“My Thoughts On How To Unlock The Potentials Of The Housing Sector” Being The Text Of The Keynote Speech Delivered By The Honourable Minister Of Power, Works And Housing, Mr Babatunde Raji Fashola, San At The Nigerian Stock Exchange (Nse) Sub-Saharan Africa Real Estate Investment Trust (Reits) Conference On Tuesday 23rd May 2017
I am delighted to accept the invitation of the premier African Bourse, the Nigerian Stock Exchange to speak at this auspicious conference and to share with you “My thoughts on how to unlock the potentials of the Housing Sector.”
Before I share my thoughts, I think it might be helpful to share my personal experience.
If you have lived in other people’s houses because you could not pay your own rent you will appreciate the discomfort of homelessness and the indignity.
In 1982, I was privileged to work as a vacation jobber at the LSDPC in Ilupeju, where my colleagues and I were assigned the responsibility of sorting out the allocation of flats then under construction by the Alhaji Lateef Jakande’s administration.
I have been a tenant myself and know the pressures and anxiety that come with payment of rent in advance of 2 – 3 years from a salary that you are yet to earn monthly in arrears.
It reinforces the need for a credit system in our real estate sector, where payments for rent are matched not only to the quantum but also the timing of income.
So people who get paid weekly, monthly or yearly, should pay their rent weekly, monthly or yearly.
It will relieve a lot of pressure on ordinary working people, it will allow increased occupancy of many flats that are now empty across our country because of the income mismatch of paying multiple years advance rent from weekly or monthly incomes received in arrears.
The need for credit reinforces my belief in the resort to the time- tested use of mortgages as the best method for increasing access to housing for the vast majority of Nigerians and indeed Africans; if we can build the houses in a sustainable manner.
But it is still pertinent to share with you my experiences as an advocate, where I have had cause to either act for the landlord to re-possess premises from defaulting tenants; or when I have acted for tenants to prevent unlawful or forced evictions.
There are the frustrations of landlords who depend on their houses for income and who are saddled with defaulting tenants on one hand; and the trauma of families with children who are unsure when they will be thrown on the streets on the other hand.
In my own quest to own my own house, I also have a personal experience.
Land that I bought that was resold illegally to a third party, or savings made from frugal earnings in the hope of securing a mortgage from mortgage institutions who later denied me on the ground that I did not have a collateral for my loan, or indeed Government Housing for which I paid the advertised fees as deposit only for the scheme to be cancelled and refund not made.
There is of course my experience as Governor, where I bore the responsibility of the expectations of citizens looking for affordable housing.
While the question of “affordability” as a concept seems to elude definition as I will attempt to show, against the odds, against unsubsidized cement, unsubsidized labour and other building inputs, my team, back in Lagos State, succeeded in putting 200 flats on the market every month at an interest rate of 9.5% per annum for a 10 – 20 year mortgage.
To illuminate, the Lagos Home Ownership Mortgage Scheme (LagosHOMS) under my watch, was launched in February 2014 to address the housing deficit in Lagos State. LagosHOMS is a government initiative to encourage and support home ownership of Tax Paying, First Time Buyers (FTB) residents of Lagos State to purchase decent and affordable homes through the provision of accessible mortgage finance. The Lagos State Mortgage Board (LMB) administers the Scheme.
It is meant to create a mortgage culture amongst Lagos State residents and to make available 200 homes monthly through a transparent public draw process for pre-qualified applicants who have met the LMB Eligibility Criteria, which include, paying taxes consecutively for the last five years and registration with the Lagos State Residents Registration Agency (LASRRA).
The scheme also incorporated an embedded seamless repossession process with applicants providing an Affidavit upfront to relinquish the homes in the event of lingering payment defaults. An Alternative Dispute Resolution (ADR) process is an integral part.
In all our post-independence history, 2 (Two) housing initiatives have first mind mention. The Alhaji Jakande initiative which was localized to Lagos and the Alhaji Shagari initiative which was national.
One common thread they both share is that they have not been replicated or continued – so sustainability was a problem.
Another commonality was that they occurred at a time when our national currency was very strong. The Naira traded at almost parity with the US Dollar which is the main currency of our foreign reserves.
Today the story is much different.
Another feature I am told is that the Shagari Housing, did not incorporate enough diversity to reflect different weather conditions and cultural differences in the country – “one size fits all”; and therefore, there were places where acceptability was very low.
Whatever the outcome was, we must indeed salute the courage and the service of these distinguished pioneers of mass housing.
I agree that it is difficult, if not impossible, for Government to provide all Housing solutions given the diverse demands.
The truth, which we must accept, is that 100% home ownership is an ideal, but the reality is that, best practices in places like the UK, US, Canada and Singapore are stories of a mixture of ownership and rental arrangements.
Success is defined and measured by the increasing number of tenants who become owners and not by the attainment of 100% home ownership.
With this in mind my thoughts are directed on how to gradually and consistently increase the number of tenants who become owners, with a focus on first-time owners.
Our first thoughts and actions are to avoid the limitations of the past initiatives and deliver a sustainable programme of National Housing that has wide acceptability.
The Roadmap to this in our view is to evolve nationally acceptable designs that respond to and accommodate our socio-cultural diversity.
Having meticulously evaluated some 21 options, we have based on research adopted the following 6 (Six) designs, with input from a diverse team of Architects from across the country:
- 1, 2 and 3 Bedroom bungalows, with court yards, that respond to the climate condition and cultural leanings in the North-East, North-West and North-Central parts of Nigeria
- Blocks of 16 and 24 flats of 1, 2 and 3 bedrooms and Bungalows of 1 and 2 bedrooms in the South-South, South-East and South-West of Nigeria and the FCT.
The designs focus mainly on the greater majority, most vulnerable first-time home owners, who do not earn large incomes, junior workers in private companies, young families where husband and wife can pool their incomes together to qualify, artisans, drivers, market men and women, officials whose income bracket falls within grade levels 9 – 15 in the public service.
Having proffered a pathway to acceptability and end-user identity, the next step to sustainability is mass production.
It is true that our deficit is large, but I will not go into the exact number because first, the population since 2006 census has been disputed and successfully challenged by Lagos State at the census tribunal. Second, the amount of the deficit has no certainty and has varied according to the reckoner.
My attitude is that no matter the size of the deficit it can be addressed if there is a sustainable plan that is rigorously implemented, while awaiting the conduct of a more credible population census.
Our plan for sustainable supply is to standardize designs and industrialize production.
Here is where I have news for small and medium scale businesses who are in this line of business.
By standardizing fittings such as doors, windows, roofing sheets, tiles and other components, it allows us to use these standards to stimulate local mass production of fittings and finishing to meet the demands of mass housing.
We have as such resolved not to use imported materials in our housing schemes, where there are local alternatives.
In this way, we will be achieving one major objective of the President Muhammadu Buhari Adminstration’s vision and strategic goal of diversifying our economy.
For example, the smallest of houses will have at least a main door, a kitchen door, a room door and a bathroom door making a total of 4 (Four) doors.
In order to build 250,000 units of that type of house, this market will need to produce 1,000,000 (One Million) doors. This does not include pipes, taps and sockets for electrical appliances.
I leave you to imagine what this can do for our economy if we produce all these items locally.
Our surveys indicate that electrical fittings such as sockets and door locks are still largely imported and we will use our demand capacity to stimulate local manufacturing or assembly, in order to keep the jobs in these areas at home.
The next step toward industrial production is to reduce the time it takes to build a block. Our recent experience shows that a block of 12 flats usually takes 12 – 18 months at the quickest and we are looking at designing moulds that reduce this time to 6 (Six) months or less.
Once this is done, the next step should be ascertaining who will develop. It is easy for the uninformed to wonder why this is important; after all, anybody can build a house.
Sadly, that is not the reality and even the developers with proven capacity accept this fact, and I will explain.
A survey of our Public-Private Partnerships (PPP) initiatives with developers over the last 10 years including site and service schemes which were supposed to deliver about 20,000 housing units has shown that the intervention has delivered less than 2,000 about 10% performance.
The truth is that apart from financing difficulties, there are some people who have resorted to property development out of a survival necessity rather than out of any capacity or knowledge about the industry.
We receive dozens of letters almost daily by people offering to build 10,000 housing units, (which seems to be the magical number for some of these emergency developers), without verifiable pedigree and track record of where they have built a simple 100 Housing units.
We also have offers from road construction companies who want to build houses. The skill sets and logistics are entirely different even though they both involve construction.
At the 2016 Shelter Afrique Annual General Meeting and the National Housing Summit which we hosted in Abuja, the recommendation from the Real Estate Developers Association of Nigeria, which we have adopted is that we must accredit, certify and rank developers who will be allowed to participate in our scheme.
There is the view that Government should get out of housing and leave it only to the private sector.
This was one of the issues debated at the summit. What the proponents failed to show us, was the proven capacity of the private sector on its own to meet the demand for housing and reduce the deficit considerably.
The successful methods in countries I have referred to, show that Government often leads the way, first by policy, later by regulation and finally by empowerment and enablement.
Our programme will not be different.
The policy framework for standardization of designs, use of local materials, and registration of developers has already started.
These are governmental initiatives. The next intervention is funding.
We had a budget of N35 Billion in 2016 (noting that the Capital Expenditure component ran till early May 2017), which was not a lot by any measure.
However, when compared with N1.8 Billion budgeted by the last administration is a 1900% increase.
As in all initiatives, the laboratory is different from real life. The former is in a controlled environment while the latter is dynamic.
So our objective was to use the 2016 budget to prove the efficacy of our concept in the short term.
The good news is that as we speak we have indeed pivoted from concept to execution with the commencement of construction works in the 1st Quarter of 2017 in 33 (Thirty-three) States that have made land available across the country.
With our momentum now gaining good traction, we intend to intensify our efforts and push harder with the 2017 Budgetary Allocation.
In the medium term, we intend to raise more capital outside direct Government Treasury, working with the Federal Ministry of Finance, through Infrastructure Bonds, REITS and other forms of real estate financing instruments, leveraging as most appropriate the platform of the Nigerian Stock Exchange.
Funding sources such as pension funds, private equity funds, and the National Housing Fund managed by the Federal Mortgage Bank to finance development and also acquisition will be our focus.
It might interest you to know that for the first time since 2011, the Federal Mortgage Bank of Nigeria (FMBN) declared a 2016 full year surplus of N2.7 billion against a target of N1.5 billion. This is against the backdrop of yearly losses for the prior 5-year period to 2015.
In the intervening period from March 2015 to March 2017, the FMBN within the purview of the National Housing Fund granted 2,044 mortgage loans in the sum of N15.205 billion and facilitated the construction of 1,878 housing units funded with N10.417 billion.
Clearly the process of change is progressively underway.
In the long term, I see the role of the Ministry as purely regulatory, controlling designs, quality of finish, construction methods and materials, guaranteeing off-take of any house that private sector can deliver, and strengthening the Federal Mortgage Bank to provide finance to developers and end-users.
The FMBN recently got approval for an amendment to the equity contribution payment process of prospective home owners to be capitalized over a period instead of being paid at once.
While much of what I have discussed focuses on home ownership, there are a sizable number of people who cannot afford to own homes, but who can afford to rent.
We have received some very useful suggestions about rent-to-own schemes, and the need to revive the culture of public access hostels once made popular by YMCA and YWCA and I think that this is one area where private sector can play a huge role.
The big elephant in the room of course is affordability, which is a matter we must deal with honestly and frontally.
The first question therefore is what is an affordable home and who can afford to own one.
My answer is that the price of a house is a function not only of its cost of construction, the land, the facilities it offers, but also its location.
Globally, home ownership or rental is always tied to income. Therefore, we must understand that those who do not have work cannot legitimately expect to own a home.
This is because, apart from ownership, there are incidents of ownership; and they are huge financial responsibilities such as – payment of rates, mortgage repayment, charges like property tax, maintenance costs, etc.
Therefore, what society owes such an unemployed person is the opportunity for employment, and thereafter he can get on the property ownership ladder.
As one of our contributors at the last Housing Summit pointed out to us, we must sharpen our focus on who the beneficiary is: between the off-taker and the end-user; and there is a world of difference between both.
Often times, “the off-taker” can buy but he does not need it. He wants to rent it to the “end-user” who cannot afford to buy.
We are therefore targeting the end-users of the income category I have mentioned, and designing a mortgage tenure that allows them pay to own over a period.
If we remember that these end-users already pay some rent anyway, some 2 to 3 years rent in advance, a mortgage enables them to convert what they would have paid to a landlord into the equity contribution towards owning their own homes, instead of perpetual payment that gives them no ownership rights.
As for the definition of what is affordable, let me say that all of us must come to a consensus of reasonableness about affordability.
At the 2016 Shelter Afrique meeting and the National Housing Summit when I threw the challenge to the operators to define affordability, these are some of the definitions that we received:
Dr. Joshua Egbagbe,
“Affordable Housing”, from the off-taker driven perspective, is the Home Ownership Capacity of an Average Nigerian Citizen: to Build, Buy, or Rent, a Cost-effective House; based on spending a Total amount, inclusive of all related costs, of not more than 1/3 (One-third) of the individual’s take home Pay, calculated on an installment Monthly or Annual basis, up to the Average Working Age limit of 60 years”
Prof. Layi Egunjobi
“Affordable housing is housing that a person or group can pay for with or without government assistance and according to the present and future socio-economic circumstances of the person or group in question”.
Brig. Gen. PMO Reis (Retired)
“Affordable Housing is the provision of accessible and subsidized housing solutions on a SUSTAINABLE basis through END-USER driven initiatives”.
Kabiru Sani Abdulallahi
“Affordable housing is a house with some incentives, flexibility that allows a citizen own a house without stress”.
Centre for Affordable Housing and UN-Habitat
“Affordable housing is housing that is accessible, appropriate, and secure, for the needs of the low and moderate income households, and is priced so that these households are also able to meet their other basic living costs like health, education, feeding etc. This is usually estimated at about 30% (or 1/3) of Gross household income”
“Affordable housing, it depends”
I remember this last definition. Its simplicity was profound. It said very little and said a lot. The hall I re-call erupted in applause.
Clearly what he left unsaid, was said in those two words. They cover the issues of cost, location, quality, etc and the income of the end- user.
Ladies and Gentlemen, these are my thoughts about unlocking the potentials in real estate and Housing, and some of the actions my Ministry and our team have taken in furtherance of these thoughts.
They do not cover, for example, the role of agents in the real estate sector, the costs they charge, the cost of perfecting title such as stamp duty and registration, or indeed the cost of maintaining buildings when completed, etc and the question of energy efficiency in our houses and estates, in respect of which we have developed guidelines for incorporation into our building codes.
These areas are much more extensive and require very detailed discussions that are not suited for this occasion or the time frame of our circumstance today.
But the success of our plan will not be defined in the first few years by how many houses we build.
It will be defined by whether we can repeat the process every year, correct mistakes, increase annual output, and ultimately leave behind a programme that is sustainable with no political colour.
By this I mean a programme that will endure like the UK scheme which started in 1918 and will be 100 years in implementation in 2018, of course with modifications that have ensured continuity.
It is equally pertinent to mention that one of the key execution priorities of the recently launched Federal Government Economic Recovery and Growth Plan (ERGP) 2017 – 2020, with a vision to attain sustained inclusive growth, is to leverage the power of the private sector to enable infrastructure financing to which this conference and the evolving REITs initiative aptly fit.
The ERGP incorporates certain National Strategic Plans such as the National Integrated Infrastructure Master Plan (NIIMP) which envisages an estimated US$3 trillion in investment to bridge infrastructure gap over the thirty (30) year period, 2014 – 2043.
The NIIMP anticipates the government providing about 52%, circa US$1.56 trillion while private sector capacity will be leveraged for the 48% residual, about US$1.44 trillion. The Housing and Regional Development component is estimated at US$350 billion.
In essence, the idea of accelerating new REITs programmes like those in the past; UPDC, Skye Shelter Fund, Union Homes, amongst others, would go a long way in achieving the lofty objectives.
Distinguished Participants, let me also add that as we converge to explore the potentials of the REITs to bolster access to housing across sub-Saharan Africa, investors do not take positions on the basis of loyalty or friendship. It is on the basis of desired returns, based on where investment is most secure on a risk-adjusted basis.
The more foreign they are, the more likely they probably will move when adverse conditions prevail.
The more local they are, perhaps their local ties may dictate a slowdown in adverse conditions, but it is more likely to restrain a flight-to-safety from the place they call home.
Therefore, in order to drive housing delivery with the private sector poised to play a complementary role in attaining a vibrant and inclusive sector, the local investor will prove a dependable partner.
It remains now only for me to thank the Nigerian Stock Exchange (NSE) for inviting me to speak at this all-important conference.
It is a move that aligns eminently with the Federal Government’s policy of self-dependence, homegrown productivity, economic diversification and sustained inclusive growth as more encapsulated in the Economic Recovery and Growth Plan.
These laudable goals in my mind are also germane to most people and Governments across the countries in sub-Saharan Africa.
It is however important to conclude by saying that this conference should not be the end. It should rather be the starting point of rigorous work of regular interactions between Government and the private sector, such that Government can listen to investors’ problems, mandate teams to resolve them and put in place a feedback mechanism to monitor progress.
The imperative being a single-minded focus towards achieving a shared vision for the delivery of markedly enhanced infrastructure stock including access to housing in the medium to long term.