The Federal Government of Nigeria and State Governments have been advised to tap into the Non-interest finance market to address the nation's housing deficit.
Mr. AbdulMalik Mahdi, Managing Partner, Modern Shelter Systems and Services Limited, made this point while assessing the challenges of "Addressing Nigeria's Housing Deficit: Opportunities For Non-Interest Finance".
Mr Mahdi explained that the Nigerian housing sector is not different from other sectors of the economy, as long as the country is going through challenging economic times. Covid 19 was manifest in Nigeria because it is a mono-economy that depends heavily on one single source of revenue: crude oil.
He decried that Africa's largest economy does appreciably manufacture building materials for the housing industry. Madhi noted that this was negatively affecting the housing market and limited the growth of an industry with enormous potential.
He noted that Nigerians need improved purchasing power from the supply side. If the prices are too high for people to buy houses, there is a socio-economic challenge.
He said, "When we look at the housing deficit of over 20m growing every year it is a major issue from the side of developers, supply-side and government policies due to land, infrastructure, and expensive building materials; which makes the cost of houses beyond the reach of the ordinary Nigerian".
Beyond the government giving housing for free, the expert acknowledged that it would be difficult to bridge the gap. According to him, the government has embarked on different policies through the National housing funds under the Federal Mortgage Bank of Nigeria, Family Home Funds and the Nigerian Mortgage Refinancing Corporation, all trying to stimulate the policies around affordable housing in Nigeria.
Mahdi stressed that other factors in the macro-economic space have made it impossible for Nigeria to witness a significant increase in homeownership. He argued that until Nigeria starts producing most of the building materials used for housing, alongside an enabling infrastructure and improved process for land resource management, the country will continue to experience industry challenges.
On how Modern Shelter Systems can bridge the housing deficit in Nigeria, Mahdi said that the vision is to help people get on the ladder of affordable housing, student housing, mid-income housing and luxury housing.
He said the company has been involved in advocacy while proffering solutions to social needs and has been part of different housing projects since 2015 of over 10,000 homes across the country.
Regarding how diminishing Musharakah can be deployed to solve the housing deficit in Nigeria, he explained that Jaiz Bank and Sterling bank had deployed the product to create mortgages, and this product has created value using Musharakah.
"For individuals and corporate institutions, it is similar to higher purchase where you bring your equity contribution pay 10% out of the price for the year house pay over an agreed period within 10-20 years. After the payment, your ownership of the asset is guaranteed".
He stated that this is similar to a conventional lease. Still, the difference is that Islamic mortgages are not interest-based but is asset-based because the transactions are very transparent, easy to understand and less risky for the financial institutions. According to him, Diminishing Musharakah is the best product for Islamic mortgages.
He said Modern Shelter has used Islamic finance instruments like Ijara, Istisna, Wakala, Murabaha and worked closely with Jaiz, Taj and Non-Interest finance institutions that have Islamic products.
Giving his assessment of the current National Housing Project by the Federal Government and how the private sector players can be incentivised to support. Mahdi pointed out that the government cannot do everything by itself, but can only provide land, favourable policies, and finance to developers of private sectors.
"Developers need to develop viable business plans that can fit into government policies to leverage what the government has made available and build for their communities. It is the job of developers, businessmen and the private sector to develop a project and tap into the funding options available from agencies like Family Homes Funds to provide housing in their localities. We need more people to come into the real estate", - Abdulmalik Mahdi added.
Providing his thought on the outlook for non-interest finance instruments addressing social issues like Housing in Nigeria and Africa as a region. He was optimistic that there was a massive appetite for non-interest financial products from the recent massive oversubscription of the Sukuk.
He projected that there might be double issuances in 2022 because of the acceptance and the increasing knowledge that Sukuk is structured around projects. It will continue to play an essential role in infrastructure financing.
The key challenge for developers is to come up with bankable transactions with innovative products that can encourage investors to bring in their funds.
The real estate expert emphasized that Islamic finance serves as a complementary tool for providing funding that can bridge the housing deficit in the country for the benefit of the citizens.