MORTGAGE MARKET AND ECONOMIC GROWTH IN NIGERIA

MORTGAGE MARKET AND ECONOMIC GROWTH IN NIGERIA

The purpose of this study is to investigate the impact of the mortgage market on the economic growth of Nigeria

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CHAPTER ONE

INTRODUCTION

1.1     Overview

The importance of housing has been identified as an essential need of citizenry. According to (Sanusi, 2003) it is one of the three most important basic needs of mankind, the others being food and clothing. He further explained that housing is a very important durable consumer item, which impacts positively on productivity, as decent housing significantly increases workers’ health and wellbeing, and consequently, growth. Since from the ancient days till now, human beings always seek for an abode from the rural settings to the urban areas (Adeolu & Hassan, 2018). It is one of the indices for measuring the standard of living of people across societies. Gross Domestic Product (GDP) is one of the principal indicators used to gauge the health of a nation’s economy, thus an increase in GDP constitutes economic growth. In the developed economies of the world, the housing market contributes efficiently to GDP. For instance, in the UK economy, the housing market constitutes a vital engine for sustainable increases in real GDP. Vibrant Mortgage Institutions activities, especially mortgage lending constitutes part of sustained positivity in emerging economies of the world. However, in Nigeria, the contributions of Primary Mortgage Institutions operations to GDP appeared obscured through their presence in the economy is prominent. LAMUDI is a global property portal focusing exclusively on emerging housing markets.

(LAMUDI, 2014) the report states that following the recapitalization exercise of the Primary Mortgage Institutions (PMIs) in Nigeria, 36 mortgage firms have scaled the hurdle and now obtained the Central Bank of Nigeria’s license to administer mortgage portfolio in Nigeria.

A major area of concern has been mortgage financing, which has often been singled out as one of the most formidable constraints in the housing sector. Mortgage finance (credit) is generally referred to as a long term loan at market interest rates extended by a formal sector financial institution typically one specialized in the housing such as building society, that qualifies mortgagers based on underwriting criteria. This involves payment of fixed monthly fee, payment at a fixed interest rate that varies with the rate of inflation and using a lien on the property which mortgager must have full legal title. Extending these loans affect not only the wellbeing of its citizens but also the general performance of other sectors of the economy.

Consequently, programs of assistance in the areas of finance and provision of infrastructures have been designed by governments to enhance its adequate delivery. The Central Bank of Nigeria (CBN, 2014) noted that in early 2000, the number of investible funds available to the existing primary mortgage institutions was N36.7billion. While (Yaukumo, 2011) opined that 720,000 housing units are required yearly to meet the Millennium Development Goals (MDGs) on housing in Nigeria with a mortgage financing gap of over N56 trillion needed. This will invariably trigger the growth of the economy as several sectors would benefit from such funds. Given the foregoing, there is a dearth of research on the impact of mortgage financing on economic growth in the context of Nigeria.

Studies of (Ayodele et al., 2013) on mortgage financing studies and (Kama et al., 2013) on Housing financing options in Nigeria were focused on the role of the secondary market in expanding the availability of funds for housing in Nigeria.

1.2     STATEMENT OF PROBLEM

Universally, governments are assumed to be saddled with the responsibility of either providing the needed and necessary services or creating a conducive environment for the services to be provided. Among these services is housing which is a basic necessity of life and cannot be overemphasized. Banks play a crucial role in the financing of real estate through mortgage financing. They lend for the purchase of land for development and existing buildings; they finance construction projects; they lend to non-bank and the finance companies that they may finance real estate; and they lend to non-financial firms based on real estate collateral (Davis and Zhu, 2004). (Fin Mark Trust, 2010) observed that the mortgage industry is underdeveloped and generated less than 100, 000 transactions between 1960 and 2009. The sector’s aggregate loans to total assets fall far below the best practices standard of 70 percent as stipulated by the Central Bank of Nigeria. The FMBN which is responsible for the provision of mortgages to low-income earners through the National Housing Trust Fund (NHTF), has operational and financial capacity constraints that limit its performance.

In all, mortgage institutions and other related institutions are often accessed to strengthen the economic growth of a nation by making funds accessible as at when needed and at an affordable cost. However, despite the myriad of ways through which finance is accessed for housing growth, it remains a mirage that the sector is still underdeveloped and in essence; evaluation of the sector is inevitable.

1.3     PURPOSE OF THE STUDY

The purpose of this study is to investigate the impact of the mortgage market on the economic growth of Nigeria. In specific terms, the objectives of the study are:

1. To examine the impact of mortgage total assets on economic growth in Nigeria.
2. To investigate the impact of mortgage total liabilities on economic growth in Nigeria.
3. To determine the impact of a mortgage loan on economic growth in Nigeria.

1.4     RESEARCH QUESTIONS

The study research questions are stated below:

1. To what extent has Mortgage Total Assets impacted on economic growth in Nigeria?
2. To what degree has Mortgage Total Liabilities impacted on economic growth in Nigeria?
3. To what extent has Mortgage Loan impacted on economic growth in Nigeria?

1.5     RESEARCH HYPOTHESES

The hypotheses employed in the study are stated in a null form and are as follows:

H0₁:   There is no significant relationship between mortgage total assets and economic growth in Nigeria.

H0₂:   There is no significant relationship between mortgage total liabilities and economic growth in Nigeria.

H0₂:    There is no significant relationship between mortgage loan and economic growth in Nigeria.

1.6     SIGNIFICANCE OF THE STUDY

Some of the significance of the study include the following:

• Publicize the extent to which the citizens are suffering in providing decent housing for living.
• Help in creating an awareness of the authorities to rise to the challenge of the problem of housing finance and development in the country.
• Create alternative ways of sourcing funds.
• The findings of the work will help the not only government in taking appropriate decisions and policies but will also serve as a deal to the institutions involved in the provision of housing.
• Since the high inflation rate affects the macroeconomic environment negatively and does not encourage development, the government is advised to moderate the rate of inflation.

1.7     DEFINITION OF TERMS

Our terms defined shall be financial and non-financial and every other meaning as they may be useful in the writing of this work. They will be encountered as you read along in this study.

• Housing finance: It refers to the activities of both private and public sectors in providing financial resources with or without intermediates for the purchase, construction, improvement or renovation of a housing unit including the immediate infrastructure.
• Mortgage banking: It is the mobilization of financial resources especially shares, savings and deposits from surplus economic units for financing housing investment needs of the deficit units in the economy.
• Mortgage finance: It is the act of arranging and packing mortgages. The property range used as collateral goes beyond land and loan can be used for anything conceivable as opposed to housing finance that is mainly directed at housing acquisition.
• Housing finance system: It is defined as the system of laws, institutions, structures and the relationship between institutional and non-institutional units that facilitates intermediation and capital formation in the housing sub-sector of an economy.
• Mortgage institution: This is as defined by Act 53 of 1989 – means any company licensed to carry out mortgage business under the Act, and mortgage loans and advances for the purchase, construction, improvement, and enhancement of housing.
• Land: In law, land comprises of the earth’s surface including everything above and below it, in as much as such things are physically attached to the land.
• Land use Act: It is the document responsible for the purchase, acquisition or ownership of land in Nigeria. It contains sections such as control and management of land amongst others.

1.8     ORGANIZATION OF THE STUDY

This work is organized in a typical research work format. Chapter one is an overview of the entire work which gave a brief introduction about the work, statement of problem and purpose of study amongst others. A literature review is chapter two, it is the detail content (body) of the work. Our chapter three Research methodology, entails the research design, sampling procedure, data collection method, operational measures of the variables and data analysis techniques. Chapter four deals with presentation and data analysis while discussion, conclusion, and recommendations summarize chapter five.