AN ASSESSMENT OF THE ROLE PRIMARY MORTGAGE INSTITUTIONS IN MORTGAGE FINANCING OF RESIDENTIAL PROPERTY IN ABUJA

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AN ASSESSMENT OF THE ROLE PRIMARY MORTGAGE INSTITUTIONS IN MORTGAGE FINANCING OF RESIDENTIAL PROPERTY IN ABUJA

ABSTRACT

This study assesses the role of primary mortgage institutions in mortgage financing of residential property in Abuja. The specific objectives are: to determine the mortgage facilities offered by primary mortgage institutions, to examine the applications and approvals for purchase, rehabilitation and construction of residential property and to assess the role of primary mortgage institutions in mortgage financing of residential property in the study area. The researcher adopt the use of questionnaire, observation and personal interview to gathered relevant data from the respondents while tables, simple percentage and descriptive statistics were used for data presentation and analysis. The research reveals that online marketing business have a significant effects on real estate market in Abuja and therefore it should be encourage to cover all areas of real estate market such as estate agency, development, sales, and management of real estate property.  The research has shown clearly the problem of the mortgage industry in Nigeria which include: high interest rate tagged to PMI funded loans, the cumbersome process in the NHF application, the flexibility of interest rates on loans would also be of great interest to the mortgagors and would increase their interest in mortgage facilities given the assurance by PMIs that the interest rates are negotiable which creates additional costs and thus makes them un-affordable to many Nigerians. The following recommendations are presented for deliberation by the primary mortgage institutions and the mortgage industry as a whole: PMIs should be encouraged to improve their capital base in order to empower them for greater effectiveness in financing of residential property in Abuja.

CHAPTER ONE

1.0       INTRODUCTION

1.1       Background of the Study

The importance of housing finance in any economy cannot be overstressed. It drives the provision of housing which is more than shelter, since it involves all the services and utilities that make a community a livable one. Housing is also one of the best indicators of a person’s standard of living mid his or her status the society. In spite of the crucial role housing plays as a basic needs, it has remained inadequate in supply in practical all human societies’ right through history. An active and buoyant housing sector is an indication of a strong programme of national development. It serves a foundation for and the first step to the future economic growth and social development. The housing sector plays a more critical role in a country’s welfare than is always recognized as it affects not only the well being of the citizens but also the performance of the sectors in the economy.

Mortgage financing represents the genuine means of housing in the world’s developed economies and is also more of a challenge in developing countries. For example, United Kingdom has the largest mortgage market in Europe which is approximately 25% of the European market. In Mexico, the housing finance market is in a state of retrenchment, the macroeconomics environment has not been favorable to the development of primary mortgage market (Lea, 1996). The Mexican mortgage is highly segments with a verity of mortgage programs designed for different sectors.

In Nigeria, presently the mortgage sub sector accounts for >10% of Nigeria’s Gross Domestic Product which means that the opportunities that exist in this sector to boost the nation’s economy cannot be exaggerated. The federal mortgage bank of Nigeria puts an estimated over 10 million homes ‘as housing deficit in Nigeria; the implication of this is that with time the mortgage industry will also become large in the Nigeria capital market.

The mortgage industry in Nigeria involves few active players which are often banks subsidiaries and a collection of smaller inadequate mortgage institutions. These institutions include semi government agencies, mortgage banks and building societies. Mortgage financing has often been fingered as the most difficult constraints in the Nigerian housing sector. One of the major problem has been the inadequate supply of long term funds which represents the major in cans of providing mortgages. Thus, the system has relied on compulsory savings into National Housing Trust Fund (NTITF) scheme. As a result of this, effort has been made by the regulatory authorities in Nigeria to increase the supply of long-term funds for onward lending to prospective homeowners A few of these effort include the recent recapitalization of Primary Mortgage Institutions (PIvlls) in Nigeria, the pension and financial sector reform’s and the recently promoted Mortgage Backed securities on the future of investment return in the mortgage industry. This study is therefore set to conduct a thorough research into the Nigerian mortgage sector and the contribution of primal)’ mortgage institutions to housing finance in Nigeria.

1.2       Statement of Problems

There is shortage of adequate housing facilities in Nigeria towns. Lagos, for instance, has an average of 3.8 persons per room and extreme density ranging between 5 to over 7 persons per room has been recorded (Omirin , 1998). Housing problems are exacerbated by the combination of many factors. The bulk of traditional housing available in our urban centers are mainly in dilapidate conditions and unsuitable for habitation. Secondly, more houses are needed to relieve the existing overcrowding in many Nigeria urban centers. Thirdly, natural increase demand additional dwelling units to house the increasing population. Fourthly, rural- urban migration, which has assumed great dimensions during the last three decades, has aggravated housing needs of urban centers in Nigeria. In response to the great demand for houses, unplanned, and sub- standard private housing districts continues to emerge in many towns in Nigeria. These in turn led to emergence of slums. The Association of Housing Corporations of Nigeria estimated on the basis of the 2006 population census that at least 200,000 dwelling units should be provided annually throughout the federation and that government authorities should produce at least 10,000 housing units annually.

The provisions of Decree No. 3 of 1992 are intended not only to improve the operational impact of the housing financial system but also to ensure the realisation of the social economic objectives of the National Housing Policy. It has however, been observed that some of the provisions of the decree have not been sufficiently enlarged to give broad definitions to concepts such as Housing and Financing options. Other problems observed are the absence of Institutional Protection for providers of long term funds (depositors) are the lack of development of secondary markets for mortgages encourage investors and active market conditions within the sector in the Capital Market. This project intends to assess the role of primary mortgage institutions in mortgage financing of residential property in Abuja.

1.3       Aim and Objectives of the Study

Aim

The aim of this project is to assess the role of primary mortgage institution in mortgage financing of residential property in Abuja.

Objectives

To achieve the above set aim the following specific objectives shall be pursued:

1. To determine the mortgage facilities offered by primary mortgage institutions
2. To examine the applications and approvals for purchase, rehabilitation and construction of residential property
3. To assess the role of primary mortgage institutions in mortgage financing of residential property in the study area.
4. To evaluate the challenges of primary mortgage institutions

1.4       Research Questions

The following research questions shall guide the researcher in order to achieve the set objectives:

1. What are the mortgage facilities offered by primary mortgage institutions
2. What are the applications and approvals process for purchase, rehabilitation and construction of residential property?
3. What is the contribution of mortgage banks institution in housing provision in the study area?
4. What are challenges of primary mortgage institutions

1.5       Significance of the Study

This research assess the role of primary mortgage institutions in mortgage financing of residential property in Abuja. It appraises the mortgage facilities offered by primary mortgage institutions and the contributions of mortgage bank institution in housing provision in Abuja. The result of this study will relevant to property developers, investors and government authority as it will enlighten them on the contribution of primary mortgage institutions in financing housing provision and development in Nigeria.

The result of this research will contribute to the body of knowledge in provision of mortgage financing for housing development thus, will serve as research material for interested researchers who will like to further research into the contribution of primary mortgage institutions to housing provision.

1.6       Scope and Limitation of the Study

This project work covers entirely the role of primary mortgage institution in financing residential property in Abuja. The scope of this study is limited to the contribution of primary mortgage institutions in financing residential property in Abuja. .

Limitation

Its major limitation was the problem of getting information from the institution under study. There is always the fear of giving out information to the public as such, vital information needed was not readily available.

Time equally would not be left out; getting permission to leave school and the issue of finance cannot be ignored as much was spent in procuring materials. However, with fact and judicial use of the limited resources, reasonable analyses have been carried out in this research work.      

1.7       Definition of Terms

Mortgage: Cambridge English Dictionary define mortgage as an agreement that allows you to borrow money from a bank or similar organization, especially in order to buy a house, or the amount of money itself:

Finance: Merriam Webster define finance as money or other liquid resources of a government, business, group, or individual.

Institution: Institution is a structures or mechanisms of social order, they govern the behaviour of a set of individuals within a given community. Institutions are identified with a social purpose, transcending individuals and intentions by mediating the rules that govern living behavior.

Housing: Housing refers to houses or buildings collectively; accommodation of people; planning or provision of accommodation by an authority; and related meanings. The social issue is of ensuring that members of society have a home in which to live, whether this is a house, or some other kind of dwelling, lodging, or shelter.

Primary Mortgage: The primary mortgage market is the market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market.

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