Solving the challenge of severe housing deficit will entail creating linkages between the provision of land to property developers, through increased availability of housing finance, to a reduction in property transaction costs.
This was stated by Mr. Oscar N. Onyema, the GMD/CEO of Nigerian Exchange Group PLC. at the 16th edition of the Africa International Housing show currently being held in Abuja.
This year’s conference is themed: “Housing For All, The Role Of Governments In Creating An Effective Enabling Environment”
What Mr. Onyema is saying
Speaking on “The role of the Capital Market in solving the Housing Problem in Nigeria,” Mr. Onyema noted that the housing situation in Nigeria isn’t only plagued by a shortage of affordable housing, but also quality building, which has come increasingly to the fore with the recent incidence of collapsed structures in some states.
- He said, “To buttress the issues around affordability, most new housing constructions cater for upper-income households, leaving an acute housing shortage for middle- and lower-income households.
- “These households have the greatest need for affordable housing in urban areas. According to the World Bank, almost 50% of the Nigerian population live in cities with about 80% of this urban population living in substandard conditions.”
- He noted that despite the challenges faced in the real estate sector, it has recovered at a measured pace from the COVID-19-induced slippage which resulted in a -9.22% growth rate in 2020.
He said “The sector grew in real terms by 2.26% and 4.44% in FY 2021 and Q1 2022 respectively. This showcases its inherent potential for growth. Although its contribution to Nigeria’s GDP according to the latest print by the National Bureau of Statistics stands at 5.34%, it has not grown from this level due to the huge challenges confronting the sector.
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Speaking on the efforts made to address this deficit in Nigeria he said, “The government at various levels, having recognized the importance of housing has embarked on various reforms and interventions in this sector to bridge the existing deficit.”
He added that “These interventions have ranged from setting up policies to actualizing some brick-and-mortar projects.
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Speaking on how capital markets can address the Nigerian Housing deficit, Mr. Onyema said the Nigerian capital market could be a good engine for driving economic growth and development.
- He said, “Estimates of the amount required to meet Nigeria’s current housing deficit needs are put at over N6 trillion. The total budget for capital expenditure for the Federal Ministry of Works and Housing for 2022 is N470.14 Bn, while the amount earmarked for FGN Special Intervention Programme: SOCIAL HOUSING (FAMILY HOMES FUND) is put at N7Bn for the current year.
- He said these figures show that fixing the housing problem cannot be left to the government alone.
- He noted that the Nigerian capital market can play an active role in pooling the much-needed capital to drive the housing sector.
Speaking further he said “There is, therefore, the urgent need to promote the use of existing and new instruments in the market that can be used by developers, private sector participants, governments, and other stakeholders to raise and deploy capital into the housing sector.
“At the NGX Group Plc, we have invested in exchange platforms, market infrastructures, Fintech, and a real estate company (NGX Real Estate). NGX Real Estate Ltd is focused on developing innovative solutions to the housing gap in Nigeria.
Mr. Onyema said with an equity market capitalization of N28 trillion, the capital market provides an active platform for major players in the housing value chain.
- He said, “Today the NGX Exchange has listed companies in the housing value chain including real estate development, construction, mortgage banking, household durables manufacturing, building materials, and financial services which have raised equity capital over the years to finance their activities.
- “Capital raised helped expand the reach of projects that could be undertaken, hence helping to solve the financing challenge in this space. In the last decade, we have raised over N72bn (~$175m) on the Exchange for major real estates companies such as UPDC REITs, Abbey Mortgage Bank, and UACN Property Development Company through a mix of equity instruments including IPOs and rights issues.
- “On the Fixed income side, the Exchange has a market capitalization of about N23T with a significant portion of this capital deployed to the infrastructure and housing sectors. Also, NGX as a foremost exchange platform in Nigeria’s capital market provides the requisite platform for institutions such as the Federal Mortgage Bank of Nigeria (FMBN) and Nigeria Mortgage Refinance Company (NMRC) to list and raise equity capital in addition to their existing bond issuance programs.
- “This will strengthen their balance sheets whilst enabling them to achieve their core mandate of linking capital market to housing industry needs. This would also enhance liquidity in the mortgage market in the same way Fannie Mae and Freddie Mac have done in the US.”
He said in their opinion, the Pension Fund Administrators also have a part to play using the capital markets to ease the challenges in the housing sector given their over N13 trillion in Assets Under Management.
He also said PFAs can increase their exposure to the housing value chain by allocating more resources to this sector in the form of equities, bonds, REITs, etc pursuant to PENCOM investment guidelines.