Daily Independent (Lagos)
20 October 2008
interview
My background experience influenced the establishment of Personal Trust Savings and Loans Limited. While at Credit Lyonas (Nigeria) around the early 1990s where I rose to the position of a General Manager, mortgage banking licenses were being issued by the Babangida administration. A group of friends, who shared similar interest in property financing and mortgage financing, saw this as an opportunity to realise our dream. We applied for the license and were issued one in 1993. The company took off in January 1994 at a time when I was still in employment. So, as a prime sponsor, I thought I should come on board fully though, before then, managers were running the place until 1998, when I took an early retirement from Credit Lyonas.
Precisely in October, I came over to assume the office of Managing Director/CEO. Personal Trust is a company that came about as a result of the interest of some friends who have passion in property financing. The formal arrival of mortgage banking in Nigeria and Primary Mortgage Institutions (PMIs) was actually a welcome development for us. This greatly influenced our coming into the business. The vision is actually to have a wide spread network of branches in Nigeria which will be offering preferred mortgage banking service to the nation, which naturally include mortgage products. And also the production and availability of affordable properties on which mortgage can be created. The mission of the company is to assist the banking public to acquire a capacity to own properties and thereby engage in lasting capital formulation by providing them with preferred mortgage banking products and services with a commitment to be the best in meeting the expectations of all our stakeholders.
Sometime ago you took journalists on a facility tour of Lake View Estate. What is the latest development on the project?
I am pleased to tell you that Lake View Estate is making steady progress towards completion. At this rate, we believe that we will make the final delivery deadline of not later than the first week of December (this year). All hands are on deck towards realising this objective. Of course developers in Nigeria are faced with a lot of difficulties and hurdles to cross both economic and what I would call institutional constraints. A good example of course is that for private developers in Nigeria you tend to underestimate the extent and financial obligation involved in having to provide infrastructure, which naturally should have been provided by government. These are the problems that we (as developers) are faced with. Also the difficulty in bringing electricity to the estate, the provision of borehole - we are now at this stage. When you went to the estate, you saw the road leading to the estate from the main road. Thankfully the Lagos State Government is doing the main road (the Amuwo-Okota Road). The 800-metre road from the main road to the estate has been a challenge to us. However, we feel confident that, come the first week of December, we will be delivering a beautiful and fully completed estate to our subscribers and to the mortgage banking public in Nigeria, which would be a major achievement of making us the first PMI to do this in metropolitan Lagos. We are not producing all these expensive units that are beyond the reach of what should be our market target, the lower middle class and professional people. We are delivering something that is affordable to this class of people.
How many units do you have in that estate?
The first phase, which will be delivered in December, comprises 80 units of mixed types of 16 two-bedroom units and 64 three-bedrooms units.
So, what is that unique selling point (USP) that will attract a prospective buyer to want to buy into your estate?
The unique selling point to start with is the location (in central metropolitan Lagos) and the fact that we are offering a quality estate at an affordable price. Affordable in the sense that when you do a comparative analysis, you find out that the lower middle class, the professional class the home starters today want something that they can buy within their resources or using mortgage arrangement to finance their payment. I will tell you the mechanics of affordability. Something on which they can put down a deposit, get mortgage to cover the rest. And we are targeting this against the only true mortgage financing line available in the country today, which is the line from the Federal Mortgage Bank of Nigeria (FMBN), known as the National Housing Fund (NHF). So, affordability therefore means that we are producing units that have starters who can put down 10 per cent and get the balance from NHF.
We started this even at a price that could barely cover our cost but ensuring that we do not make a loss. We introduced two-bedroom units at N4.9 million per unit and three-bedroom units at N5.4 million per flat. Now, let me give you the mechanics of that. It means that a youngman of about 30 years who is a home starter and who is also a contributor to the NHF can buy a two-bedroom unit at our introductory price of N4.9 million by putting down N490,000, that is 10 per cent of the value of the property and we will get him the balance from the NHF. He will repay that balance over 30 years for a period that he turns 60 years. The repayment will be at six per cent per annum. Now, when you work it out, the down payment of 10 per cent is much lower than what he would have paid to a landlord by way of three years rent assuming that the rent for a flat is N250,000 per annum. Over three years this translates to about N750,000 but we are just asking him to put down N490,000. But if we have made our introductory price at N10 or N15 million per unit, he will put down N1 million and of course he cannot get the balance from the NHF because the maximum you can get from the NHF is N5 million. So, you can see that it is a super unique selling point.
So, what is the state of your company's private placement?
The private placement came out at a time when there has been complete let down in the Nigerian Stock Market, when investors have become shy about investing in stocks and all the rest. So, what happened therefore is that the response has been slow but steady. So, being a private placement, we are leaving it open, beyond the initial closing date of August 25. We have left it open and we will continue to receive subscriptions. The more people get to know about the quality of what we are providing and what they are buying into, the more they get interested in the placement. Inspite of the loss of faith by the public in investing in stocks for now due to what I would call the anxiety and the panic of investing in the market, it is important to state that people are appreciating that when they buy into us, they are not just buying a stock of a financial institution but they are also buying into real estate. So, like every private placement, it is a continuous thing, you continue to approach investors to invest in your company. This is what private placement is all about. It is different from public offer where you come under all the rules of the Stock Exchange, Security and Exchange Commission (SEC) and others. For those who have subscribed so far, we reassure them that inspite of the difficulty of the moment we will in due course be packaging all the subscriptions and approaching the Nigerian Stock Exchange (NSE) for listing within the first quarter of next year.
How would you assess mortgage as an instrument for home ownership?
What can truly be called a mortgage financing line in Nigeria today in terms of tenor and pricing is the line from the Federal Mortgage Bank (FMBN), which is the National Housing Fund Loan. Even this has its problems. It is not easily available, the conditions are heavy and in sympathy with the FMBN itself, the fund available to the bank is far short of the total demand on it. So, the demand far outstrips supply. So, it is unable to meet the demand on it. It makes the approval for loan application very slow. Mortgage as an instrument for accessing homeownership is gradually becoming a strong instrument. The culture of the people before now, wrongly or rightly, is that you work all your life and save and with all your terminal benefits and gratuity, you are able to own a home.
Then, you now have the other group, of course, that also through the culture of the people, wrongly or rightly believe that they must steal, corner some money before they can own a home. With the economy taking a new shape and the reality dawning on everybody, it is now becoming clear that neither of the two routes is able to guarantee you a home.
People are now beginning to appreciate mortgage. But within our financial system, mortgage itself has not been well established. So is an emerging evolving sector and instrument for financing homeownership. Therefore, what you have today that is evolving is that, because the money is not there, the long-term money needed for funding mortgage is really not in the system as at today. So, it means therefore is that what is available is very limited. The World Bank actually described what is available right now from FMBN as "an unsustainable lottery" in the sense that it is like a lottery; the number of people who need this fund far outstrips what is available. So, it is a matter of throwing the coin to see who wins and who loses. Is mortgage really available today, I would say no. It is just coming on slowly. It is a function of the economy. As at today, what you have from our commercial banks are not truly mortgage financing. In developed economics, it is well structured and organised. The system is providing money for the real estate market in developed economy.
What is your take on the Land Use Act, should it abrogated or amended?
The Land Use Act should be amended. It is neither a good act nor a bad one. What is missing in our society today is that we do not sit back and think enough. We bring a lot of sentiments and emotions into matters of national discourse. There was a reason for coming up with the Land Use Act. We had problem of land ownership, we had problem of government selling land for public purposes and for public good, where land was not available for government to carry out what I will call general public service that will benefit everybody. Buyers of land were running the risk of being killed and their land being taken back. We had that problem, so people should think of that first before condemning the act. But when the act now came out, it now became a monster in the hands of those that were to administer it. I mean the governors who now saw it as a political instrument. This development is the area that needs to be addressed by organising a public hearing towards finding ways of amending the document instead of an outright abrogation. As an economist, I can tell you that the most powerful weapon of production till tomorrow in any part of the world from Adam Smith to Lamb is land. Most of the crisis in the world today is all about land, the Middle East, Lebanon just to mention a few is about land. So, in a nutshell, the act should be amended and not abrogated, especially in the area of governor's consent.
What is your view on the incursion of banks in real estate? Is it healthy for the sector?
It is a welcome development.
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