NIGERIA: LAGOS STATE TAKES STEPS TO LOWER MORTAGE INTEREST

UNCLAS SECTION 01 OF 02 LAGOS 000288 SIPDIS E.O. 12958: N/A TAGS: EINV EAID EIND EFIN NI SUBJECT: NIGERIA: LAGOS STATE TAKES STEPS TO LOWER MORTAGE INTEREST RATES Ref: A) 07 Lagos 621 B) 07 Lagos 553 C) 07 Lagos 549 D) 07 Lagos 472 ¶1. (U) Summary: Nigeria's housing shortage, ranging from 12 to 17 million units, remains a top policy issue for the government at all levels. Stakeholders in the housing construction and financing sector identified high and volatile interest rates as a primary challenge to developing a mortgage financing market for Nigeria. Lagos State Government is working in conjunction with private developers to lower mortgage interest rates through public bond issuance. End Summary. Housing Deficit Enormous -------------- ¶2. (U) Estimates of Nigeria's housing deficit range from 12 to 17 million units. News media reported that, according to the Council of Mortgage Lenders, the number of mortgages for house purchases hit a 16 year low during the first three months in 2008. About 1,630,000 loans were made for home purchases, the lowest for any quarter since early 1992. Of the 49,000 loans made in February 2008, around 18,000 loans (36 percent) were for first-time home buyers. In May 2007, the Federal Mortgage Bank of Nigeria (FMBN) floated N100 billion worth of mortgage-backed bonds, but succeeded in raising only N40 billion. In early June 2008, FMBN announces its intention to float a second tranche of housing bonds in the amount of N47 billion. Bank Mortgages: 30% Down, 30% Interest for 5 Years -------------- -------------- ¶3. (U) Mohammed Santuraki, Managing Director of First Bank of Nigeria Mortgages provided EconOff in a May 28 meeting with a bleak outlook on housing financing and development. Banks are still focusing on financing middle to high-income housing, and have only begun to look at low-income housing, he said. In a May 21 meeting with EconOff, Francis Sheen, Executive Director of U.S.-based TransAtlantic, a corporation that specializes in development, construction, and financing of large scale residential housing projects, said local banks, including Diamond Bank, Zenith Bank, United Bank for Africa, and Union Homes, have established mortgage divisions, but so far have received little strategic direction from the state and federal governments. In Lagos State, banks require on average a 30 percent down-payment and offer home loans at a 30 percent interest rate for a term of five years. Santuraki pointed to high and volatile interest rates as a major challenge banks face in trying to make mortgage lending more affordable. With lowered interest rates and a more stable interest regime, banks wil find ways to expand mortgage lending, he contended. For banks to go "downstream" to low-income housing, he also believes the government needs to streamline policies and provide subsidies either for down-payments or for interest rates. (See septel) Lagos State Programs Lower Mortgage Rates -------------- ¶4. (U) Nonetheless, Lagos State Government (LASG) is attempting to provide lower interest loans to selected civil servants through a consortium of four local banks. Lagos Mortgage Scheme for civil servants was launched in October 2007, and in early 2008, offered loans to 376 civil servants. The partnering banks are providing syndicated mortgage lending facilities at a 10 percent interest rate over a 25 year period. ¶5. (U) Bhargav Purohit, Head of Financial and Capital Markets, Africa Finance Corporation (AFC),disclosed to EconOff on May 23 the AFC's plan to provide a long-term sustainable mortgage finance solution for housing construction ranging from low to high end. AFC will partner with Lagos State Government to issue public bond to be backed by credit guarantees from development financial institutions. This program will offer naira-denominated mortgage loans at a 14 percent interest rate and 10 years term. According to Bhargav, LASG allocated the land, and the developer signed the agreement in May ¶2008. LASG has also proposed a multi-year issuance of infrastructure development bonds, with the first tranche of Naira 75 billion (USD 640 million) expected to be issued in 2008. The net issue proceeds will be used to finance, among other development projects, a 1,350 unit housing project for low to middle income earners. ¶6. Comment: Banking and financial experts have identified the housing sector and the mortgage market as holding the most promise in terms of investment and return. The issues raised by LAGOS 00000288 002 OF 002 stakeholders illustrate that housing need cannot be met without the development of a functional mortgage market, which is predicated on a stable and low interest rate regime as well as reform of the country's cumbersome and outdated Land Use Act. End Comment. ¶7. (U) This cable has been cleared with Embassy Abuja. BLAIR