Consent Provision in the Land Use Act Should Be Removed

Olabanjo Obaleye, Managing Director/CEO, Infinity Trust Mortgage Bank Plc (ITMB), leads the maiden edition of Financial Nigeria’s special series on “Voices for Sustainable Urbanisation.” Mr. Obaleye has over 25 years’ experience in commercial and mortgage banking. Under his leadership, ITMB listed on the Nigerian Stock Exchange in 2013, and the bank became a National Mortgage Bank in 2014. ITMB Plc has equity shareholding in the Nigeria Mortgage Refinance Company (NMRC).

Mr. Obaleye holds a B.Sc degree in Management and Accounting from Obafemi Awolowo University, Ile-Ife, and M.Sc degree in Business Administration from University of Abuja. He is an Associate Member of the Institute of Chartered Accountants of Nigeria (ICAN), Nigeria Institute of Management (NIM), and the Chartered Institute of Taxation of Nigeria (CITN). He is also an alumnus of Wharton Business School, Philadelphia, USA. On challenges and opportunities of sustainable urbanization in Nigeria through housing. Olabanjo Obaleye (OO): Let me start off with the opportunity. There are enormous opportunities for housing development in Nigeria. The market is huge and demand is almost inelastic. When you have a housing gap of between 17 to 24 million units of houses, and increasing at about 2.5 percent every year, any informed investor would understand there is considerable business in the market.

We can also look at housing beyond the economic opportunities. With such a huge housing shortage, it shows that only few people are well sheltered in Nigeria. Nevertheless, shelter is the second most important need of human life; that is, after food.

There has to be a structured plan for people to have their own homes. And such a plan has to provide for sustainable and affordable housing, as well as housing that is of a decent standard. We can achieve all this if we remove all the bottlenecks in the ecosystem, from land acquisition to mortgage.

Mortgage banks are in the vantage position to make housing affordable for people. Rather than spending so many years to build your own house, mortgage banks can make it possible for you to have a house now and pay for it over a period of 20 years. The longer the tenure, the lesser the amount you are expected to pay monthly.

But the challenges we have in Nigeria today include lack of long-term funding and inadequate mortgage creation. In housing development, you have the supply side, which comprises the construction of houses, and the demand side, which entails the housing consumers. If the housing supply is not enough, there would be more demand than the houses that are available. Liquidity is essential for construction, and for lenders in creating mortgages.

The Nigeria Mortgage Refinance Company (NMRC) came on board as a secondary mortgage refinancing company. Its primary focus is to refinance already created mortgages. That will empower mortgage banks to create more mortgages. But as much as there are opportunities in the Nigerian housing sector, the environment is not conducive for mortgage business. Therefore, it has been difficult to attract investors.

While there is not enough investment to enhance liquidity, the legal infrastructure is not supportive of mortgage creation. Land administration in the country has its own problems. The Land Use Act was enacted in 1978. The original intention of the act was to simplify the process of land acquisition. Before then, it was difficult to locate who owned a particular land. The act provides for the transfer of the rights on land to government, as the government administers it on behalf of the people. The intention was good but the implementation is where we have problems.

Under the act, government consent has to be secured before any transaction on land can be consummated. For instance, if you want to buy a property from Mr. A, he must get government’s consent to sell the property. And then when you need a bank to give you mortgage, the bank has to get government’s consent to create mortgage on the property. However, the process of obtaining this consent – including the high cost of obtaining it – is cumbersome and inimical to business. This is why mortgage is expensive, further compounding the housing affordability problem.

The resolution of mortgage disputes is also long and cumbersome due to lack of foreclosure laws. Mortgage dispute resolutions in Nigeria have to be expeditious to encourage investors and unleash the potential of the sector.

To further make the housing sector attractive to investors, the Land Use Act must be amended to remove the bureaucratic bottlenecks in land administration and title transfer. I will propose the consent provision in the Act should be removed completely. Registration can serve as a better alternative. Once, the legal title has been obtained on the property, subsequent transactions on the same property don’t need government consent. A registration should suffice.

If the cost of registration is economical and affordable, more people would register their property, resulting in more revenue to the government. We are looking to get to a place where a housing transaction would be completed within a week and the cost would not be more than 0.5 percent of the property.

I will also propose we have a special court for expeditious adjudication of mortgage disputes. There should be special procedures for commercial dispute settlements.

In addition, Nigeria must have national housing code, which everyone must comply with. The well-laid estates in Abuja, built by real estate developers, follow a particular code and structure. But most of the properties developed by individuals don’t adhere to any form of code.

On key projects of Infinity Trust Mortgage Bank Plc.

OO: We have so many products that we developed over a long period to take advantage of the opportunities we see in the market. For instance, we found that affordability is a central requirement for a lot of people seeking to own their own homes. For this reason, we created what we call Infinity Save and Own a Home Account (I-SOH). This product enables you to start saving from the time you secure an employment.

We want to imbue a savings culture in people for the specific purpose of owning their homes. Once you get a job, you can start to save to acquire the house you want. If you save a certain amount every month, consistently for 24 months, it provides a basis for evaluating you as a potential beneficiary of a certain type of mortgage. We will be able to prequalify you for mortgage and determine the amount you would be able to pay monthly, based on your monthly savings in the preceding two years. We have a lot of people who have benefited from our I-SOH scheme.

We also have the Infinity Premium Home Acquisition Loan (I-PHAL). Our business is structured to cater for the low income, middle income and high-income categories of Nigerians. In other words, we have housing products that are designed for each of these categories. We partner with real estate developers to provide housing for Nigerians in all the income brackets.

We have an estate in Karu where you can get two-bedroom bungalows for N10 million for a unit and three-bedroom bungalows for N15 million per unit. We have another estate in the Abuja metropolis where you can get houses from N20 million to N60 million per unit. We have developed the expertise to create products to capture all the market segments where we operate.

On recommendations for policy reform to drive sustainable urbanization in Nigeria.

OO: The largest housing deficits in Nigeria are in the urban areas. This is as a result of the continuous migration of people from rural communities to the urban regions of the country. For this reason, even as the urban areas are becoming congested, the government needs to have a national housing plan. The components of the plan must address the affluent, working class and the very indigent members of society.

Whether we like it or not, not every Nigerian would be able to afford a home. This does not preclude the need for shelter for the very poor. Such a national housing plan must take care of everybody. Where there is need for subsidy, it should go to those people who cannot afford housing without the subsidy.

But government can provide a programme like rent-to-own for the working class. The houses should be made available to them and then they can pay small amounts they can afford periodically until the houses become theirs. Infinity Trust Mortgage Bank has a product we call rent-to-own. The aim is to further deepen the market and create more opportunities for people that cannot afford to buy.

Also important is the fact that you don’t have to own the house you have for the rest of your life. Housing is like any stock. When you buy a house now, you can sell it tomorrow when the value of the house has increased. You can then invest in another house or other assets. We have a product that targets investment in stocks of houses. We have seen people who started with N10 million and their properties are valued at about N100 million today.

The resolution of mortgage disputes is also long and cumbersome due to lack of foreclosure laws. Mortgage dispute resolutions in Nigeria have to be expeditious to encourage investors and unleash the potential of the sector.