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March, 2010
Legal Alert –
Housing Laws in Nigeria Part 2
To read this Alert in pdf format, please go to
http://www.oseroghoassociates.com/pdf/2010_03.pdf
In this Issue:-
- Legal Alert for February 2010 – Housing
Laws in Nigeria Part 2
- Subscribe & Unsubscribe to Legal Alerts.
- Disclaimer Notice.
LEGAL ALERT—HOUSING LAWS
IN NIGERIA – PART 2 – NATIONAL HOUSING FUND
ACT
TThe Federal Mortgage Bank of Nigeria’s
website,
www.fmbnigeria.org, reiterates the legal
position that the principal funding vehicle
for the Federal Mortgage Bank of Nigeria
wholesale mortgage lending activities in
Nigeria is the National Housing Trust Fund
which said Fund is established by the
National Housing Fund Act, 1992.
The National Housing Fund (“NHF”) was
established to, among other things:-
(a) Facilitate the mobilisation of long-term
housing funds for the provision of
affordable houses to Nigerians.
(b) Facilitate the constant supply of
long-term credit facilities to Nigerians for
the purposes of building, purchasing and
improving residential houses in Nigeria.
(c) Provide incentives to the capital market
to invest in the property market in Nigeria.
(d) Encourage the development of programmes
that will ensure the effective financing of
housing development in Nigeria.
(e) Provide proper policy control for the
housing sector.
(f) Provide long term loans to Mortgage
Institutions for lending to contributors to
the Fund. See Section 2 of the National
Housing Fund Act (“NHF Act”).
CAPITAL
CONTRIBUTIONS TO NATIONAL HOUSING FUND
The resources of the fund are derived
primarily from:-
(a) Contributions of Nigerians, in both the
private and public sectors, to NHF.
(b) Investments in the Fund by Banks and
Insurance companies licensed to carry on
these kinds of businesses in Nigeria.
(c) Financial contributions by the Federal
Government of Nigeria for long-term housing
loans.
MANDATORY
CONTRIBUTIONS TO NHF
The NHF Act requires that every Nigerian
employee in the public and in the private
sector, earning more than N3,000.00 per
annum, must contribute 2.5 per cent of his
basic monthly salary to the National Housing
Fund (“NHF”). An interest rate of 4% is
required by this Act to be paid on all
contributions made to this Fund.
All commercial banks in Nigeria are required
to invest 10% (ten per cent) of their loans
and advances in the NHF at an interest rate
of 1% per cent above the interest rate
payable on current accounts by commercial
banks to their customers.
The Central Bank of Nigeria (“CBN”) is
authorised to collect from Nigerian licensed
Banks, at the end of every financial year
and not later than a month thereafter, this
statutory housing contribution to NHF. The
CBN shall in turn ensure that within two
months of making the collection from the
Banks, such collections are remitted to the
FBMN for investment in National Housing
Fund. See Section 11 NHF Act.
Every Insurance company is required to
invest 20 per cent of its non-life funds,
and 40 per cent of its life funds in real
property development of which not less than
50 per cent shall be paid into NHF through
the FMBN at an interest rate not exceeding 4
per cent per annum. FMBN is authorised to
issue on insurance companies such demand
notices for such amounts that it deems as
their contribution to the fund after
examining their audited accounts. The
failure of any insurance company to comply
with these provisions is a ground for the
cancellation of the business licence of such
an insurance company. See Section 12(3) of
the NHF Act.
The Federal Government of Nigeria (“FGN”) is
required to make adequate financial
contributions to the NHF for the purpose of
granting long term loans and advances for
housing development in Nigeria.
ADMINISTRATION OF
NHF
Contributions to the National Housing Fund
are statutorily required to be managed and
administered by the Federal Mortgage Bank of
Nigeria.
REMITTANCE OF
CONTRIBUTIONS
Employers are required by law to deduct the
housing contribution from their employees’
monthly wages and ensure that such
deductions are remitted to the NHF via the
FMBN within one month of making such
deduction.
Self-employed individuals are also
authorised to make 2.5 percent of their
monthly salary as their housing
contributions to the Fund provided that such
contributions are remitted on a monthly
basis.
BENEFICIARIES OF
THE FUND
Section 14 of the NHF Act provides that
licensed mortgage institutions are the
secondary beneficiaries of the Fund as they
qualify for loans from the Fund, on such
terms and conditions as may be published in
the Federal Government of Nigeria in its
official Gazette from time to time. The
primary beneficiaries of the Fund are the
contributors to the Fund who take loans from
the FMBN through the licensed mortgage
institutions to build, purchase or renovate
their houses in Nigeria. The repayment of
these contributors’ loans are also
statutorily regulated by the Government’s
published Gazette specifying the mode and
manner, with the terms and conditions for
the repayment of any loan obtained under the
NHF ACT.
SECURITY OF NHF
CREDIT FACILITIES
All loans obtained from a mortgage
institutions must be secured by a first
mortgage while all loans granted by the FMBN
to a mortgage institution must be secured by
a charge on a block of existing mortgages of
the mortgage institution, under the cover of
a Sales and Administration Agreement
executed between FMBN and the Mortgage
Institution. The later Agreement must be
registered at the Land Registry along with
the Deed of Assignment of the block
mortgages to which the said agreement
relates.
INTEREST CHARGED ON
NHF LOANS
The rate of interest to be charged by the
FMBN on loans it grants to primary Mortgage
Institutions shall be slightly lower than
the prevailing commercial interest rates in
Nigeria. Such an interest rate shall be
fixed for the duration of the long-term loan
with no room for adjustments to suit the
variances in the money market.
Mortgage Institutions are statutorily
allowed a minimum spread of four percentage
points above the rate charged by the FMBN
while FBMN is only statutorily allowed not
more than one percentage point above its own
borrowing rate on loans it grants to
Mortgage Institutions in Nigeria.
REFUND OF
CONTRIBUTIONS
On the attainment of the age of 60 years old
or upon been retired from employment, any
contributor to the NHF that becomes
incapable of continuing to make
contributions to the Fund, shall be eligible
to a refund of his contributions within 3
months of his application to the Minister of
Housing provided that such a contributor has
not obtained a housing loan under the Fund
which loan remains unliquidated.
RENDERING OF
ACCOUNTS
FMBN is statutorily required to render
periodic accounts on the Fund to the CBN. In
the like manner, FMBN is also statutorily
required to render annual returns to all
contributors showing among other things, the
total amount contributed, the accrued
interests and the balance in the
contributor’s account as of the date of the
making such return.
Mortgage Institutions who have obtained
loans from the FMBN must also render
statutory quarterly returns to the FMBN in
such manner and form as the Minister of
Housing may from time to time specify.
OFFENCES AND
PENALTIES UNDER NHF
Any employer who fails to make a deduction
from the basic salary of his employees as
required by this Law, or who deducts any sum
from the basic salaries of his employees for
the purpose of the Fund and fail to remit
the sums so deducted to the FMBN is guilty
of an offence which on conviction for
corporate bodies attracts a fine of N50,000
and for individuals the fine is N20,000 or
imprisonment for a term of five years or to
both the fine and the term of imprisonment.
A self-employed person who fails to make the
necessary deduction is also guilty of an
offence which on conviction carries a fine
of N5000 or a term of imprisonment of one
year or to both the fine and the term of
imprisonment.
Any individual who prevents or obstructs the
deduction or remittance of the housing
contribution is also liable to the fine and
or to the term of imprisonment as those
attributable to a self-employed person. The
institution of criminal proceedings or the
imposition of the appropriate penalty does
not relieve any employer or self-employed
person from the subsisting liability to pay
to the FMBN the sum deducted for the purpose
of the FMBN.
False statements, misrepresentation,
production of false documents or failure to
produce requested documents during
inspection attract fines and terms of
imprisonment on conviction.
The Federal High Court has the exclusive
jurisdiction to try all offences under the
National Housing Fund Act.
EXEMPTION FROM
INCOME TAX REGIME
Contributions under the NHF and refunds of
any such contributions under the NHF Act are
exempted from the payment of any form of
income tax, on such contribution or refund.
TERMS AND
CONDITIONS FOR OBTAINING LOANS FROM NHF BY
MORTGAGE INSTITUTIONS AND INDIVIDUAL
CONTRIBUTORS
A licensed Mortgage Institution must submit
all its application(s) for a loan to the
FMBN. Such application must enumerate the
applications received for loans from
individual contributors against which the
loan(s) request shall be disbursed under the
NHF scheme.
It is mandatory that no mortgage Institution
shall in any given financial year be granted
a loan in an amount that is more than 50 per
cent of the Mortgage Institution’s
shareholders’ Fund.
SECURITY FOR
HOUSING LOAN
These terms and conditions repeats the
provisions of substantive law to the effect
that a housing loan granted by FMBN to a
Mortgage Institution shall be secured by the
existing registered Mortgages previously
granted by such a Mortgage Institution
whether the financing for such previous
Mortgages were obtained from FMBN or not .
A Sales and Administration Agreement with a
Deed of Assignment in such form as may be
prescribed by the FMBN, from time to time,
and duly stamped and registered in the Lands
Registry is required. The cost of stamping
and registering such an Agreement at the
Lands Registry shall be borne by the
mortgage institution save where waivers on
these costs are granted by the approving
authority at the Land Registry. FMBN is also
authorised in some instances to require a
Mortgage Institution to execute a floating
charge over its assets.
DISBURSEMENT
CONDITIONS
According to the NHF Regulations, to
safeguard the resources of the Fund, and
prevent the misallocation or diversion of
the mortgage loans given under the Fund, the
FMBN shall only make loan disbursements to a
mortgage institution on the presentation of
the acceptable securities as stated in the
above sub-section where a misapplication or
diversion is shown or envisaged.
FMBN is authorised to demand the immediate
repayment of all loans with interest
thereon, inclusive of a 200 per cent penalty
on the interest differential between the
market rate and the Fund rate from a
mortgage institution which misallocates or
diverts its loans. In addition to the
penalties, FMBN is authorised to suspend any
erring Mortgage Institution from further
borrowing from the NHF for a period of six
months and cause such Institution to remain
suspended until it complies with the above
provisions.
All disbursement from the Fund shall be by
cheque or by any other acceptable instrument
of settlement. The FMBN is not allowed
statutorily to disburse loans in cash or to
charge more than 0.25 per cent of the value
of a loan as legal, survey and
administrative charge fees. But this
excludes stamping, registration and other
statutory fees.
CONCLUSION
Developed economies encourage their
citizens, from adolescence, to join the
housing mortgage market. From these young
first-time mortgage buyers, a large stock of
long term investors is built. The
requirement of the NHF and the FMBN for
applicants to provide a first charge or
collateral before a housing loan will be
granted will inhibit the ability of Nigeria
to build its mortgage market.
The requirement for the various NHF loan
Agreements to be stamped and registered at
the Lands Registry attracts very exorbitant
statutory fees which will discourage the
long term benefits of the NHF and the FMBN.
The rate of return on mandatory housing
contributions from licensed Banks and
Insurance companies will only encourage
these financial institutions to refuse to
make their statutory contributory
obligations for the larger returns in the
money market particularly when the penalties
are negligible and the judicial system is
expensive and time consuming.
The Nigerian employee is already burdened
with many direct and indirect taxes,
pension, national health and housing
contributions that the latter will be gladly
compromised when evidence do not abound of
beneficiaries of housing loans actually
residing in their own homes.
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EHIJEAGBON O. OSEROGHO
March, 2010.
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