Monthly Economic Monitoring of Ukraine No 231, April 2024
Retrospective view on nigeria mrc
1. CDL Research
1 August 5, 2013 Mortgage Refinancing Report
Are the odds against the proposed Nigeria Mortgage
Refinance Company (MRC)?
Overview: The housing deficit in Nigeria is largely estimated to be around 16-18m units and
grows by about 2m units yearly; with the worth of this shortfall valued at about N25 trillion. The
twin issues of finance and the Land Use Act - an obnoxious statute from the military regime
which vests ultimate title for lands on the state governments represent major constraints to
meeting the housing needs of Nigeria. In tackling the issue of finance, the Central Bank of
Nigeria (CBN) recently released a framework for the establishment of a Mortgage Refinance
Company (MRC). The MRC is being established to provide short-term liquidity and/or medium-
to long-term funding or guarantees to housing finance lenders. It is expected to increase annual
mortgage origination in Nigeria to 200,000 from the current average of 20,000 mortgages within
the next few years, representing an increase of 900%.
Mortgage Market in Africa: The mortgage market in Africa is relatively small which has led to
pent up demand that could serve as a major growth driver for housing in the continent. The
performance of mortgage market in Africa has been strongly linked to the performance of the
various economies. South Africa is the biggest economy in Africa and equally has the most
decent (size and structure) mortgage system. Mortgage accounts for 26% of South African s
GDP while it accounts for a meagre 1% of Nigeria s GDP (See Chart 1).
0.50% 1% 1.1%
2.5%
12%
19.6%
26.4%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Mortgage as a % of GDP
Source: Centre for Africa Housing Finance 2012
1.7%
4.4%
8.5%
18.5%
24.0%
37.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
UK USA South
Africa
Uganda Nigeria Ghana
Mortgage Rates in selected countries
Sources: Independent sources
Housing Deficit: 16-
18m units
The deficit is
estimated to grow by
2m units yearly
Shortfall valued at
N25 trillion
Ayowole Adelegan
aadelegan@cdlnigeria.com
+234-1-277-8200-3
2. CDL Research
2 August 5, 2013 Mortgage Refinancing Report
Nigeria which is sub-Sahara Africa s largest economy after South Africa has struggled to deliver
housing to the population because of the high prices of the homes in the market. This constricts
demand for housing in the country while also exposing mortgage finance institutions (MFIs) to
increased risk of default as mortgages are priced at unhealthy double digit rates. Across the
continent home financing has become largely accessible by mainly the upper class and the upper
middle class. This can be traced in large part to the preference of the mortgage lenders for mainly
corporate clients while individuals are left to access mortgage finance at exploitative rates (See
Chart 2).
World View of Mortgage Financing:
The gap created by housing is pertinent to many countries and has formed the basis of adoption
of a number of models in meeting this need. The models include Securitization of cash flow
(Freddie Mac in the United State), Portfolio Lender (Nationwide Building Society in the United
Kingdom) and Mortgage Refinancing Facility (Tanzania Mortgage Refinancing Company). A
diagrammatic representation of the models is given below:
Cash Flow Securitization Model:
Cash Cash Cash
Mortgage Mortgage Mortgage
Source: Economic Research Forum (ERF)
Portfolio Lender Model: Cash
Cash Deposit
Mortgage Cash
Debt
Source: Economic Research Forum (ERF)
Borrower Mortgage
Banker
Freddie
Mac
Capital
Market
Borrower
Nationwide
Building
Society
Deposit
Market
Capital
Market
3. CDL Research
3 August 5, 2013 Mortgage Refinancing Report
Refinancing Facility Model:
Cash
Cash Deposit
Mortgage Cash Cash
Collaterized debt Deposit
Source: Economic Research Forum
Estimating the Impact:
The capital market is positioned as a common terminator of the activities of the models under
review. The development of the capital market has become one of the foremost impacts of a
well-developed mortgage system. Increased housing needs and the presence of a well-established
system of meeting the housing needs create a huge capital gap. The mechanism of the capital
market provides an important opportunity in closing this gap and to a huge extent has led to the
development of the fundamentals associated with countries with strong mortgage systems (See
chart 3). In addition, growth in the mortgage/housing sector vis-à-vis construction is a vital
means of generating employment and has played pivotal role in enhancing productivity of the
populace in countries with a sound mortgage model (See chart 4).
Despite a relatively strong mortgage system in South Africa compared to other African countries,
the rate of unemployment is quite contradictory which may suggest the impact of other
underlying factors on the economy.
$0.015b $0.056b
$0.61b
$3.01b
$18.7b
14,000
2,014,000
4,014,000
6,014,000
8,014,000
10,014,000
12,014,000
14,014,000
16,014,000
18,014,000
20,014,000
Kenya Nigeria South
Africa
UK United
States
USDMillions
Stock Market Capitalization
Source: World Bank 2012
7.6% 7.7%
10.7% 11.0%
23.9%
25.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Unemployment Rate %
Sources: Independent Sources
3 4
Borrower Bank or
Savings
Loans
Deposit
Market
TMRC
Capital
Market
4. CDL Research
4 August 5, 2013 Mortgage Refinancing Report
A retrospective view on the Nigeria MRC:
The MRC is being set up to support mortgage originators such as Primary Mortgage Banks
(PMBs) and Deposit Money Banks (DMBs) to increase mortgage lending by refinancing their
mortgage loan portfolios. Its main focus is to act as intermediary between originators of
mortgage loans and the capital market who are typically looking for long-dated high quality
securities. The operations of the MRC are expected to enhance the development of the secondary
mortgage market which till date remains largely untapped. Already the World Bank has
committed $300 million of zero interest fund to the project while other local investors have
equally shown optimism. Recently Resort Savings and Loans, a primary mortgage lender says it
would commit N200 million to the proposed MRC.
The implication of these commitments and other interests is increased funding to the
mortgage/housing sector. Our prognosis also indicates there will be a need to access funds from
the capital market if the PMBs and DMBs can pull together more mortgage originations. To a
large extent, this may help to deal with one of the twin issues confronting a viable mortgage
system in Nigeria.
We think the impact of the existing land use act may constrict potential gains that would accrue
from the establishment of the mortgage refinancing mechanism. The Nigerian Land Use Decree
of 1978 nationalised all land in the country and notionally handed over its administration to
committees constituted at state and local government level and these constitute a huge constraint
to business (See Chart 5). This limitation would have to be removed if the level of investments
desired in the housing sector is to be attained.
Source: World Bank 2012
0
50
100
150
200
Senegal Angola Nigeria South Africa Namibia
122
184
82
23
39
20.3
3.2
20.8
5.6 13.7
6 7 13 6 7
Registering a property
No of Days Cost(% of property) Nos of procedures
5. CDL Research
5 August 5, 2013 Mortgage Refinancing Report
Furthermore, there will be a need for institutional and regulatory checks on the operations of the
DMBs and PMBs and their relationships with the Nigerian MRC. The MRC is being positioned
to serve as an off-taker of the loans disbursed by the mortgage lenders. There is a tendency for
DMBs & PMBs to create low quality mortgage risk assets and expect same to be offset by the
MRC which may lead to the US-styled mortgage bust that resulted in what has been described as
the worst economic crash since the 1930s depression. The global economy is yet to fully recover
from this subprime mortgage crisis.
It is equally being anticipated that interest rate on mortgage from lenders to home owners
(borrowers) will be cut by 50% from the present 24% to 12%. However, we think this may not
necessarily translate to affordable housing for the huge low-income population that are the most
affected in Nigeria s housing problems. Also, there have been no comprehensive plans on what
would happen to the entities traditionally entrusted to coordinate mortgage activities in Nigeria.
These are the Federal Housing Authority (FHA), National Housing Fund (NHF) and Federal
Mortgage Bank of Nigeria (FMBN). We think a clear blue-print has to be established on the
operations of the three entities.
Lastly, the operation of the MRC is set to increase activities in the Nigerian capital markets. We
anticipate an increase in the number of Real Estate Investment Trusts (REIT) traded on the
Nigerian bourse from the three names which are Union Homes, Skye Shelter Fund and UPDC
Plc. REITs are pooled capital of investors used to purchase and manage income property and/or
mortgage loans. In addition to REITs, we anticipate the increased creation of financial
derivatives as mortgage-funding needs increase and the market deepens. The proposed N60
billion bond to be issued by MRC confirms our expectation of the impact of the MRC on the
Nigerian bond market.
Barring any predatory and hawkish tendencies of Nigerian entrepreneurs, we expect a
considerable success of the MRC in Nigeria.
MRC could open
a new vista in the
Nigerian capital
market
Land Use Act:
The Achilles
Heels of housing
in Nigeria
World Bank
commits $300m
of zero interest
fund to the
Nigeria MRC
6. CDL Research
6 August 5, 2013 Mortgage Refinancing Report
Notes:
CBN: Mortgage Refinancing Company (MRC) Draft
World Bank Ease of Doing Business 2012
Nigerian Stock Exchange
