On Housing For Workers In Abuja- A Response

By

Abdu Mukhtar

http://www.fct.gov.ng/News+and+Info/news_info.htm

FEDERAL CAPITAL TERRITORY ADMINISTRATION

CONSTITUTION OF THE FEDERAL REPUBLIC OF NIGERIA 1999

FEDERAL CAPITAL TERRITORY ACT CAP F6, LFN 2004

(OFFICE OF THE MINISTER)

FCDA Secretariat, Kapital Road, Area 11, PMB 24, Garki, Abuja. Nigeria

Tel: (09) 314 1295, 314 2371

Fax: (09) 314 3859

Website: www.fct.gov.ng

This is the full text of a response written by Dr. Abdu Mukhtar (Special Assistant to the Minister of the Federal Capital Territory – Mallam Nasir Ahmad el-Rufa’i) to a letter written in respect of the ongoing Sale of FGN Houses in Abuja by Mr. Yushau A. Shuaib of Wuye Estate, Abuja.

August 23, 2005

RE: OPEN LETTER TO EL-RUFAI ON HOUSING FOR WORKERS

I write to acknowledge receipt of your letter (published on Nigeriaworld.com) dated August 15, 2005 on the above subject and to address the salient issues therein contained.

First of all, I want to thank you for the balanced manner in which you presented the major points of your argument in the letter under reference. As you can imagine, it is practically impossible for Mr. Minister or the Ad-Hoc Committee on Sale of FGN Houses in Abuja, FCT to respond directly to every letter; given the time constraints within which we must conclude the assignment.

However, due to the balanced nature of the letter, the critical issues which you raised, and the fact that we share some of the concerns outlined in the letter, we decided to pen this reply and also to introduce it into the public domain for both your benefit and the benefit of others with similar concerns. Having said that, it is important to note that the concerns which you expressed have been addressed, even though we realize that you are unaware of these developments; hence, the extra impetus prompting this response.

Essentially, one of your main concerns is (to quote you) “that the prices of some of the properties are so outrageous”. In responding to this point which is more or less about affordability, it is only pertinent to correct the misperception that the houses are “too pricey for comfort”. In the first instance, the valuations employed in respect of all the housing units slated for sale were conducted by third-party professional valuers, duly accredited by the Nigerian Institute of Estate Surveyors and Valuers (NIESV).

Furthermore, it is important to emphasize that Mr. Minister kept his word to the effect that career public servants in legitimate occupation of FGN houses, being emotionally attached after not less than six (6) months in situ (with some having made subsequent home improvements thereof), are being offered a first right of refusal to purchase their currently occupied housing units at Replacement Cost. This Replacement Cost valuation is the present day cost of rebuilding the house without the cost of land and infrastructure, and is on the average, between 25% -50% less than the Open Market value; which will be the basis of establishing the Reserve Price of other Housing Units offered (by way of public Auction) to the general public (including political office holders and career public servants without first right of refusal options). A comparative sampling of the different types of houses should suffice at this point.

Legend 1:

R/C = Replacement Cost Valuation

O/M = Open Market Valuation

MN = Million Naira

From the preceding table, it is clearly evident that compared with the general public (including the overwhelming majority of civil servants who are not in occupation of FGN houses), career public servants eligible for the first right of refusal option on their currently occupied FGN housing units, enjoy a discounted price on their houses. In fact, with just under 30,000 housing units available for sale, and an estimated 300,000 career public servants in Abuja, FCT alone, it is only fair that, for purposes of equal opportunity in acquiring the houses slated for sale, a public Auction System be used in disposing of the remaining housing units to ALL Nigerians.

This consideration for equal opportunity brings up the issue of the accessibility of the Sale process. In light of the fact that most Middle Income Earners in Nigeria (including career public servants) have a relatively depressed purchasing power as far as earnings, savings, and benefits, the FGN (through the Federal Mortgage Bank of Nigeria [FMBN]) initiated a proactive decision to encourage (through incentives, sweeteners, and FGN guarantees) a consortium of banks to provide mortgage financing at competitive rates (single digit) and tenors (double digit) for up to 90% of property value. This mortgage-finance platform is aimed at empowering active participation in the Sale process, especially from those who otherwise would have been unable to participate.

Thus far, the Federal Capital Territory Administration (FCTA) has issued about 12,000 Letters of Offer to prospective home owners; of which nearly 1,500 have confirmed their acceptance of the offer to purchase by paying the requisite 10% non-refundable deposit of the Replacement Cost value of their houses. Again, as a result of our proactive stance on the low rate of acceptances in respect of said 10% deposit required to confirm acceptance of the offer to purchase, Mr. Minister was sufficiently concerned as to consult with the banks once again, to assist in this regard. The result of that consultation is that several banks including – Zenith Bank, Oceanic Bank, and UBA – from whom we have received formal commitment letters, have agreed to provide 100% mortgage financing to career public servants in receipt of valid Letters of Offer from the FCTA.

Some of the terms for 100% mortgage financing include:

Interest Rate: 9.5% or 1% above the FMBN Bond rate (Oceanic)

Commitment Fee: 0.25% flat

Management Fee: 0.25% flat (payable annually – Zenith) or 0.5% (Oceanic)

Tenor: 10 or 15 years (Zenith)

Domiciliation of beneficiary’s staff salary payments

Maximum of a 10 day turn around period (Oceanic)

Part-liquidation, block payments, bullet payments all allowed (Oceanic)

No hidden charges

Additionally (and in response to your concerns about mortgage repayment), we carried out research in order to provide a deeper understanding of the qualification criteria of the underlying mortgage finance lending platform. We can thus confirm that the results therefrom, reveal that typical junior-to-mid cadre career public servants (Grade Level 4 – 13) can afford to mortgage-finance their homes. In point of fact, 70% of career public servants so evaluated, will be able to purchase their homes by way of mortgage. The remaining 30% who cannot do so, consist of those living beyond their means (i.e. are over-quartered, in civil service parlance) or about to retire (with little or no savings). Ironically, it is also instructive that, based solely on their respective salaries and benefits (and since they will have to pay at least the Open Market values of their houses), none of political office holders (consisting of ministers, heads of parastatals/agencies, special advisers/assistants, etc.) will be able to afford the mortgage payments on their homes. Again, a sampling of the research results should suffice at this point.

Legend 2:

Global Definitions

HU = Housing Unit

OM = Open Market Valuation

RC = Replacement Cost Valuation

HA = Housing Allowance per annum

District Codes

1A = Nyanya

1B = Lifecamp

2 = Garki

3 = Wuse II

4 = Apo

5 = Maitama

6 = Asokoro

Specific Nomenclature

EOI = Expression of Interest (Career Public Servants Only)

GA = General Application (Political Office Holders [POH] and General Public [GP])

X = Gross Annual Income

Y = Maximum Loanable Funds (calculated as Y1 = 3.5X; Y2 = 5X; Y3 = 6X)

Z = Value of HU (represented as Z1A = RC; Z1B = OM; Z2 = Z1A less 10% of Z1A)

MQ = Mortgage Qualification (calculated as IF Y1,Y2, OR Y3 > Z1A OR Z1B THEN MQ is TRUE, ELSE MQ is FALSE)

LVR = Loan to Value Ratio (calculated as Z2/OM * 100 and represents the maximum loanable amount as a ratio of the Open Market Value of the HU)

Qualified = Qualified for Mortgage (based on individual salary and benefits)

Not Qualified = Not Qualified for Mortgage (based on individual salary and benefits)

* Note: RC (i.e. Z1A) = OM (i.e. Z1B) for GA - POH

Interest Rate per annum = 9.5%

Midrange Tenor = 12 years

Optimistic Tenor = 15 years

Pessimistic Tenor = 6 years

From the foregoing, it is evident that there exist significant inefficiencies in the allocation (and thus occupation) system vis-à-vis FGN houses in Abuja. From the career public servant perspective alone (where there are 300,000 of them, as against the FGN’s about 30,000 available housing units), it is clear that the previous system was unsustainable and inefficiently so. The issue of availability which is critical to a sustainable system (and culture) of home ownership, can thus be addressed in tandem with those of affordability and accessibility outlined earlier. In fact, the three considerations are inherently symbiotic, in that they form the tripod upon which the Sale process must rest, and upon which the proposed mortgage-finance home ownership culture in Nigeria (and indeed any other socio-economic facet of our society) must subsist.

Thus, the Monetization Policy of the FGN is aimed squarely at deemphasizing and ameliorating unnecessary inefficiencies in the management of critical public sector services. By igniting a mortgage-financed home ownership culture (not just in the FCT, but throughout the country), it is critical for the FGN to unlock the potentials of country-resident investment in (and increase the value of) Real Estate in Nigeria. A capital-market-driven home ownership culture (however imperfect) is the best mechanism for ensuring that the shortfall of about 14 million homes (which Nigeria needs to begin to address her housing crisis conclusively) is reversed, and even surpassed.

With respect to the particular issue of the valuations in Finance Estate in Wuye, it is also instructive to note that the current Replacement Cost values of houses, no matter what contrary beliefs you might have, are determined by factors like floor and structure size, building material quality, and subsequent improvements; not by age. So the issue of the date of construction is a moot point. To reiterate this point, the valuation used to arrive at the “official offer prices” is the current cost of replacing these structures; “replacing” implying a replication of the housing unit in its present form. Unless the “rational worth” which you speak of (for career public servants entitled to the first right of refusal), takes into consideration the discounted value of the housing units (i.e. less land and infrastructure), then it will be grossly unfair not only to other career public servants lacking first right of refusal eligibility, but to ALL other Nigerians whose commonwealth and tax revenues were used in constructing these units.

The issue of a further 40% discount is again a moot one, being that there is already a discount factored into the offer prices of these houses. Since the valuations are performed by accredited and independent professional valuers, it is only logical to presume that the valuations, especially the Open Market ones (being the true current values), are correct. This implies an almost automatic profit (of at least 25% on average) for career public servants with exercisable first right of refusal options (at discounts), on their currently occupied housing units. Anything extra, again, would be unfair to other Nigerians. In addition, any purported dilapidation of the housing units under reference is a throwback to the era of inefficient Government management, when a strong ethic of maintenance of public property gave way to inconsistent attempts at refurbishment. This again, reemphasizes the need for pervasive and dynamic home ownership amongst occupants; in other words, the replacement of rent payers with home owners, as a veritable instrument of sound economic policy. Be that as it may, the issue of exploring options for additional consideration for housing units (depending on which FGN Agency or Parastatal constructed them), which were financed from staff VAT bonuses, ab initio, is a fair and just subject that should be separately addressed, without prejudice to the foregoing considerations. Even so, any and all such considerations should accrue to the organization as opposed to the tenants.

Nonetheless, if the Sale process is placed in context, as far as the indispensability of the mortgage-finance culture is concerned, then it becomes clearer why it is essential for all of us (yourself inclusive) and ALL Nigerians that it succeeds. This is why we encourage; no, we implore you to continue to advise, constructively criticize, cajole, exhort, and otherwise actively engage us (as you have creditably done) in a dialogue on issues and a frank exchange of ideas, as they relate to our shared destiny as compatriots.

While we agree that career public servants who are unable to benefit from the current Sale process should not be abandoned, we also believe that they can be assisted with easy access to land and special mortgage arrangements to enable them build their own homes, without sacrificing returns from the Sale process to the FGN. To this end, apart from the option of first right of refusal being offered at discount to legitimate career public servants who are emotionally attached to their currently occupied housing units, the FCTA has taken concrete steps towards implementing a comprehensive mortgage-financed low-cost mass housing scheme, to address the general issue of affordable home ownership specifically in Abuja, FCT. To this end, Mr. Minister has just concluded arrangements for:

1. about 45,000 plots to be allocated at concessionary rates to displaced /relocated settlers in line with Mr. President’s public pronouncement

2. about 60 private developers have been allocated, on average, 20 hectares of land for mass housing schemes on accelerated development basis and

3. in-principle approval has been secured for a N10 billion loan to develop an Affordable Housing Scheme at Lugbe.

Since we firmly believe in sustaining a place (and a role) for public servants (and indeed all Nigerians) in the plans and programmes of the FCT; we have pursued and will always pursue a public-service-centric approach to attentive and proactive good governance, in providing and exceeding our obligations to Nigerians in general, and Abuja residents in particular.

It is our hope and fervent belief that (given the additional information which we have provided here), you will situate the entire Sale process in context (as an integral component of a much larger endeavor), and continue to participate in the policies, programmes, and projects, which will ultimately metamorphose into a sustainable systemic paradigm for our country. Please keep the candor, constructive criticism, and balanced analysis going; it is a challenge to the rest of us to embrace this approach, and to strive for excellence in the discharge of responsibilities imposed on us and reaffirm the trust reposed in us. Thank you.

Abdu Mukhtar

Special Assistant to the Minister