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Cablegate: Nigeria: Lagos State Takes Steps to Lower Mortage Interest

VZCZCXRO7997
RR RUEHMA RUEHPA
DE RUEHOS #0258/01 1980731
ZNR UUUUU ZZH
R 160731Z JUL 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0019
INFO RUEHUJA/AMEMBASSY ABUJA 9705
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 LAGOS 000258

SIPDIS

STATE PASS USAID FOR NFREEMAN, GBERTOLIN
DOC FOR 3317/ITA/OA/KBURRESS
DOC FOR 3310/USFC/OIO/ANESA/DHARRIS
DOC FOR USPTO-PAUL SALMON
TREASURY FOR RHALL, DPETERS
STATE PASS EXIM FOR JRICHTER
STATE PASS OPIC FOR DERB, ZHAN, MSTUCKART, JEDWARDS
STATE PASS TDA FOR LFITTS, PMARIN

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 will 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

LAGOS 00000258 002 OF 002


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
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

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