TABLE OF CONTENTS
Title page – – – – – – – – –
Declaration – – – – – – – – –
Certification – – – – – – – – –
Dedication – – – – – – – – –
Acknowledgement – – – – – – – –
Table of Content – – – – – – – –
List of Tables – – – – – – – –
List of Figures – – – – – – – –
Appendices – – – – – – – – –
Abstract – – – – – – – – –
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study – – – – – – 1
1.2 Statement of the Problem – – – – – – 3
1.3 Statement of the Research Questions- – – – – 5
1.4 Objectives of the Study – – – – – – 6
1.5 Significance of the Study- – – – – – – 7
1.6 Research Hypotheses – – – – – – – 8
1.7 Scope of the Study- – – – – – – – 9
1.8 Organization of the Study – – – – – – 9
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual Literature – – – – – – – 10
2.1.1 Historical and Current Status of Mortgage Market in Nigeria – – 19
2.1.2 Overview of Housing Finance Arrangements in Nigeria- – – 27
2.1.3 Lingering Problems of Mortgage Financing in Nigeria- – – 34
2.2 Theoretical literature- – – – – – – 36
2.3 Empirical Literature- – – – – – – –
2.4 Theoretical Framework – – – – – – 34
CHAPTER THREE: METHODOLOGY
3.1 Introduction – – – – – – –
3.2 Types of Data – – – – – – – –
3.3 Sources of Data – – – – – –
3.4 Estimation Techniques – – – – – –
3.5 Model Specification- – – – – – –
3.6 Estimation Techniques – – – – – –
3.6.1 Time Series Properties of the Variable- – – –
3.6.2 Unit Root Tests- – – – – – – –
3.6.3 Vector Auto Regression (Var) Specification- – – –
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction- – – – – – – – –
4.2 Data Presentation – – – – – – –
4.3 Descriptive Statistics- – – – – – –
4.4 Diagnostic Statistics- – – – – – –
4.4.1 Stationarity Test- – – – – – – –
4.4.2 Cointegration Test- – – – – – – –
4.4.3 Granger Causality Test- – – – – – –
CHAPTER FIVE: SUMMARY, CONCLUSION AND POLICY RECOMMENDATION
5.1 Summary of Major Findings – – – – – –
5.2 Conclusion – – – – – – – –
5.3 Recommendations – – – – – – –
References – – – – – – – –
Appendix – – – – – – – –
ABSTRACT
Housing represents a large proportion of a household’s expenditure and takes up a substantial part of lifetime income. The need for an effective housing financial service cannot be overemphasized; especially, in developing countries where the case of low level of household income abounds. Effective provision of housing services depends mostly upon a well-functioning housing finance system. This study therefore examines the impact of the Nigerian arm of housing finance on economic growth. Aggregate housing finance data by both banks and non-financial institutions was used to measure housing finance. Other variables considered relevant for the study has found from existing literature include financial debt (M2Per capita), financial instability (Interest rate) and the level of development of the capital market (measured by market capitalization). Time series data covering the period 1990-2012 was obtained from central bank statistical bulletin, National Bureau of statistic and World Bank. Relevant diagnostic statistical tests ranging from normality test, stationary test, Granger Causality Block Erogeneity Wald test, to lag order selection test were conducted to determine the suitability of the data for linear regression analysis. After determine the degree of their suitability, VAR model was estimated using linear regression method. The results of the analysis indicated that a one way causal link runs from mortgage finance to economic growth, while the reverse is not the case. In addition, mortgage finance was found to be a significant determinant of increasing pattern of economic growth over a long period of time. Due to the level of the country’s financial depth, it was recommended that Nigerian government should intensify effort aimed at consolidating the level of financial re-structuring in the financial sector.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In the beginning, a mortgage was just a conveyance of land for a fee. The buyer paid the seller a set rate, with no interest, and the seller would sign over the land to the buyer. According to Clayton (2007), the classical form of real estate debt is the mortgage, a loan secured by real property as collateral. The word mortgage , Clayton added comes from two Middle English words (which are actually French in origin): “gage” meant an obligation or commitment, while “mort” referred to death or dying. Hence mortgage was a “dying commitment” that is, a commitment that was not permanent but had a finite lifetime.
During the medieval period, land was the direct source of most wealth, as a pledge of real property was the guarantee to secure mortgage. This old arrangement in the view of (Barker, 2006) was however very lopsided in that the seller of the property, or the lender who was holding the deed to the land, had absolute power over it and could do whatever they liked, which included selling it, not allowing payment, refusing payoff, and other issues which caused major problems for the buyer, who held no ground at all.
According to Onibokun (1998) and Nubi (2008), habitable housing contributes to the health, efficiency, social behavior and general welfare of the populace. Apart from providing man with shelter and security, housing plays a major role in serving as an asset (Poole 2003; Alhashimi & Dwyer 2004).
For a typical house-owner, the house is a major asset in his portfolio and for many household, the purchase of a house represents the largest (and often only) lifelong investment and a store of wealth (Goodman 1989; Sheppard 1999; Malpezzi 1999; Bundick and Sellon Jr 2007; Dickerson 2009). Furthermore, Bardhan and Edelstein (2008) argue that housing represent a large proportion of a household’s expenditure and takes up a substantial part of lifetime income. The provision of housing services depends mostly upon a well-functioning housing finance system. The consideration of acquiring a house is driven by the cost of acquisition and various government economic policies which could be fiscal or monetary (Giussani and Hadjimatheou 1991) and even depending on the economic system adopted in a country.
Housing is one of the three basic needs of mankind and it is the most important for the physical survival of man after the provisions of food. Decent housing is one of the basic needs of every individual, the family and the community in general. As a pre-requisite to the survival of man, it ranks second only to food. It is also one of the best indicators of a person’s standard of living and his place in the society. The house an individual lives in is a symbol of his status, a measure of this achievement and social acceptance, an expression of his personality and the barometer that seems to indicate in a large measure, the way the individual perceives himself and how he is perceived by the larger society. It is the measure of all the good (or bad) things in life that will come to him and his family (Agbola, 1995).
Housing is one of the three foremost basic human needs (the others being food and clothing). It is both a private and social good because it affects individual and general economic welfare. Consequently, programmers of assistance in the areas of finance, provision of infrastructure and research have been designed by governments to enhance its adequate delivery. The focus on finance has, however, been very prominent for obvious reasons. This is because housing provision requires huge capital outlay, which is often beyond the capacity of the medium income/low income groups.
A major area of concern has been mortgage financing, which has often been fingered as one of the most formidable constraints in the housing sector. It is based on this note that the topic is to examine the importance of mortgage finance on an economy in general and using Nigeria economy as a case study.
1.2 Statement of the Problem
The current savings culture in Nigeria is geared towards immediate short term needs based on composite saving pattern (Soludo; 2008), hence financial institutions need to develop attractive long term savings products that will be consistent with long term mortgage finance nature.
It has also been revealed that one of the major challenges facing housing financing system in Nigeria is the mismatch which currently exists between sources and application of fund in the sector.
With the financial sector reform in 2004, primary mortgage in this country has improved in terms of availability, institutional framework and competition. The housing sector has also seen the debut of institutional property developers with complementary mortgage backups. But the absence of effective secondary mortgage to keep refinancing mortgage raises the question of sustainability of progress in the sector.
The Central Bank of Nigeria (CBN) has further observed that the amount of investible funds available to the existing primary mortgage institutions was a mere N36.7 billion, and only N22 billion or 60% of this amount stand a reasonable chance of being channeled for mortgage loans origination. Furthermore, the supply of credit by the Federal Mortgage Bank of Nigeria (FMBN) was grossly inadequate to meet the growing demand. As at end September 2000, FMBN mobilized a total of N5.8 billion from 1.8 million contributors to the National Housing Fund (NHF) while it granted N375 million loans to 631 contributors through 20 PMIs for the construction of houses. Overall, there is evidence of declining activities in housing finance generally (Sanusi, 2003).
The persistent case of increasing population in Nigeria currently put at over one hundred and Sixty (160) million means a radical approach to solve the lingering housing problems in the country.
All these point to the fact that there is need to propose and develop strategies to expedite the development of mortgage market. With an estimated population of 168 million, Nigeria’s housing deficit is glaring, particularly in the urban centres. The FMBN estimates the housing deficit at 16 million housing units, requiring over N56 trillion to finance at a conservative N3.5 million per unit. This means that, Nigeria needs to produce about 800,000 housing units annually for the next 20 years, in order to close her housing gap. It is therefore obvious that there is a critical housing condition in Nigeria. This puts into perspective the market for mortgage finance in the country and the immense potential for mortgage banking.
The study therefore seek to ask the following questions:
- What is the empirical relationship between financial development and mortgage finance in Nigeria?
- What are the factors that hinder the development of housing finance system (HFS) in Nigeria?
- What are the major financial innovation in mortgage market in developed countries and emerging economies with reference to residential sectors through Secondary mortgage facilities like bond, securitization and secondary mortgage market (SMM) development; and what is the impact of such innovation on economic growth?
- What is the impact of mortgage finance on economic growth in Nigeria?
1.3 Objectives of the Study
The broad objective of this study is to empirically investigate the relative impact of mortgage financing on the development of the Nigerian economy. Therefore, the specific objectives are:
- To examine the impact of mortgage finance on economic growth in Nigeria;
- To examine the relationship between financial development and mortgage finance in Nigeria;
- Analyse factors that hinder the development of housing finance system(HFS)in Nigeria;
- Discuss the major financial innovation in mortgage market in developed countries and emerging economies with reference to residential sectors through Secondary mortgage facilities like bond, securitization and SMM development; and examine the impact of such innovation on economic growth;
1.4 Research Hypotheses
Assumptions are based on the theory underlying the subject matter of the study, thus the following hypotheses have been formulated in their null form.
- Ho: there is no significant relationship between financial development and mortgage finance;
- Ho: Secondary mortgage financing has no significant effect on the system of housing finance in Nigeria;
- Ho: Secondary mortgage financing has no significant influence on economic growth;
- Ho: There is no significant relationship between mortgage financing and economic growth.
1.5 Significance of the Study
The housing sector plays an important role in both developed and developing economies. The significance of a vibrant mortgage financing in the provision of adequate housing cannot be over emphasized. The development of mortgage market is important for the overall development of a country. In Nigeria, the trend has been through various policies from the federal government. Despite government effort, not much has been achieved in this sector.
Many studies have been conducted along this line which includes that of Fasakin (1998) who suggested the need to strengthen the cooperative housing system in Nigeria. Onibokun (1985) and Ebie (2003) stated that rent in major cities in Nigeria is about 60% of an average workers disposable income. This is very much higher than the 20-30% recommendation of the United Nations. Omole (2001) highlighted the fact that financial institutions should be more accessible to the people. It is on the basis of the importance of housing finance that government most often finds ways to improve existing housing and housing policies.
This shows the need for an indebt study on mortgage financing in the development of an economy. Most of the studies centered on the policy, development and challenges of mortgage in the economy.
This study is desirable because it attempts to establish the significance of the mortgage market on the development of the Nigeria economy by making comparisons of two different periods.
The major importance of this study is to review and update previous studies especially in this era of millennium development where “housing for all” is one of the visions 20:2020.
Investigating the impact of mortgage on development of the economy will provide justification on how mortgage market is a key factor in overall financial market development; and how secondary mortgage market is the potent driver of real estate growth and housing finance in Nigeria. Therefore mortgage market is likely to be a key to the sustenance of the economy of a nation.
1.6 Scope of the Study
The relative impact of mortgage financing in the development of the Nigeria economy will be examined within the period of 1990-2010 , which is twenty years. This period will further be broken down into two periods 1990-2000 and 2001-2012 for the purpose of relative comparison. The study to a large extent will rely on locally published reports and information from financial institutions, academic research and technical reports from governments and relevant regulatory institutions in Nigeria and lastly other thesis and publications from universities.
1.7 ORGANIZATION OF THE STUDY
This study is structured into five chapters including the introduction as chapter one, chapter two is literature review, chapter three is methodology of the study, chapter four is data presentation, Analysis and discussion of results, and chapter five is summary of major findings, conclusion and policy recommendations.
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