The Federal Government has announced plans to audit its housing assets and enforce stricter ground rent collection. To oversee this process, task teams will be established in all 36 states, consisting of state housing controllers, Federal Housing Authority representatives, and the Surveyor-General of the Federation. These teams will conduct property audits, enforce compliance, and ensure proper rent collection.
The initiative is aimed at improving oversight, reducing revenue losses, and ensuring government-owned properties generate income. The government has also issued a 60-day ultimatum for property owners to pay outstanding ground rent or risk losing their Certificates of Occupancy (C of O).
The risk for loans and mortgages
The Federal Government’s decision to audit housing assets and enforce ground rent collection will affect financial institutions like First Bank, Access Bank, etc, that provide loans secured by government-owned properties.
With uncollected ground rent estimated at over ₦6 trillion ($4 billion), stricter enforcement could lead to property revaluations, impacting the lending market.
If properties used as collateral are reassessed at higher costs, lenders could face increased risks. Developers and property owners may struggle to meet their obligations, raising the likelihood of loan defaults.
A similar situation occurred in the UK, where unpaid ground rents on leasehold properties caused property values to decline, prompting lenders to reassess collateral and tighten lending criteria.
Similarly, in the US, the 2008 foreclosure crisis was partly driven by property tax reassessments and unpaid liens, leading to higher loan defaults.
Mortgage companies will also be affected. If rent obligations rise due to stricter enforcement, homeowners with government-leased properties could face difficulty in meeting their mortgage payments, leading to higher default rates. As of September 2024, over ₦1.5 trillion ($1 billion) was tied up in mortgage loans, and any changes in real estate policy could disrupt repayment flows.
The Central Bank of Nigeria (CBN) report highlights the importance of microfinance banks, with 95% of bank debtors in 2024 borrowing from them. This shows just how crucial these institutions are in the financial system. A shift in the real estate market could lead to higher defaults, putting pressure on microfinance banks and making credit harder to access.
Finally, in December 2024, the Ministry of Finance Incorporated (MOFI) allocated ₦200 billion ($132.5 million) to the Real Estate Investment Fund (MREIF) which shows the government’s effort to tackle problems in the real estate sector.
This funding, along with the changing rules, could influence future investment choices. Developers with government-leased properties may need to renegotiate terms, which could affect their profits.
However, this will not stop real estate investors from feeling the pressure from stricter rent enforcement as it could slow down project approvals, raise costs, and force developers to change their financial plans.
Nigeria also needs to be careful with managing these changes. If these funds allocated aren’t used properly and the new rules aren’t effectively enforced, it could face similar problems seen elsewhere. In London, for example, the Greater London Authority (GLA) had trouble recovering a £300 million ($370 million) housing fund loan due to mismanagement.
Poor management in Nigeria could lead to financial losses, legal issues, and hurt efforts to improve asset management. Careful oversight is needed to avoid these problems.
