In Nigeria, the financing of housing currently constitutes a major problem for all households which are not in the super higher income brackets. To a certain extent, the importance that paying for sound housing plays in a family’s budget is simply a consequence of the fact that a dwelling is the largest single consumer commodity a household can expect to buy.
The Nigerian housing finance system is made up of corporate financial intermediaries, corporate construction intermediaries (Federal Housing Authority and private estate developers), mixed corporate intermediaries (State Housing Corporations), individuals, and government and its agencies (offering staff loans). In this article, we are going to look at two major housing schemes; their relationship and how they are structured to provide affordable houses for Nigerians. These schemes are the Federal Housing Authority (FHA) and the National Housing Funds (NHF).
Federal Housing Authority (FHA)
The Federal Housing Authority (FHA), a wholly owned agency of the Federal Government of Nigeria, was established vide Decree 40 of 1973 now cited as Act CAP F-14 Laws of the Federation of Nigeria 2004. The Authority is supervised by the Federal Ministry of Works and Housing.
Historical background
The Federal Housing Authority was established vide a legal instrument known as decree No. 40 of 1973 revised as CAP 136 Laws of the Federation 1990 and now CAP F14 Laws of the Federation 2004. The Authority exists as a body corporate with perpetual succession and a common seal.
Powers of the authority
Subject to this Act, the Authority shall have power to do anything which in its opinion is calculated to facilitate the carrying out of its functions including (without prejudice) to the generality of the following: –
- Sell, let, lease or otherwise dispose of any property vested in the Authority;
- Borrow money for the operations of the Authority. but where the amount of any particular loan is not less than Two Hundred Million Naira (N200,000,000) that amount may only be borrowed with the prior approval of the President;
- Undertake or sponsor the undertaking or such research as may be necessary for the performance of its functions;
- Enter into contracts for the construction, maintenance, management or repairs of any property;
- Purchase or otherwise acquire any assets, business or other property where in the opinion of the Authority, such purchase or acquisition is necessary for the proper discharge of its functions under this Act.
- Train managerial, technical and other staff for the purpose of running the Authority’s operation.
- Sue and be sued in its corporate name;
- Acquire, hold and manage movable and immovable property;
- Acquire, construct and maintain houses, schools, communal and commercial buildings and other structures;
Apart from the Act outlining the Authority’s powers, rights and obligations, the enabling law also specified the procedure of constituting the Board of Directors to run its affairs and discharge its function effectively.
Other roles of the authority
The National Housing policy 2012 further expanded the role of the Authority to include:
- Develop and manage real estate on commercial basis in all states of the Federation and the Federal Capital Tertiary (FCT).
- Provide sites and services for all income groups with special emphasis on the No-income and low-income groups. The funds for providing for these two groups shall be provided by the Federal Government and other sources;
- Provide No-income and Low-income, cooperative, and rural housing in all states of the Federation and the Capital Territory from funds provided by Government and other sources;
- Execute such housing programmes in the public interest as may be approved by the Federal Government, and mobilize off-shore funding for housing development.
Commercialisation
Pursuant to the re-defined roles of FHA, in May 2013, the Federal Government, through the Technical Committee on Privatization and Commercialization (TCPC) now Bureau of Public Enterprises (BPE) entered into a Performance Agreement with the Federal Housing Authority. The aim of the Performance (Commercialization) Agreement was to reduce the magnitude and scope of financial support of the Federal Government and allow the Authority to adapt to changing business requirements. Before this development FHA had only managed to deliver 37,000 houses in its 40 years of existence.
The Agreement further approved a reformed package commercializing the activities of the Authority with a view to repositioning it to do the following:
- Strategic planning emanating from guidelines by the National Planning Commission and the supervising Ministry or such other relevant agencies of the Federal Government;
- Measuring performance of Management against agreed targets;
- Recommend the appointment, discipline and removal of the Chief Executive and the Executive Directors to Mr. President via the supervising ministry;
- Approval of financial and banking policies including borrowing within the capacity of the balance sheet of the Authority;
- Appraisal of Budget both Recurrent and Capital and Annual Account;
- Acquisition and disposal of fixed assets as recommended by the Management of the Authority;
- Determination of Rents, Rates and Charges for goods or services produced or rendered by the Authority subject to consultation with the supervising ministry;
- Award contracts within certain financial limits. Appointment, promotion and discipline of staff at all levels and determination of conditions of services for staff.
Achievements of the authority
Federal Housing Authority began operation in 1976 with the construction of Festival Town (FESTAC) in Lagos, for hosting participants in the 1977 Second World Black and African Festival of Arts and Culture. Since the commencement of operation, the Authority has developed 76 estates across Nigeria with over 100,000 housing units. Some of the notable estates are:
| ESTATES | NO. OF HOUSING UNIT |
| Festac Town, Lagos | 1438 |
| lpaja New Town Lagos | 3044 |
| Abesan 2, Lagos | 62 |
| Abesan 1 & 4, Lagos | 235 |
| Satellite 2, Lagos | 38 |
| Gwarinpa II, Abuja | 4036 |
| Maitama, Abuja | 427 |
| Asokoro, Abuja | 162 |
| Kado Phase I & Il, Abuja | 1004 |
| Old Karu Phase I, Abuja | 251 |
| New Karu, Phase Il, Abuja | 204 |
| Kubuwa Phases I, II, III & IV Abuja | 2138 |
| Rumueme/Trans Amadi, PortHarcourt | 207 |
| Sharada Kano | 178 |
| Mariri Kano | 970 |
| Gonin Gora Kaduna | 176 |
| North Bank, Makurdi, Benue State | 218 |
| Runjin Sambo Phase I & Il, Sokoto | 175 |
| Old Airport Road, Sokoto | 559 |
| Egbada, Owerri | 170 |
| lrete Owerri | 576 |
| Iguosa-Benin, Edo State | 162 |
| Osogbo, Osun State | 255 |
| Lugbe, Abuja | 3630 |
| Apo/Guzape, Abuja | 1010 |
| Zuba Abuja | 756 |
Housing delivery models
In its bid to fulfill its mandate, Federal Housing Authority uses eight delivery models in making houses available for Nigerians. The models are:-
- Direct Construction
- Public – Private Partnership (PPP)
- Public – Partnership Cooperative Housing
- Sites and Services
- New Town Development
- Rental Housing
- Regeneration
Public-private partnership in housing
Federal Housing Authority has adopted Public Private Partnership (PPP) as a housing delivery model since the year 2000 in recognition of the importance of the Private sector in national development.
The Authority through this model has completed a number of estates under this scheme, while others are on-going.
The existing partnerships and the projects areas:
- FHA/CITEC International – 300 Units, Gwarinpa Abuja FCT.
- FHA/ADKAN Services – 351 Units, Gwarinpa Abuja FCT.
- FHA/LOCKE Inter. Limited : 554 Units, Isheri Olofin, Lagos
- FHA/BAUHAUS Inter. Limited – 288 Units, TransAmadi, PHRivers State.
- FHA/Prince & Princess Properties Ltd – 70 Units, Gwarinpa, Abuja FCT.
- FHA/OHMS Limited : 20 Units, Gwarinpa Il, Abuja FCT.
- FHA/BAUHAUS Inter. Limited : 140 Units, lrete, Owerri, Imo State.
- FHA/TANGENT – 210 Units, lIrete Owerri, Imo State.
- FHA/GOOD HOMES Limited – 109 Units, Egan, Lagos State
- FHA/ZINC PACE – 51 Units, Lugbe, Abuja
- FHA/ENL – 932 Units, Apo — Abuja FCT
National Housing Fund (NHF)
National Housing Fund was established primarily to address the constraints to the mobilization of long-term funds for housing development and to ensure that every Nigerian has access to housing loans at affordable rates of interest. The fundamental concept which is a new approach to housing facilitation in Nigeria is to make the private sector the main source of housing finance.
The NHF scheme is for Nigerians in all sectors of the economy, particularly those who are contributing to the National Housing Fund Scheme; the low and medium-income levels who cannot afford commercial housing loans e.g. civil servants, traders, artisans, commercial drivers, etc.
Aims and objective of the fund
The aims and objectives of the Fund shall be to –
a) facilitate the mobilization of the Fund for the provision of houses for Nigerians at affordable prices;
b) ensure the constant supply of loans to Nigerians for the purpose of building, purchasing and improvement of residential houses;
c) providing incentives for the capital market to invest in property development;
d) encourage the development of specific programs that would ensure effective financing of housing development, in particular low cost housing for low income workers,
e) Provide proper policy control over the allocation of resources and funds between the housing sector and other sectors of the Nigerian economy; and
f) Provide long-term loans to mortgage institutions for on-lending to contributions to the Fund.
The major source of funds for the NHF is the contributions from workers. Contribution to the fund is compulsory for every Nigerian worker earning an income of N3,000 or more per year, as either a paid employee or self employed person. All potential contributors to the fund are expected to be registered by the FMBN through their employers. To facilitate the deductions and remittances of contributions, each employer is expected to be registered. The self employed individuals can, however, collect forms from any branch of FMB natiomvide. The number allocated to each contributor to the fund remains valid even after change of employment.
Who can apply for NHF?
According to the NHF Act 2004, all Nigerian employees and income earners, whether in paid employment or self-employment, are entitled to the NHF scheme and can register as long as they’re 21 years of age and whose salaries are more than ₦3,000 per annum. The Act also outlines that registered members should contribute about 2.5% of their basic monthly salary to the Fund through the Federal Mortgage Bank of Nigeria (FMBN).
Benefits of the scheme
• Housing loan of up to 90% of the cost of the house.
• Interest on loans remains fixed throughout the life of the mortgage at 6% p.a.
• Long period of repayment of up to 30 years.
• Contributions can serve as additional old age security.
• Up to N15 million can be borrowed.
• Refunds with 2% interest on retirement.
• Loan repayment is about the same as a typical monthly rent.
• Every contributor has: a lifetime registration number, a passbook for personal recording of contributions and the account statement.
Procedure for registration
All Nigerians in employment, whether self-employed or in paid employment, are required by the NHF Act No.3 of 1992 to contribute 2.5% of their basic salary/income to the fund. The procedure for registration is as follows:
• The Federal Mortgage Bank of Nigeria (FMBN) will supply Employer Registration Form (NHF1) to employers.
• Employers will complete form NHF1 and return to the nearest branch of the Federal Mortgage Bank of Nigeria.
• Federal Mortgage Bank of Nigeria will register the Employer and issue an employer’s registration number.
• Federal Mortgage Bank of Nigeria will issue form NHF2 to employers for completion by employees or directly to self-employed or individuals.
• An employee will complete the form NHF2 and return it to the employer.
• The employer or self-employed individuals will return the completed form NHF2 to the Federal Mortgage Bank of Nigeria.
• Federal Mortgage Bank of Nigeria will register Employees on Form NHF2 and allocate employees’ participation number to each employee/self-employed individual.
• Federal Mortgage Bank will issue a passbook to each of the registered employees where the monthly deduction of his/her 2.5% basic salary will be posted by the employer.
• At this point, an employee is now a registered participant of the National Housing Fund.
• Employer will commence deduction of contributions at source. Such deductions/contributions are remitted to the Federal Mortgage Bank of Nigeria with schedule of payment indicating the amount contributed by each employee and the period covered.
• Self–employed contributors will also commence monthly remittances of contributions to FMBN.
• Federal Mortgage Bank of Nigeria will accept contributions and issue receipts for payments.
NHF refund
According to the NHF Act, a contributor to the NHF scheme can only get a refund under the following conditions:
- Refund is made to a contributor who has attained 60 years of age or has put in 35 years in service.
- Refund is also made to a contributor that has obtained a loan, liquidated the loan and has attained the age of 60 years or has put in 35 years in service.
- Retired from employment and becomes incapable of continuing the contribution to the Fund.
- For applicants from the underlisted professions, the retirement ages are as stated below:
- Professors, Judges, and Medical Consultants – 70 years of age
- Academic, Non-Academic Staff, Judicial Staff – 65 years of age
- Military Officers – 62 years of age
- Refund is made to the next-of-kin of a contributor in case of a deceased contributor.
Documents required for refund of contribution
• Application letter requesting for refund of contribution.
• Letter of offer of appointment.
• Birth certificate or Declaration of age certificate.
• Completed NHF Contribution withdrawal forms.
• Bank Account details through which refund would be paid.
• Medical report of incapability to continue contributions due to failing health
• Letter of administration & Death Certificate (in case of a deceased contributor)
• Evidence of contribution. (Receipt for self-employed contributor)
• Biometric Verification Number (BVN)
Housing finance by Nigeria’s financial institutions
1. The Federal Mortgage Bank of Nigeria
The Federal Mortgage Bank of Nigeria (FMBN) which was set up vide Decree 7 on January 20, 1977 absorbed the assets and liabilities of the Nigerian Building Society (NBS) earlier set up in 1956.
In order to assist the Federal Government in achieving a significant increase in the supply of housing units by granting more credit for housing, the Decree establishing the FMBN conferred the following main functions on it:
- Provision of long-term credit facilities to mortgage institutions in Nigeria for the purpose of building houses to be let out or sold at reasonable rates to the public;
- Encouragement and promotion of the development of mortgage institutions at state and national levels;
- Supervision and control of the activities of mortgage institutions in Nigeria;
- Provision of long-term credit facilities directly to Nigerian individuals wishing to build houses to live in;
- Provision at competitive commercial rates of interest, credit facilities to commercial property developers of offices and other specialized types of buildings.
2. Commercial and Merchant Banks
The Central Bank of Nigeria uses its monetary policy circulars to channel part of loanable funds from commercial and merchant banks to the needy sectors of the economy of which housing is one.
Until 1987, housing was included in the preferred sector and these banks were required to lend an annually specified percentage of their total advances (6% by 1986), default was penalized by allocating the shortfall to the FMBN for on-lending.
3. Insurance Companies
Insurance Decree No. 8 of 1976 provides that an insurance company shall not invest more than 10% of its non-life investible funds in real property; and not more than 25% of its life insurance investible funds in real property.
Problems of housing finance by financial institutions in Nigeria
(a) Mass poverty
One of the problems of housing finance in Nigeria arises from mass poverty, irregular income and consequent low savings capacity of the vast majority of the population.
(b) Inefficiency of financial institutions in resource mobilisation
The various financial institutions are inefficient financial intermediaries because, despite the rural banking scheme, there is still the high tendency on their part to concentrate their operations (especially merchant banks and insurance companies) particularly savings promotion programmes in urban areas.
(c) Inadequate funds
The housing finance system in Nigeria suffers from the lack of long-term capital that is characteristic of the financial system.
(d) Loan repayment problems
Particularly for the FMBN, repayments are in heavy arrears. For instance in 1984 the arrears owed FMBN amounted to about N34 million, with some individual cases involving 50-60 monthly instalments.
(e) Absence of secondary mortgage market and guarantees
The Nigerian housing finance system is characterized by lack of secondary mortgage market. The absence of private sector building societies or mortgage institutions, for instance, has prevented the FMBN from going into full-scale mortgage banking and performing its role as the apex mortgage institution, supervising, controlling and development of other mortgage institutions.
(f) Rising population, urbanisation, high cost of building materials and inflation
The housing finance problem in Nigeria has been exacerbated by rising population estimated at 55.7 million in 1963 and about 104.1 million in 1986, increasing urbanization, high cost of building materials and inflation (worsened by SFEM/FEM/IFEM).
(g) Ineffective targeting of government subsidies
The combination of short-terms and high interest rates for the mortgage amortization, especially recently, has led to only very high income households qualifying for these loans.
Recommendations
- Developing a secondary mortgage market and a mortgage insurance scheme
- Effecting the Apex Role of the FMBN
- Involving the Nigerian Provident Fund (NPF) in Housing Finance
- Purchase of sites and services loans
- Sources for Increased Funds Mobilization
- Modification of CBN Credit Guidelines and Legal Provision
- Effective Loan Recovery Strategy
- Housing Cost Reduction and Use of Local Materials
Conclusion
In summary, the FHA is a federally owned agency responsible for supplying housings, lands and construction materials affordably to citizens, while the NHF is a program that the federal government of Nigeria has come up with to support citizens to own houses easily through the programme of the Federal Mortgage Bank. This is because in any housing development programme the role of government is of utmost importance, the Government has to create and ensure a buoyant and vibrant financial system and economy that can provide sufficient funds for housing to citizens.
