage banks. Mortgage banks interface with potential beneficiaries, citizens, profile these citizens, take them either as individuals or as groups to the NMRC. NMRC refinances these primary mortgage banks.

The difference here is that in the past, the primary mortgage banks had not been able to do business because the mortgage business is long time funding. They have people that subscribe to them and imagine say 100 people paying N20,000 a month. After a period, the whole contributions of the 100 people probably will be able to benefit just say one or two.

Coming to NMRC, there're long term funds. These long term funds will make it possible for them to extend facilities to a lot more Nigerians. Advantage number one with the NMRC is that they're bringing a lot of long term funds to be able to extend a lot of facilities to Nigerians. The whole mortgage portfolio of Nigeria was about 25,000 from independence. But in the next one year, they're going to give out about half that figure which is going to be between 10,000 and 12,000 mortgages in one year with a projection of being able to give as much as 200,000 mortgages in less four years. Compare that to 25,000 mortgages in over 50 years.

Apart from that, they have been able to gain the confidence of a lot of international investors including the World Bank. They've been able to get a facility of $300 million from the World Bank at zero interest rate all with less than 1.5 percent charges.

But there's a thing Nigerians must understand. It's a private initiative. Because it's a private initiative, it's not free fund. Because it's not free fund, it's expected that they'll recoup the money and pay back to the people they collect this money from. They've put down laws and conditions that will make inevitable for you to return the money. Worst case scenario, they'll take the house from you.

What will be the cost per unit?

Three components make total cost of a project. You've to talk of cost of land. Can we get government to give us land either completely free or highly subsidized? Number two, can we get government to give us infrastructure on that land? Three, can they give us concessions on processing of the land? Number four, can we use our strength and numbers to make developers bring down the cost? Economy of scale!

On average we're looking at delivery cost of one-bedroom house in the region of N2 million. A two-bedroom probably in the region of N4 million. A three-bedroom probably in the region of maybe N8 million. But these costs are location and government specific. In Bayelsa [State] for instance, N8 million you've not even done the foundation because of the terrain.

There is a standard template but when you're location specific, that will determine the amount you're going to pay.

It also depends on the building type that you pick. The beauty of this is that when go on the portal that has been given, you go through the forms and fill. At the end of filling the form, you know what you're qualified for. It is left for our people to go verify all your information and ascertain that you've said the whole truth.

Let's look at Abuja. What should be the average cost of building a bungalow - a two-bedroom flat?

Number one, do I assume that you're working on an allocated land or you're working on land that you have to buy from somebody else. The cost of land is what I'll not want to talk now because we all know that the cost of land in Gwagwalada, Nyanya, Asokoro and Maitama are all different. So on the basis of that you really can't... but let's assume you want to build a two-bedroom bungalow - cost of construction is relatively standard as different from cost of land.

If you talk in terms of cost of a two-bedroom bungalow, you can get that done between N2 million and N3 million. If they're going to sell it for N4 million or N4.5 million, it's because they're going to cost of infrastructure on the land. Sometimes even when government gives land, they insist you pay compensation on the land.

If you go on their website, what they give you is the final all considered, all inclusive costs. I don't want Nigerians to now say "ah they want to build a two-bedroom for N2 million." They're not building for N2 million. They're building for probably N1 million or N1.2 million. But they know that the cost of the consultancy must be there, the cost of the land must be there, the cost of infrastructure must be there. And if you build for N1 million, usually all other costs are even sometimes higher than the cost of construction.

If you go to Maitama for instance, you can build a three-bedroom for say N10 million but you would have bought the land for N30 million to build for N10 million.

How long is this scheme going to run?

World Bank has given us for 40 years. That's the first one. Others are coming in and NMRC will be in better position to say. But usually, these people give money for long terms. What that means is that, that money, you can recycle it as many times as possible. You just keep repaying the part that is due each time. You're encouraged to keep recycling the money.

After this launch of the first 10,000 mortgages, what do we expect in the next couple of months, years?

Within the next couple of days, Nigerians are going to go on the portal. They're going to massively prequalify themselves. Go online and by the time you finish answering the questions, you've already pre-qualified yourself. By the time it's okayed for submission, you're already... for instance, the amount of money you put to be paying, when you pick a house type, it will tell you "sorry, it's not okay". You'll be the one that knows the house type that you can afford to pay for. So you've marked yourself. By the time your income in known, we know what your house type will be.

From the back end, what we're going to get is going to be figures. We will realize that two-bedroom, those that want it in Uyo [Akwa Ibom State] are 2000, 1000, 150. Those who want it in Akure [Ondo State] for one-bedroom are just 800. Those who want two-bedroom in Akure are maybe 500. So at the end of this one month the portal is open, you'll be able to profile the effective demand in each state or location. On the basis of that, you'll now know that the 500 you wanted to build in Akwa Ibom, the demand is about 3,000. So ask yourself, "Am I going stick to the 500 or because of the demand I am going to go for another number?"

Second, why would you want to build 300 one-bedroom where the demand is 200. You bring it down to 200. You go to the two-bedroom in Uyo. You wanted to build 100 units of it but the demand is about 300. So what you get from the portal which is going to come within the next one month actually helps in the planning processes.

Have you restrictions about age of applicants?

Yes! The first thing is if you're below 20 years you're not expected to go into it. Maybe there're legal implications to that. Second, if you're 20 years from your retirement like 20 years from 60 years, it's expected that you can't have a more than 20-year repayment period. If you have five years to retirement, that's you have five years of assured defined income, what happens after retirement? You want a 10-year repayment plan. The question is how are you going to make up for the rest.

On the first value, you rate yourself based on the years of service, your age. But if for any reason somewhere along the line you believe that there's a different thing - you can always take the form, go back to your mortgage bank and talk more details. What we have are general principles but there're certain specifics the mortgage institution can discuss.

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Source: AllAfrica

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