ABSTRACT
Home ownership is one of the essential human wants but unfortunately, it is one of the most expensive of all human needs housing situation in Nigeria is critical and this has got a long historical antecedent by virtue of the nation’s role as political, socio-cultural and economic nerve centre of not only West Africa but Africa as a whole. The unabled phenomenon of urbanization in Nigeria has continued to put pressure on the hitherto inadequate and inefficient infrastructure and social services of which housing happen to be the worst hit. Due to high cost of houses, only few members of the society could own a house of their own. Government has responded to these housing problems through public housing provision and some through private sectors. This paper considered various sources of housing finance especially through pension fund which Nigeria government recently passed into law, the pension reform act 2004 to establish a uniform contribution pension scheme for both public and private sectors in Nigeria after retirement. The pension act directs that the pension funds and assets should be invested in real property investment because of the uniqueness and security of capital invested in it.. The benefits of the pension fund unlike other sources is that it allow for long term finance project and it is economy safe.
DEFINITION OF TERMS
1. OVERVIEW
A general description or an outline of something.
2. PENSION FUND
This is a system in which both employee and employer pay some percent of money into the employee retirement savings account with the pension fund administrator for the benefit of the employee (or their respective next of kin) after retirement. This is done to put an end to a lot of suffering encountered by the retirees whenever they want to collect their entitlement after retirement.
3. HOUSING FINANCE
Financing is referred to as the pivot on which real estate development is based. It is the flow of funds used to make house available in the society. This could either be internal sources or external sources.
INTRODUCTION
There are a lots of reasons why people acquire or wishes to acquire a house. The reasons may include most especially for basic necessities of life which are food, shelter and clothing. Other reasons may include financial returns, independent, for social benefit etc. No matter the reason, it is noted that the management of these various aims of owners are greatly influenced by the circumstance attitude and the state or condition of those owner.
Housing is a basic necessity of life and it is generally acknowledged that after food, housing is next in the hierarchy of human needs. This shows that its importance cannot be overemphasized in the scheme of things. The house is not just for what it is but what it does. This is why Grimer (1976) declared that housing encompasses for more than living space and shelter. Its nature are determined by the services it offers. These services are valued including neighbourhood amenities, access to education and health facilities and security in addition to shelter.
Further to above their worth depends on quality consideration such as design, materials and floor space and on access to employment and other income earning opportunities, public facilities, community services and markets. However, housing is a durable and desirable good, unlike most consumer goods in several important aspects. As a desirable good, all men need and desire it (Eteng 2003), as a durable good it is fixed-location asset. It forms a significant proportion of privacy held wealth in most developing countries. Its production requires close coordination with transport networks and water supply, sewerage and community services. It may yield a source of income in rental payments or as a place of business and so can be directly productive to families. The benefits to the society as a whole (the social returns) are often higher than the returns to private investors.
CATEGORIES OF HOUSING
Housing can be categorized in different ways as it is not a homogenous product. The categories are:
By Type: under this category, the type of houses are tenement, flat, bungalow, semi detained, terraced, duplex and so on.
By Location: Also, houses can be categorized based on where they are specifically located. It could be urban, rural town, outskirts etc.
By Age: There are old, new, middle etc which house can be distinguish.
By Size: Another category that can be use to distinguish housing are base on the size or number of rooms or accommodation, two bedroom etc.
By Density: Houses can also be classified by density like low, medium and high density class.
FACTORS AFFECTING HOUSING PROVISION
· Regulations
· Finance
· Land
· Entrepreneurship
· Down market
· Rental housing
Regulation: Standards, regulation and procedure are factors in the supply of affordable housing because it tend to drive upwards. Procedures in developing countries are usually tedious, time consuming, expensive and they are often kept that way to allow middlemen and government officials to display their authority and ear an extra income. Approval procedures need to be made transparent and short preferable one stop window. Standards and regulations are adopted to ensure quality and protect the consumer but they are often driven by political rhetoric rather than realism.
Finance: Financing is equally important for developers and home buyers. Unless a developer can sufficiently supplement his own capital external funding, he will not proceed with his housing project. The home buyer will need housing finance to pay for his purchase as few people can pay a house from their savings. Many developing countries do not have a finance system that reaches the lower and middle income groups. As a consequence, the private sects will target that income group. There may be reasons why there are no good housing finance sector.
a) Majority of population do not save in a bank.
b) The population
c) The banks do not want to lend money for housing or
d) The banks are only prepared to lend for a short period of time or for small portion of the house price. Interest rates have enormous impact on the cost of a house purchase and this depend on the economic situation in the country.
Land: This is an important part of the price of a house. it is very essential because a house can not stand on its own without being on a land. Land is homogenous in nature and it does not increase as human population increases, it is physically limited in supply. But it was assumed that if land cannot be increased horizontally, it can be increase vertically .i.e. highrise building.
Entrepreneurship: The availability of project financing will however not lead to housing supply unless there are developers with their own funding who are prepared to take risk and develop housing for sale. Developers often depends to a large extent on a financial institution and the down payment of the home buyers to finance their project but some equity has to be available. A developers need good financing skills, a good reputation and good marketing skills to be successful and this can only come with experience.
Down Market: With measures to increase the supply of serviced land and financing for developers and home buyers with regulations that protect the consumers without unnecessarily driving up prices and with developers who know how and what to sell, housing can become more affordable. As a result, a larger percentage of the population can afford to buy its own house. it is however unlikely that house prices can be reduced so much that all household can afford the cheapest new developers built house.
Rental Housing: Because there would always be households that cannot afford to buy even the cheapest new developed built house, the government need to address the second question: What should be done for household that cannot afford their own house?
HOUSING PROBLEMS
One of the main factors for the enormity of the scope of the housing problem in Nigeria therefore is this all-embracing nature of housing. The condition necessary for funding an effective solution to any housing problem appears to be an existence of a housing policy, a guide fundamentally addressing not lonely the complex nature of housing but also the social and economic characteristics of potential inhabitants or owners of resultant housing units. This condition in itself may not be sufficient for satisfying housing needs because drawing a good policy neither induces nor represents implementing it well. The dearth of such pragmatic policies has apparently made both the quantitative and qualitative forms of Nigeria’s housing problem to recur.
Agbola (1995) noted that prevailing housing problems in Nigeria include
- Acute housing shortage especially in Urban area.
- Overcrowding and unsanitary living conditions in both rural and urban area
- Exorbitant rent relative to income and the exploitative tendency of shylock landlords
- High rate of homelessness especially in the urban areas.
- High rate of sub standard housing both in rural and urban area.
The neglect of housing sector brought about the following situations in Nigeria.
1. Large Importation of Building materials: Despite the availability of enormous human and natural resources on the country, Nigeria becomes large importer of building materials such as roofing sheets, plumbing materials, glass, iron rods, cement, electrical fittings etc.
2. High prices of building materials: Prices of building materials have escalated over the years and are beyond the reach of the majority especially civil servants, farmers, traders and down trodden people of this country.
3. Escalating Prices: There has been a shortfall in housing development as only few can afford to build houses. The National housing policy (1991) put the category of Nigerian that could be classified as low income people at 70% of the populace while the lowest paid government worker is being paid about N12,000.00 and this could be used as the bench mark for poverty level (Agbola 2003). Government also has not been reasonably assisting developer and house owners by effectively controlling land cost, labour cost and prices of building materials as well as ensuring availability of building materials and funds.
4. High Rent: There is also a steady increased in rents even beyond the control measures of the government rent control over residential properties, it cannot adequately address the issue of housing rents more so that it is an attempt of the government to control what it does not have.
5. Extinction of Wood: Ironically, the common timber for the construction of doors, windows, roof, ceiling, furniture and fitting is no longer common. Trees like iroko, mahogany, teak etc are hard to find in the forest. Different species which are good for building construction have become extinct in the forest as no new trees were planted to replace the used ones. Desertification is now a threat to the survival of the ecosystem.
FACTORS THAT TEND TO SOLVE HOUSING PROBLEM IN NIGERIA
- Promotion of local materials: The government should encourage the use of local materials by way of demonstration, which would eventually bring down production cost. Regulating foreign importers will reduce the rate of building materials importation into the country.
- Interest rates: The federal mortgage bank in Nigeria should regulate the interest rate on loans charged by the mortgage institutions thereby giving room for both public and private developers to have access to fund for the development of housing sector in the country.
- Promotion of indigenous construction companies: it is apparent that most of the foreign construction firms are succeeding and performing effectively. Full dependency on foreign construction firms for our major projects will continue to drain out foreign reserves, which will eventually bring a risk to the economy of the nation.
- Provision of funds: There is need for the government to provide funds through mortgage institutions to developers, in order to promote housing development in the country.
- Support for research: The government should give support to the research development and use of local materials such as clay bricks among others so as to effectively check the rising cost of building materials and make things easier for developers to achieve their aim.
PENSION FUND IN NIGERIA
Pension Funds as a source of finance for real estate development are not yet well developed in Nigeria. Pension funds are significant provider of long term finance for capital investments in developed countries. The income derived from such loan investment in accordance with the policy of the pension fund would be to cover the cost of servicing the funds and to meet the demand of the contributor when they retire. The collection of retirement benefits in Nigeria have continued to cause a lot of suffering to retirees (and their respective next of kin) especially the retirees in public sector of the economy. There are reports of many beneficiaries who died in retirement benefits queues after waiting for days without food or water to collect their benefits. To remedy some of those problems, the Nigeria government recently passed into law the pension reform act 2004 “the pension act”. The pension act repeals all previous legislation regulating the administration of pension benefits in Nigeria. With the vitual collapse of the African welfare system the new pension act attempt to have as its primary objective the encouragement of savings among employee so that in retirement they are not impoverished and the establishment of a uniform set of rules, regulation and standards in the public and private sectors of the Nigeria economy on matters of pension. “The act repeals the pension Act 1990 public and private sectors in Nigeria with the features of
a.) Contribution of funds by both the Employer and employee to fund retirement benefits.
b.) Crediting the employee’s retirement savings account with pension fund administrators with funds contributed
c.) Pension funds asset are to be privately managed and invested by professional pension fund managers
d.) Strict regulation of pension fund managers under uniform laws and regulations for both private and public sectors
e.) The establishment of the National pension commission.
Subject to the guideline issued by the pension commission from time to time, the pension act directs that pension funds and assets should be invested in any of the following investment vehicles.
a.) Bonds, bills and other securities issued or guaranteed by the federal government of Nigeria and the central bank of Nigeria.
b.) Bonds, debentures, redeemable preference shares and other instruments issued by corporate entities listed or Nig. Stock exchange (NSE)
c.) Ordinary shares of public limited liability companies listed on the Nig. Stock exchange with good track records having declared and paid dividends in the preceding five years
d.) Bank deposits and securities
e.) Real estate investment
f.) Such other investment as the pension commission may from time to time prescribed.
CONTRIBUTIONS/BENEFITS
1. For the private sector the minimum contribution allowable on behalf of each employee is 15% of total emoluments. Total emoluments are defined as the addition of annual basic salary, transport and housing allowance.
2. The employer’s minimum contribution rate is set at 7.5% whilst the maximum employee contribution rate is 7.5%. Each corporate entity can negotiate its contribution mix, for instance the employer can pay 10% whilst the employee pays 5%.
In addition, employee can make voluntary contributions. All contributions are exempt from tax.
OBJECTIVES
The main objectives and features of the pension reform act 2004 are
1. To ensure that every pension who worked in either he public service of the federation, federal capital territory or private sector receives his retirement benefits as and when due.
2. To assist individual by ensuring that they save to cater for their likelihood during old age and hereby reducing old age poverty
3. To ensure that pensioners are not subjected to untold suffering due to inefficient and cumbersome process of pension payment
4. To establish a uniform set of rules, regulation and standards for the administration and payments of retirement benefits for the public service of the federation, federal capital territory and the private sector.
5. To stem the growth of outstanding pension liabilities.
SOURCES OF HOUSING FINANCE
Sources of finance has two classes which include:
a.) Internal Sources: These are funds generate internally. It could be in form of gift, inheritance from friends, relations and business associates. Equity contributions of the developer’s also falls under the group. Equity capital can be in form of accumulated profits set aside from the business of the developer or piece meal savings form earned resources.
b.) External Sources: Finance from external sources may come in the form of a loan repayable with or without interest. It serves as a supplement to internally generated fund. Loan can be grouped according to period of repayment such as short term, medium and long term. Onibokun (1971) and Olajuyigbe (1985) highlighted the various sources of housing finance in Nigeria. The sources are divided into two bases on the sector that need the finance. Here we have public sector and private sector sources.
Public Sector
- Federal government an agencies
- State government an agencies
- Local government an agencies
- Federal mortgage Bank of Nigeria
- State Housing corporations
- State governments mortgage banks
- State saving and loans schemes
- National housing fund
Private Sector
- Primary mortgage banks
- Commercial banks
- Financial/investment companies
- Insurance companies
- Cooperative credit societies
- Consumer credit unions
- Others like – thrift system, personal savings etc.
THE EFFECT OF PENSION FUND INVESTED IN STOCK MARKET
In 2007 when world economies began to etch under the excruciating pain of the global meltdown, financial experts in Nigeria including the governor of Central Bank of Nigeria (CBN) Professor Charles Soludo assured Nigerians that the country is well insulated from the sweeping effect of the hurricane. However, the hydra healed problem of the meltdown was to prove that Nigeria economy was not after all protected as alleged by experts when the country began to experience cash crunch, fall in the value of Naira and rise in cost of importation with the resultant effect of food stuffs skyrocketing beyond the reach of the ordinary Nigerian. To cap it all, Nigeria began to experience a general increase in standard of living.
Perhaps, the worst Nightmare to ever hit Nigeria is the crash in the capital market occasioned by a Free fall in the value of equities in the floor of the stock exchange market. According to a report by an American financial news and data company, all share index in the stock exchange market dropped by 37%, the biggest decline to have ever been recorded in more than a decade and worst of 89 benchmark indexes. Within 8 months, Nigeria stock exchange (NSE) recorded an estimated cost of N7trillion.
As part of the boomerang effect of the meltdown in the capital market is the lost in pension asset worldwide. In Nigeria, 7% of the total contribution to the retiree savings account which stood at N471.77billion was lost due to crash in the equities market. Pension fund asset which had accumulated to an estimated value of N1.1trillion as at December 2008 was ordinarily suppose to call for celebration for all stakeholders in the pension industry including the apex regulatory body (PENCOM) but the meltdown never let it happen. The pension fund which had the largest exposure to equities were most hit by the meltdown.
Because of this lost experience in the past few years concerning the pension fund, the government made it clear that the pension fund should be diverted to Housing in Nigeria (Real Property Investment). This is done because the capital invested in real property investment is always secure unlike other form of investment. Another reason why pension fund is diverted to real estate investment was to make house available for low income earner who could not afford to own or build house of their own to have a shelter.
BENEFITS OF PENSION FUND AS A SOURCE OF HOUSING FINANCE
1. Security of capital invested
2. It allow for long term finance
3. Provide shelter for the need (low income earner)
4. It enhance economy development
1. Security of capital invested: Due to the uniqueness in Real estate investment, it is certain than any amount invested in it will surely be able to recoup the capital at any point in time with interest in most cases. When pension fund is diverted to finance housing, the capital will be intact with interest and also provide use for people in the economy.
2. It allows for long term finance: Housing in it real sense is along term project and the capital to finance it has to be for a long term. There are different ways in which government source for housing finance but they are always of a short term period. Pension fund allow long term finance which is used by the government unlike insurance and other source of finance which can be terminated anytime.
3. Provide shelter for the needy: The conversion of pension fund to housing project will provide shelter for those who could not afford to own a house. The project would be monitored by the government which people will pay (low income earner) for a period of time. The need of housing increases every year and the solution can be reduced through the use of the pension fund.
4. It enhance economy development: Creation of housing for unit of family in an economy enable people to live conveniently and the housing being put in place will be of standard and according to the lay down regulation by the town planner. With this such environment would attract many facilities and many people would want to move to such area thereby enhances the economy development.
CONCLUSION
This paper has considered the origin of pension fund and how this funds can be use for the benefit and development of a nation especially in Nigeria to produce houses for the masses. Pension fund act is still at its early stage in Nigeria and most of the saving for pension fund were invested in stock market were as there is crash in stock market today suppose the fund generated were invested in housing, definitely the capital would still be intact though the interest might not be as fast as that of stock exchange because real estate always take a long period of time to yield. So also, pension fund can be seen as a major source of housing finance which are not as long as pension fund. This objective can be achieve if the funds are use effectively because it involve both private and public sectors with huge amount of money saving every month which can be invested without fear of loosing the capital with interest.
With the few explanation above, it is clear that due to the crash stock market, the only way out to secure and invest the money generated from pension fund is to invest in Real Estate Property (Housing) and also for the people to benefit from government through construction of houses without much stress for funds.
RECOMMENDATION
Having concluded in the above manner, the money generated from pension fund alone cannot solve housing problems in Nigeria. The new approach of providing an enabling environment for housing provision could take the following.
1. The federal ministry of housing and urban development and Lagos State renewal board should also engage in urban renewal of parts of the city that needs such for more upgraded housing units.
2. Government should try and regulate interest rate on loan given out by banks. The reduction in the interest rate would encourage both private and public sector even individual to collect loan from banks to invest in housing.
3. There is need to encourage investors. Many private developers are discourage to develop because of the many taxes involved right from the acquisition of land to its developed stage. Government should review these taxes, grant tax relief by way of exemption, reductions and granting of tax holidays.
4. Government should encourage the establishment of cooperative housing societies at the local government level. This will help members of these societies to help themselves in housing development. This can be achieve with the assistance of community banks.
5. The National Housing fund need to be relaunched.
REFERENCES
Lawal, M. I. (2000): Estate Development Practice in Nigeria Lagos: ICCO Books and Publisher.
Oyelami, S. O. (1991): “Property and Housing Development” Property Gazette Publisher, Ibadan.
Thorncroft, M. (1965) “Principle of Estate Management” London, the Estate Gazette Limited
Wikipedia (2007): Pension Fund Act.
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