Must I Own A House?

Dele was at logger head with his wife and family regarding his plans to finally become a man. It’s gotten so bad that his wife has refused to accept any pleasantries from him and even rejected a holiday trip he planned for the Christmas and New Year Celebrations. His parents intervened and as expected took sides with her, leaving him with no visible support in the matter. He just had to be a man or expect being alienated.

In Nigeria, a very important aspect of being a man is when you own a house. No one really cares how you fund home ownership provided it is in your name and you live in it. It doesn’t even matter if the house is 50 kilometers away from your work place or is on the outskirts of town or border line to another state. Even, if the house is surrounded by bushes, local villagers and dangerous reptiles, no one cares. You are simply a man.

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Home ownership is a very important societal goal and most governments around the world make this a top priority in the economic and social development of their country. Nigeria is not an exception which is why the Federal and State Government have come up with various home ownership schemes targeted at the middle and lower middle class. So what then is the problem and why must Dele buy a house? Dele had told his wife that all he had in his savings and investment accounts was N20 million (Twenty Million Naira). It took over 10 years of saving from his salary & bonuses to save that much. If he decides to spend that money to own a home his choices would probably be limited to living in a very remote part of Lagos and just hope that development will get there soon enough for him to reap more benefits. Aside that, he will also no longer have any savings and no major source of growing capital which to him is pretty much important than tying his money down in one non income yielding asset.

His wife reminded him of his friend Thomas who just moved to a 4 bedroom duplex of his own in Lekki not too long ago, even though Thomas earns the same if not less than her husband. What she did not know what that Thomas took out a mortgage from a bank at 16% per annum and ends up paying about N500, 000 every month on mortgage repayments. That will leave Dele with just N200,000 every month should he decide to go the way of Thomas. Besides, he suspects Thomas is earning extra incoming from dubious sources considering the ‘juicy’ office he occupied in a leading blue chip company.

Dele is also a shrewd guy and understand the language of Finance. He believe investing that money and benefiting from compound interest is the way to go. What he needs to do is ensure he never pays more than N1.5million in rent per annum for the next 20 years. He can then invest the N20million in a 20 year FGN bond at a 16% yield per annum and reinvest the interest he receives every year into the bond at the same rate (compound interest). He also assumes if he continues to earn enough money from paid employment he can augment any rent increase with the interest he is getting from his bond. For example, if he assumes he can always set aside another N1.5million annually from the income from his investments. If all assumptions remains as is, his investments will be about N217million after twenty years all things being equal. He can then use part of the money to buy a nice retirement home for him and his wife.

Unfortunately, this line of thought is not without its lofty assumptions, even though they are mostly plausible. The bigger issue for him is his ability to continue to live in harmony with his family. He has now decided to own a home or demonstrate willingness to own a home. His options are to either buy one outright with his N20million or buy a land and start to build at his own pace. He is determined not to take out any loan. Only problem he faces is that his N20million can only get him a land in an area he will hate to live in. Why live in an area that he hates all for the sake of owning a house. So, his other option is to buy a land and start building at his own pace. Another, might be to apply for some of the state home ownership schemes that offer single digit interest rates with a long tenor. Even though, the houses in the scheme are not his ideal choice, it will at least keep his wife and parents happy.

After settling in on his plan, he tells his wife that he his back to his senses and ready to be a man. He tells her to start looking for land or some of the good state ownership schemes around. He tells her his budget is N10million. If he invest N10million instead of N20million under the same set of assumptions as above, he will have about N194million in the bank. Everyone is happy!