- Stanbic IBTC Urged to Lead Transformative Change in Nigeria's Housing Sector
Nigeria’s housing sector is at a pivotal moment, shaped by rapid demographic changes that call for bold, innovative responses from all stakeholders. This urgency was at the heart of a powerful address by Mr. Femi Adewole, Managing Director of Urban Economics International, at the recent Stanbic IBTC Home Ownership Summit 2.0. Themed “Building Tomorrow Today: Transforming the Path to Home Ownership – Current Realities and Opportunities for Growth,” the event gathered experts to explore the future of housing in Nigeria.
In his candid and impactful speech, Adewole highlighted both the significant opportunities and the urgent challenges facing the homeownership landscape. He called on individuals and financial institutions alike to adopt a forward-thinking, transformative mindset to reshape the sector for the better.
Mr. Adewole began by expressing his gratitude to Stanbic IBTC for the invitation, acknowledging the significant presence of key figures from the organization and the wider housing sector. He immediately set the tone for a discussion that would bypass formalities, opting instead for a heartfelt exploration of a subject deeply personal to him.
A Glimpse into Nigeria's Future: A Nation Transformed
The cornerstone of Adewole's address was a stark projection for Nigeria's future. He emphasized a crucial demographic reality: in just 25 years, Nigeria's population is expected to surge to over 400 million. This monumental growth will see a city like Lagos, currently home to between 18 and 25 million, swell to nearly 45 million inhabitants. Comparing this to the past 25 years, which saw a population increase of 54 million, Adewole highlighted the dramatic acceleration – the next quarter-century will witness four times that growth.
"This is major, major impact," Adewole asserted, stressing the profound implications for homeownership. To meet the burgeoning demand by 2050, an estimated 38 million new homes are required. The current supply, however, paints a grim picture. While approximately 700,000 homes are built annually across both formal and informal sectors, a staggering 90% originates from the "informal sector," a term Adewole politely equated with "sharks." The formal sector, in stark contrast, contributes less than 50,000 homes per year.
This severe supply-demand imbalance, Adewole warned, will inevitably lead to a dramatic surge in housing costs. His advice to individuals was unequivocal: "If there's any time that you want to own a home, or even your children, to subscribe to a homeownership program, it is now."
The Mortgage Market: A Vast Untapped Potential
Despite the housing deficit, Adewole pointed to a significant opportunity in Nigeria's nascent mortgage market. With a mortgage penetration rate of only about 0.5% of GDP, Nigeria lags far behind more mature markets where this figure can reach 20%. He commended Stanbic IBTC's audacious goal of increasing this to 5%, recognizing it as a critical step towards unlocking the sector's potential.
However, a 2023 study commissioned by Adewole for a client revealed a crucial hurdle: a pervasive lack of understanding and cultural barriers surrounding mortgages. A significant 73% of respondents expressed a preference for financing their homes through cooperatives rather than banks or primary mortgage institutions, viewing borrowing from banks with skepticism. This presents a considerable challenge for financial institutions like Stanbic IBTC: "How do you win that big population over? How do you make them feel comfortable that you can find a solution to their housing need?"
Seizing a Generational Opportunity: The Basis for Transformation
Adewole articulated a clear vision: the current confluence of population growth, escalating demand, and the nascent but promising shift in government policy creates "an amazing generational opportunity for the development of our housing space." For the first time in his three decades in the housing sector, Adewole observes a concerted effort from policymakers who are beginning to recognize housing not merely as a social duty but as an economic necessity. The emergence of initiatives like the Family Homes Fund, the Nigerian Mortgage Finance Company, and new credit corporations are all contributing to building a more robust housing ecosystem.
He challenged both individuals and Stanbic IBTC to seize this moment. For individuals, it's about leveraging these evolving opportunities. For Stanbic IBTC, it's about leading the charge and securing a dominant market share. Adewole then outlined critical areas for transformation, focusing on two primary concerns:
Addressing a Broken Value Chain and Low-Income Realities
The first key area for transformation, according to Adewole, lies in addressing Nigeria's "broken and weak value chain for housing." Unlike mature markets where mortgage banks can readily rely on a robust network of developers, quality construction, clear land titles, and effective insurance, Nigeria's housing supply remains fragmented and underdeveloped. The informal sector's 90% contribution to housing supply is "not acceptable for where we need to be as a nation over the next few years."
Secondly, Adewole highlighted the fundamental challenge of Nigeria being "a very low-income economy." This reality profoundly impacts affordability, making it difficult for the vast majority of the population to access homeownership. He critiqued the tendency to adopt Western housing models without adapting them to local economic realities. In mature markets, a teacher can afford a decent home based on their salary, thanks to efficient value chains and locally sourced, affordable building materials. In Nigeria, however, aspiring homeowners often dream of large, luxurious houses that are well beyond their financial reach. "Until we think about the fact that we are substantially a low-income economy, we are unlikely to deepen the mortgage market," Adewole emphasized. This calls for innovation, not just market capture, but a transformative approach driven by local context.
Adewole then delved into four specific areas where Stanbic IBTC, and indeed any player seeking to revolutionize the housing sector, should focus its innovative efforts:
- Combining Construction and End-User Financing: Traditionally, construction finance and mortgage finance are treated as distinct entities due to their different risk profiles. However, Adewole argued that a lack of construction financing cripples mortgage origination. He urged financial institutions to innovate around supporting the supply side to feed the demand, thereby enabling more mortgages.
- Revolutionizing Title Registration: The current land registration system in Nigeria is a major impediment to mortgage growth, with less than 2% of land ownership formally registered and even registered titles prone to disputes. Adewole proposed exploring alternative models, drawing inspiration from the Danish mortgage model where the sales agreement itself forms the land security. This could circumvent the protracted and often frustrating process of obtaining traditional Certificates of Occupancy (C of O) and governor's consents.
- Leveraging Technology for Enhanced Customer Experience: Acknowledging the transformative power of technology, particularly Artificial Intelligence, Adewole highlighted its potential to bridge the gap between financial institutions and customers. The 2023 study revealed that potential mortgage customers struggled to deal with banks due to a lack of information and understanding. Technology, especially with Nigeria's youthful population, can revolutionize customer engagement, provide clear information, and significantly improve the overall experience of mortgage owners.
- Innovating Repayment Profiles for Low-Income Earners: This area was particularly close to Adewole's heart, having been the focus of his work across 34 African countries. He challenged the reliance on traditional Western repayment models, which often assume high, stable incomes. He introduced the "Help to Own" product, developed by the Family Homes Funds, which segments financing into three parts: a 10% deposit from the buyer, a 40% low-start mortgage from the fund, and the remaining 50% from a commercial mortgage. This "low-start" model mirrors an individual's expected income growth, with lower payments in the initial, more financially constrained years, gradually increasing over time. While acknowledging that the "Help to Own" model is still being refined, he stressed the underlying principle: "If we are going to get people to embrace mortgages, if Stanbic IBTC wants to deepen its market share, we need to explore innovative ideas." He also suggested exploring other innovative models like Shared Equity, Income-Linked Mortgages, Micro Mortgages (catering to those who prefer self-building in phases), and Intermediated Mortgages (where risk is aggregated through cooperatives or employer groups).
The Nokia Analogy and the "Who Will Bell the Cat?" Challenge
Adewole concluded his address with two powerful analogies. First, the demise of Nokia, once a ubiquitous presence in the mobile phone market, served as a cautionary tale. Nokia's failure, despite doing "nothing wrong," lay in its inability to spot and adapt to changing market dynamics, missing the rise of Samsung and iPhone. This, he argued, is a lesson for both individuals and Stanbic IBTC: "We need to look at doing innovation and doing things differently."
His final point was a direct challenge: "We can't wait for governments to do this." Referencing the fable of "belling the cat," where the mice debate who will bell the dangerous cat but none are willing to act, Adewole asserted that governments, from his experience, rarely take the lead in such transformations.
He pointed to Stanbic IBTC as the institution with the "knowledge discipline" and the "passion for excellence" to spearhead these crucial changes. "You must take the leadership of ensuring that these changes and these opportunities take place," he concluded, positioning Stanbic IBTC as a pivotal force in reshaping Nigeria's homeownership landscape.