One key to drawing investment into the property sector is the development of a vibrant mortgage market. However, there are not many people queuing to take up mortgages.

“The mortgage market is at best ineffective and the loans being given can’t really be described as mortgage finance because of various factors,” says Rotimi Akinlose, Director of Nigeria-based real estate research firm, Residential Auctions Company. He says the factors limiting mortgage uptake include high interest rates of between 17% – 20% p.a (depending on the bank), high management charges, low amortization period of 5 -10 years and other stringent conditions for applicants seeking a mortgage.

“We conducted a survey recently targeted at business professionals residing in Lagos, which shows less than 20% of the respondents took a mortgage to acquire their homes. This illustrates just how weak the mortgage market is, and the negative perception by its potential customers. In a nutshell, an average middle income salary earner cannot afford to take on a mortgage due to the high interest rates,” says Rotimi.

According to industry experts, mortgage lending is weak because of the lack of clear property rights, high costs of property transactions and inefficient land management systems.

“The size of the mortgage industry is very small. This sector has a lot of potential, yet we seem to have lopsided policies,” says the Abimbola Olayinka, the president of the Mortgage Banking Association of Nigeria (MBAN). “Mortgage banks in Nigeria should be heavyweights – in the US and Europe they are the biggest banks,” he says.

To fill the gap, private retail mortgage firms have set up operations to capture the market share. The largest outfits include First Bank of Nigeria Mortgages, Union homes, Aso Savings and Loans, Stanbic IBTC and GT Homes Ltd.

The Central Bank of Nigeria has approved the draft framework for operating a mortgage refinance company, which will establish the Nigerian Mortgage Refinance Corporation (NMRC) to address liquidity problem in the industry.

The NMRC will be a public private partnership arrangement including the federal government, local banks, primary mortgage institutions and savings and loans institutions, and multilateral financiers like the World Bank, which has provided $300million to establish the company.

“The NMRC is a step in the right direction. It would be able to access capital markets to raise long-term funds via bond issues. This will provide more liquidity to the housing and construction sectors, and hopefully lead to reduced mortgage and construction finance interest rates,” says Abimbola.

As Nigeria’s economy continues to grow and diversify, lucrative investment opportunities for property investors will arise, whether in the luxury segment, mass housing or elsewhere. The sector is faced with many challenges from unclear land policies and legal framework to high cost of construction and lack of project finance. Nevertheless, as long as developers have the indicative data right and government facilitates an attractive environment, there is money to be made.