Nigeria: Assessing FMBN's Post Covid-19 Housing Delivery Plan

Accra and Johannesburg are roughly the same age. Gold was discovered just outside present day Johannesburg in 1884, triggering the rush that founded the city. The British declared Accra the colonial administrative capital of the Gold Coast in 1877, both events occurring within a decade of each other. Today, metropolitan Johannesburg's population is around 5 million, whilst Accra's is just over 2.5 million. Johannesburg's brand identity, prominently displayed in its media image, is of a "world class African city". Accra makes fewer claims to "world class" status, but in 2016, was awarded the title of Africa's "most expensive city".
10 September 2020

Abuja — The impact of Covid-19 on the Nigerian economy is profound. Nigeria's economy was on the path of recovery from the 2016 recession before the pandemic struck. Growth slowly rebounded in 2017 and 2018 in part because of rising oil prices, increase in agricultural production and services. By 2019, Nigeria's annual Gross Domestic Product (GDP) peaked at about 2.2 percent.

However, efforts of governments to contain the virus combined with the volatility and collapse of global oil prices have put the brakes on economic activity erasing the rebound and modest gains made in recent time.

This development is worrisome. What started as a health crisis has seeped malignantly into every facet of society including the housing sector. The pandemic has significantly weakened national finances and compromised emerging pillars of economic growth.

The World Bank in a recent report titled, "The Nigeria Development Update: Nigeria in Times of COVID-19: Laying Foundations for a Strong Recovery," predicted that in 2020, Nigeria's economy is expected to experience its worst recession in four decades. In the baseline scenario, the report says that the economy would contract by 3.2 percent this year.

This assumes an annual average oil price of $30 a barrel. It also assumes that the spread of COVID-19 eases by the end of the second quarter and is contained by the third quarter of 2020.

It added that with the uncertainty of the long-term economic impact of the global COVID-19 (coronavirus) pandemic, the speed, quality, and sustainability of Nigeria's economic recovery will be determined by the effectiveness of its government's response.

The broad import of this analysis is that governments at all levels and leaders of institutions that are designed to stimulate growth of critical sectors of the economy must redouble efforts to ensure quick economic recovery.

It is against this background that the ambitious efforts and initiatives of the Federal Mortgage Bank of Nigeria (FMBN) to ramp up housing stock development is so vital.

FMBN Mini Cities

One of the latest of such initiatives is a plan to finance the development of FMBN Mini Cities. The project targets the development of 20,000 housing units annually over the next five years and is to be implemented in collaboration with reputable real estate developers. According to the design, each project site planned to host between 1,000 to 2,500 units per project site. The house types include two bedrooms, 3 bedrooms and some terraces to cater for different income categories of Nigerians.

According to the plan, off takers - that is - persons that are interested in purchasing the houses through loans that will be provided by FMBN, would to be profiled at the inception of each project with strict adherence to the delivery timeframe.

Speaking recently, the FMBN boss, Ahmed Musa Dangiwa explained that the project is open for participation by all organizations that are participating in the National Housing Fund (NHF) Scheme.

"The FMBN Mini Cities project is open, and organizations are expected to submit the names of off takers - potential buyers - of the houses, for prior profiling before the project commences. Hopefully, we should start next month in Abuja on a site that will host about 2,332 houses along Kubwa expressway in Abuja.

"The land has been acquired and the developers are already on ground and awaiting the Board approval for kickoff," he explained.

5,000 Housing Units

Next is the bank's plan to deliver 5,000 housing units over the next twelve months under the National Economic Sustainability Plan (NESP) that was recently approved by the Federal Executive Council (FEC) to stimulate economic growth and create jobs.

Clearly, the 20-housing unit per year FMBN Mini Cities project and the planned delivery of 5,000 homes within the next twelve months are not only historic but remarkable at many levels. Besides creating jobs for thousands of Nigerian workers and the attendant positive economic benefits, the two housing development initiatives promise to add over 100,000 affordable units to the country's housing stock in the next five years. Compared to the bank's delivery of about 30,000 units since inception, the difference is remarkable.

This will increase access to affordable homeownership to thousands of Nigerians using the single digit mortgage loans and other innovative low-cost homeownership options that the bank provides. This includes the FMBN National Housing Fund (NHF) Mortgage Loan.

The mortgage loan is available to qualified workers that contribute to the NHF scheme at 6 percent interest per annum with payment tenors of up to 30 years. Loans under N5million attract zero equity down payment while only 10 per cent equity is required for loans ranging from N5m-N15. Subscribers are qualified to apply after six months of contribution of 2.5 per cent of monthly salaries.

Second, is the individual Home Construction Loan. The loan enables NHF contributors with unencumbered land, appropriate land titles and approved building plans to undertake self-construction.

It provides up to N15 million to NHF subscribers at seven per cent interest rate per annum with up to 30-year payment tenors depending on their age and number of years left in service. Third is the home renovation that provides up to N1 million for home improvement.

Another one is the FMBN Rent-To-Own Product. The loan allows beneficiaries to move into an FMBN-owned housing property as a tenant and pay towards ownership of the property in monthly or annual instalments over 30 years at an interest rate of nine per cent.

Housing as a Catalyst for Economic Recovery

Of even greater significance is the potential impact of the FMBN housing stock development initiatives on the much-needed economic recovery. Housing markets and housing construction in various economies have served as an engine of growth.

The housing sector has typically played a leading role in the process of economic recovery from depression. This is especially true in wealthier societies, notably the US and Japan. Studies in the US between 1959 and 1992 found that housing leads the business cycle, ahead of all other investments. In Japan, the use of public housing activities and housing loans as a macro-economic stabilizer to increase demand and create employment during recessions in the 1970s and 1990s was found to be highly effective. Other countries, such as Thailand and Singapore, have also used investment in housing as a recovery measure. A key advantage of housing is that it is a domestic sector, and as such is protected from external influences. Therefore, it could be used to achieve short and long-term economic objectives.

Many experts also believe that mass construction of housing is a key element of Japan's rapid economic growth since the mid-1950s. In Japan, government expenditures in housing construction have been high.

The government has pursued a deliberate policy of encouraging mass housing construction to stimulate the national rate of growth and an average of between seven and nine per cent of GDP each year has been devoted to housing construction. Expansion of homeownership has therefore been a core element of housing policy, mainly because it promotes economic growth and encourages savings and investment.

A similar policy approach has been pursued in Asia, notably Singapore, Hong Kong, South Korea, and Taiwan. In the development plans of these countries, housing has consistently retained a high-profile, mainly because the governments recognised housing as a foundation of economic. Consequently, housing enjoyed a high priority, supported by policies with strong economic logic: housing generates economic growth, creates wealth, creates employment and income, redistributes income, and serves as a macro-economic stabilizer during periods of recession.

In Nigeria, the situation is not any different and explains the importance of the FMBN Housing Stock Development Initiatives to current efforts of the government to manage the devastating impact of Covid-19 on the national economy. In tough economic times like we are currently experiencing, increase in housing construction activities in the country holds great potential for economic growth.

First, the housing sector has a tremendous multiplier effect on the broader economy. It contributes to the Gross Domestic Product (GDP) and supports job creation and economic inclusion. Experts have stated that in India for instance each new housing unit generates 1.5 direct and eight indirect jobs. In South Africa, each housing unit creates 5.62 direct jobs and 2.5 indirect jobs.

The big idea is that the projected increase in housing construction owing to the FMBN housing projects would help to accelerate economic recovery and promote economic inclusion by creating thousands of jobs for craftsmen and artisans such as masons, plumbers, welders, electricians, and painters

The National Affordable Housing Delivery Program

Interestingly, the FMBN Mini Cities project and 5,000 Housing Delivery Plan would build on the momentum of the National Affordable Housing Delivery Program for Nigerian workers, which the FMBN is already implementing in partnership with the Nigeria Labor Congress (NLC), the Trade Union Congress (TUC), and the Nigeria Employers Consultative Association (NECA).

In the first phase of the programme, about 2,600 housing units are being delivered in thirteen (13) states across the six geopolitical zones of the country in addition to Lagos and Abuja, in batches of a minimum of 200 units per zone. House types include finished semi-detached bungalows as well as 1-, 2- and 3-bedrooms in blocks of flats.

Under the phase one, the FMBN sought and received five hectares of land from the participating states, while it provided construction finance to reputable estate developers to carry out the construction work. Potential beneficiaries are workers that are registered with the National Housing Fund (NHF) Scheme and contribute 2.5 per cent of their monthly income.

It is a good thing to note that the second phase of the FMBN and Labour National Affordable Housing Delivery Program for Nigerian workers is about to start as stated by the FMBN MD/CEO, Arc. Ahmed Musa Dangiwa. According to him, the bank is now requesting interested State Governors to provide up to 10 hectares of land for the siting of the expanded housing scheme in their states.

In conclusion, today's unprecedented crisis will require an equally unprecedented response from the entire Nigerian public sector, together with the private sector. The Nigerian economy is expected to contract in 2020 by at least 3 percent. The slump in global oil prices will slash exports: more than 80 percent of Nigeria's exports derive from the oil sector. Against this backdrop, the FMBN housing initiatives being planned in line with the National Economic Sustainability Plan (NESP) of the federal governments will contribute towards stimulating inclusive economic growth and driving recovery. It is therefore important that government and relevant stakeholders in the housing industry support the Board and Management of FMBN as they work to achieve these laudable plans.

Terungwa is a policy analyst based in Abuja.

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