‘Mortgage banks need special window to crack down interest rate’
Infinity Trust Mortgage Bank plc is one of the foremost mortgage banks in Nigeria. The bank’s MD/CEO, Banjo Obaleye, speaks on the need to crack down interest rates to make it attractive for home owners.
Tell us the journey of your organization so far.
After 10 years in the mortgage industry, we think we have come of age to spread the opportunities that the shareholders of Infinity Homes have been enjoying to the rest of the public. In doing that, there are advantages for both existing and intending shareholders. The existing shareholders will have benefit of expansion from return on their investment while the prospective shareholders will equally benefit from the turnaround values that the expansion from the volume of capital will bring.
Mortgage business is capital intensive, a business where you give out loan for 15 to 20 years in millions of naira -- so you need long term capital to do that and the only avenue is the capital market otherwise we will be left with short term funds. And you can run into problem of mismatch if your sources of funding are short in nature, it will be practically impossible for you to lend in the long term.
So there is no way any mortgage bank that is aiming to go nationally will not be attracted to the capital market for funding. So we got listed on the Nigerian Stock Exchange on the 11th of December 2013. The experience was very scintillating. What made it possible was our track record of over 10 years. We’re happy and hoping other mortgage banks will follow so that we get out from under dog players to the mainstream financial market.
What is the share capital of Infinity Homes?
As at the close of business last year, our share capital stood at N5.4 billion, unimpaired by losses, and our balance sheet stood at N7.5 billion. We started in 2003 with less than N100 million and almost negative balance sheet. Now it’s time for us to spread our wings. Now we’re a national mortgage bank instead of a state mortgage bank. We’re one of the eight national mortgage banks with shareholders fund of N5 billion and above.
But there is this process of merger in the mortgage sector.
Yes, in meeting the capital base, some are undergoing merger to get them there. There’s a leap in mortgage capital requirement for mortgage banks. Before now, it was N100 million, moved to N2.5 billion to N5 billion. It’s a big leap so many ingenious strategies are being developed to put this in place to meet up.
So we have raised our own capital base, anything that attracts demand is a good business; housing is everybody’s demand, the problem is the capital to get it. Our dream is to make most Nigerians homeowners; we can’t over emphasis the advantages of home ownership.
What is the total number of houses provided by Infinity Homes so far and what is the ratio of mortgages given?
In our Model City, Gwarinpa, Abuja we built 357 houses consisting of low, medium and high income houses. We have 60 percent of houses in that place provided by mortgages. The Sun City, this is still an on-going business, paucity of funds being the major impediment. We divided Sun City Estate into four phases, we manage it for Adkan Services Ltd. Now, we’re in the third and fourth phases and are about 50 percent completed. And nothing less than 40 percent of the houses in Sun City is financed through mortgage by us.
The other estates we have include Vintage Estate in Karu, basically tailored towards low and medium income earners with 900 units of two and threebedroom bungalows. We’ve completed about 400. The twobedroom is N9 million while the three-bedroom is N11 million. Some are still available for sale.
Then Life Camp with 37 finished duplexes targeting the high income class is about 90 percent completed and about 50 percent sold. Our mortgage on that is about 15 to 20 percent mortgage.
What about cases of foreclosure?
You know, in mortgage business, repayment is vital so we’re very meticulous about who we give our loans to. You have to have integrity because we don’t want to help you get a house and then take it away forcefully because we know the trauma that is involved. There’s need to avoid forceful sale or foreclosure. Mortgage cases in our courts should not be more than two months unlike what obtains now where you have cases dragged through adjournments. We seriously need to address such legal issues.
How has Infinity Homes been able to sustain the tempo?
It’s a difficult terrain and everything was working against us, people expect to get mortgage loan at rates comparable to what obtains abroad but we operate in the same environment with commercial banks, we can’t do anything without the commercial banks backing us. We borrow money from them at commercial interest rates so the cost of business is higher.
And the Land Use Act is another problem; unless it is tinkered with to make mortgage business work, we’ll not go anywhere.
Can the newly floated Nigerian Mortgage Refinancing Company
(NMRC) really work?
NMRC, conceived by the Mortgage Banking Association of Nigeria (MBAN) is the answer to the clarion call from the operators to have a secondary market where they can pass through their mortgages to be able to do business. It’s practically impossible for mortgage businesses to survive without a secondary market. Nothing can move if funds revolve around what I have alone, so NMRC is standing in as a secondary market for mortgage pass through obligations.
Can FG really finance NMRC?
Government doesn’t need to finance it, now World Bank has given us $300 million loan at almost zero interest rate.
Is it adequate?
You can’t get what is adequate, but we have what is adequate in the economy. As at January, the funding from pension funds was hitting N3 trillion, Sovereign Wealth Fund is growing as well and international investors are interested in where they will obtain better yields for their investments. Housing is a sector that can attract a lot of foreign investment. With our 17 million housing deficit which requires a funding gap of N70 trillion, that’s a lot of money and that’s a lot of business and there is demand.
What is the ideal interest
rate for mortgages in Nigeria?
We’re talking about say six percent in an ideal situation and this is relative to the economy. We have double-digit inflation rate so you can’t have an interest rate that is below the inflation rate, if you do that you lose money. Then you talk of other macroeconomic indices that are not uniform worldwide so what is ideal in UK might not be ideal in Nigeria.
The interest rate in Nigeria today is over 20 percent. There’s no bank that will give loan for less than that. And when you talk of mortgage loan, the question is where are the sources of funding, and what is cost of funding? High interest rate impedes the growth of home ownership and the housing sector.
So mortgage banks need a special window where they can get low interest funds and crack down the interest rate on mortgages. The Federal Mortgage Bank of Nigeria (FMBN) is a secondary market operator that operates National Housing Fund (NHF) as contribution from members at no cost which they are managing. Their sources of funds are very limited and now awareness is high. FMBN has done very well, far better than what obtains in the past but the gap is so much to make an impact and they won’t do more than the funding they have.