KNOWLEDGE, ATTITUDE AND PRACTICE OF FINANCING REAL ESTATE PURCHASE THROUGH MORTGAGE IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Everyone dreams of owning property someday but with the constant rise in Nigerian property prices, saving towards buying some piece of real estate seems almost impossible- particularly for young people in Nigeria. Although saving towards acquiring property is one option, it may often be disheartening because each time a certain amount has been saved, one discovers that the property prices have risen and once again the asset is just out of reach. Mortgaging property may break this frustrating cycle.

Housing has been universally accepted as a very important and essential human need. In fact, world acclaimed American psychologist Abraham Maslow ranked shelter as second only to food in his hierarchy of human needs. This form of security is thus a basic necessity of life which every Nigerian should readily have access to without deprivation. One of the most worrisome features of Nigerian urban centers is the growing level of over-crowding and in some cases outright homelessness. It is common place to see families of eight persons in a single room in a tenement building usually referred to as per room per room or face me I face you. One index used to measure the quality of life is housing, and improving the quality of life is the whole essence of government and governance.

The housing sector plays a more critical role in a country’s welfare than is always recognized, as it directly affects not only the well-being of the citizenry, but also the performance of other sectors of the economy. Adequate housing provisions has since the early 1970s consistently engaged the attention of most countries, especially the developing ones, for a number of reasons. First, it is one of the three most important basic needs of mankind – the others being food and clothing. Second, housing is a very important durable consumer item, which impacts positively on productivity, as decent housing significantly increases workers health and well – being, and consequently growth. Third, it is one of the indices for measuring the standard of living of people across societies. Consequently, programs of assistance in the area of finance, provision of infrastructure and research have been designed by governments to enhance it adequate delivery. The focus in finance has however been very prominent for obvious reasons. This is because housing provision requires huge capital outlay, which is often beyond the capacity of the medium/low income groups.

In the advanced nations of the world, particularly in Europe and America, mortgage is a critical index of economic development and growth. The Margaret Thatcher administration used mortgage to move the British economy to a new level which was improved upon and sustained until the present credit crisis which could be traced to the sub – prime mortgage crisis of the past couple of years. The entire American economy went on its knees following the sub – prime crisis which underscores the central role mortgage can play in the economy of any nation.

In Nigeria, mortgage is still at infancy and a number of factors are working against its growth and development to a point where it can impact positively on the economy. There is no conscious effort to develop this important sector. Investment in the sector is still very low and this explains why after the recapitalization and consolidation of the banking sector to the tune of #25 billion, we are yet to see the impact of the consolidation on mortgages.

In most African societies, long before colonialism, the provision of housing or shelter was an individual responsibility and this trend obtains to the present day. Post – colonial days, it has always been assumed that since we are now practicing a foreign system of government and administration, the government should now be responsible for providing all basic needs for their people. Currently and fortuitously, housing seems to be a priority for the federal government of Nigeria and this is captured in president YarAdua’s 2020 Agenda, where the president attaches the highest priority to affordable housing for the masses.

There is more to the hosing industry than just building houses. In advanced countries, the industry includes anything related to real estate and home ownership from land title preparation and mortgage financing to material sourcing and manufacturing – the housing industry is an enormous market. A vast housing market exist in Nigeria given the massive home deficit estimated at about 14 million by the Federal Mortgage Bank of Nigeria.

Mortgage financing is a major area of concern which has often been fingered as one of the most formidable constraints in the housing sector. It is in recognition of the critical importance of finance in housing delivery that we have decided to research on this topic.

1.2 STATEMENT OF RESEARCH PROBLEM

The desire to reach a conclusion on the reason why there is a massive home deficit estimated at about 14 million by the Federal Mortgage Bank of Nigeria is what led to this very important study.

The above issue necessitated the following research questions:

What is the level of awareness of the average Nigerian regarding mortgage financing.

What is the attitude of people towards using a mortgage to finance the purchase of private homes.

What is the opinion of members of the public to the level of provision of homes for low income earners by Banks and other primary mortgage institutions.

What is the impact of the housing sector on the Nigerian economy.

1.3 OBJECTIVES OF THE STUDY

The following are the objectives of the study:

To determine the level of awareness among Nigeria’s on financing their real estate purchase through mortgage.

To determine the extent to which people are willing to purchase their homes using mortgages.

To determine whether there are adequate products provided by banks and other primary mortgage institutions for low income earners.

To determine how much impact the housing sector has on the Nigerian economy.

1.4 SCOPE OF THE STUDY

This study will confine itself to the knowledge and attitude of people to finance their purchase of homes using mortgage. The geographical coverage of this study will be confined to Benin City Edo State where the research was conducted.

1.5 SIGNIFICANCE OF THE STUDY

The significance of this research is evident in the fact that shelter or housing ranks second only to food in the hierarchy of human needs. it also stretches beyond the academic perspective to other field study and areas of human endeavors. Some of them are:

The general public: this study will assist in increasing the level of awareness of the general public on the opportunity they have to actualize their dreams of owning a home by using mortgage.

Banks and other primary mortgage institutions: this study will be very useful to Banks and primary mortgage institutions because it will help in showing them how the public view and rate their performance.

Government: this study is relevant to the government because housing play a major role in the developmental process of any society and it will also help show them how the public feels about their policies with respect to housing.

1.6 FORMULATION OF HYPOTHESES

For the purpose of our study the following hypothesis will be tested:

1. Null Hypothesis ( H0): The level of awareness of mortgage financing in Nigeria does not have an impact on the level of private home ownership.

Alternative Hypothesis (H1): The level of awareness of mortgage financing in Nigeria has an impact on the level of private home ownership.

2. Null Hypothesis (H0): The average Nigeria seeking a home of his own prefer mortgage financing.

Alternative Hypothesis ( H1): The average Nigerian seeking a home of his own does not prefer mortgage financing.

3. Null Hypothesis ( H0): Banks and other primary mortgage institutions are doing enough to provide homes for low income earners.

Alternative Hypothesis ( H1): Banks and other primary mortgage institutions are not doing enough to provide homes for low income earners.

1.7 LIMITATIONS OF THE STUDY

In the course of carrying out this research we experience some constraints. One of such constraints was difficulty in getting access to vital information considering the fact that the mortgage industry in Nigeria is still at its infancy stage, sourcing for quality information for this research was quite difficult.

Another constraint was that the mortgage companies visited were not good at keeping records, as they complained that relevant documents were not available because they were given out and were never returned.

1.8 DEFINITION OF TERMS

The following terms are hereby defined as may be used in the context of this study:

Mortgage: Mortgage can be defined as a pledge of property as security for the repayment of a loan or the performance of a duty. The pledge ends when the debt or duty is discharged.

Real Estate: Real Estate is a legal term that encompasses land along with anything permanently affixed to the land such as building, specifically property that is fixed in location.

Commission: Commission is money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale.

Appraisal: Appraisal is expert judgment or estimate of the quality or value of real estimate as of a given date.

Amortization period: This is the time over which all regular payments would pay off the mortgage.

Mortgage broker: A mortgage broker is a person that helps prospective buyers to find the best mortgage deal for their needs to complete the paper work and complete the mortgage application.

Refinancing: Refinancing refers to taking of a new loan to clear the existing loan.

Deed (certificate of ownership): This is the document signed by the seller transferring ownership of the home to the purchaser.

Default: Default refers to failure of loan repayment.

Foreclosure: This is a legal procedure whereby the lender eventually obtains ownership of the payment after the borrower has defaulted on payments.

1.9 ABBREVIATIONS

PMI: Primary Mortgage Institutions

NHF: National Housing Fund

FMBN: Federal Mortgage Bank of Nigeria

LTV: Loan To Value

MBS: Mortgage Backed Securities

FHA: Federal housing Authority