Three days ago, news broke that the National Assembly has passed the National Housing Bill 2018 and that it was awaiting presidential assent. While the news made it to the pages of websites such as Proshare.com NASS Passes New Housing Law, To Impose Over 200% of Personal Income Tax on Low Income Earners, and the business pages of a few newspapers, I noticed that it barely made a mention on social media.PwC was quick to come out with a one-page review on the highlights of the bill and why they think it was a bad idea.
To PwC’s credit, they have been following up on this bill since debates started in both chambers of the National Assembly. For a bill of such significance on workers and employers of labour, it was quite surprising that it has not dominating public discourse, especially in an election year. A few comments on social media showed clearly that many either didn’t understand the bill and its ramifications or exhibited apathy over a subject that was critical to wealth management.
Thus, the need to break down the developments for the Nigerian workers and housing stakeholders in a way that delivers a clearer understanding of the bill and its full import, has compelled this article.
The National Housing Fund (Establishment Act) 2018 is a bill to repeal the NHF Act 1992 (now NHF Act Cap N45, LFN 2004).
The bill, sponsored by Senator Ahmed Lawan, has the primary aim of mobilizing additional funding for the financing of housing projects in Nigeria just as is the case with the NHF Act 1992.
The major highlights of the bill are as follows:
- A levy of 2.5% (ex-factory price) on each bag of locally produced and imported cement.
- Contribution of 2.5% of monthly income on all employees (Public and Private Sector) at an interest rate of 2% p.a.
- Contribution of 2.5% of self-employed earning the equivalent of minimum wage and above at an interest rate of 2% p.a.
- Investment of 10% of Profit before Tax (PBT) of every commercial bank, merchant bank, insurance company and PFA in the fund at the rate of 1% above interest rate payable on current accounts by banks.
- The FGN shall make “adequate financial contribution and grants” to the fund as it deem fit. No amount was specified.
- An employer (public and private) is expected to make the monthly deductions and remit to the fund through the Federal Mortgage Bank (FMBN).
- The Central Bank of Nigeria (CBN) shall collect the investment amounts from Commercial and Merchant banks at the end of each year, the National Insurance Commission (NAICOM) shall collect for insurance companies, the National Pension Commission (PENCOM) has the responsibility to collect for PFA’s; while the Federal Inland Revenue Service (FIRS) will collect from manufacturers and importers the 2.5% levy on cement.
- There are sanctions for individuals or body corporate who fails to collect and remit contribution & levies ranging from losing operating licenses to fines up to N100 million for corporates and N10 million for individuals.
- Any contributor who does not have any outstanding loans and has attained 60 years of age or 35 years of service is entitled to a refund of contribution at an interest rate of 2% p.a. with 3 months of application.
Who manages the fund?
The Federal Mortgage Bank of Nigeria
Through lending to Primary Mortgage banks (PMBs)
Who can access the loan?
Individual Contributors and Developers
How do contributors access the fund and is it limited to contribution?
A contributor interested in obtaining the NHF loan applies through a registered and duly accredited Mortgage Loan Originator (PMB), who packages and forwards the application to the FMBN. The loan amount is determined by the applicant’s affordability and not the 2.5% of income contributed.
Is participation Compulsory?
Yes it is mandatory for everybody earning any amount from minimum wage and above. Whether you are a public worker, a private worker or self-employed; as long as you are earning any amount from minimum wage, you're mandated to contribute.
What is the difference between the NHF Act 2004 and the NHF Bill 2018?
Contribution by Nigerian workers
An employee or self-employed earning an income of N3,000 and above per annum in both the public and the private sectors shall contribute 2.5% of his basic monthly salary to the Fund at an interest rate of 4% on contributions
An employee or self-employed earning minimum wage and above per annum in both the public and the private sectors of the economy shall contribute 2.5% of monthly income to the Fund. At an interest of 2% on contributions
Contribution by Body corporate
Every commercial or merchant bank shall invest in the Fund 10% of its loans and advances at an interest rate of 1% above the interest rate payable on current accounts by banks.
Every commercial or merchant bank shall invest in the Fund 10% of PBT at an interest rate of 1% above the interest rate payable on current accounts by banks.
Every registered insurance company shall invest a minimum of 20% of its non-life funds and 40% of its life funds in real property development of which not less than 50% shall be paid into the Fund at the rate of 4% p.a.
Every Insurance Company, shall invest in the Fund 10% of PBT at an interest rate of 1% above the interest rate payable on current accounts by banks.
No Investment from PFAs (Note: There was no PFA then)
Every PFA shall invest in the Fund, 10% of PBT at an interest rate of 1% above the interest rate payable on current accounts by banks.
No Levy for any manufacturer or importer of cement
Every manufacturer or importer of cement shall remit 2.5% o cement price.
Refund to a contributor
Any contributor who does not have any outstanding loans and has attained 60 years of age is entitled to a refund of contribution.
Any contributor who does not have any outstanding loans and has attained 60 years of age or 35 years of service is entitled to a refund of contribution at an interest rate of 2% p.a. with 3 months of application.
Sanctions for individuals or body corporate who fails to collect and remit contribution and levies ranging from fines up to N50,000 for corporates and N5,000 for individuals.
Sanctions for individuals or body corporate who fails to collect and remit contribution and levies ranging from losing operating licenses to fines up to N100m for corporates and N10m for individuals.
Source: Yinka Ogunnubi Research / #NHF2018
If the NHF Act has been in existence since 1992 and the provisions of the law was mandatory how come it was not fully implemented?
The NHF scheme was set up by the NHF Act No.3 of 1992, to provide a pool of fund that will cater to the housing needs of the low and medium income earners, and it was mandatory for employees to contribute 2.5% of their monthly income to benefit from it.
However, there were several reasons why the scheme was never fully implemented, viz:
- Stakeholders did not meet up to their obligations. As recent as 2013, the CBN had not even paid up its 30% equity stake in FMBN. Banks and insurance companies that were required to be investing in the scheme were also defaulting. Even the CBN and the insurance commission that was required by law to remit investments of these financial institutions couldn’t be bothered about implementing the law.
- Many States didn’t start remitting until many years after the law came into effect. Even when they started remitting, they were defaulting. Some States have huge gaps as in number of years when they stopped and started remitting again. As at 2009, only twenty-four (24) States were contributing to the fund. It is difficult to enforce a law which even the drafters (government) were not obeying.
- Many employees through their Labour unions opted out of the scheme due largely to complaints regarding alleged poor record keeping by the Federal Mortgage Bank of Nigeria (FMBN) and cumbersome bureaucratic bottlenecks.
- The cost of construction and real estate development kept increasing beyond what the capacity of workers could afford. The maximum loan amount collectable on the NHF presently is N15 Million with equity contribution ranging from 10% – 30% depending on the amount applied for.
- Challenges in enforcement of the law. For instance, the law hasn't been able to figure out how to get the self-employed to contribute. The law expects them to voluntarily contribute. Never going to happen in a million years. Besides, it's difficult to enforce a law that the enforcers themselves are breaking.
- Finance. The pool of funds was insufficient to make any significant impact. Between 1992 – 2009 (a period of 17 years), the fund was only able to mobilize about N70 Billion of which it was able to loan out about N20 Billion mostly to developers.
- The Land Use Act made the process of perfecting title to landed property burdensome, slow and costly. The NHF does not fund purchase of land. It only funds construction and renovation of buildings of which you MUST have title documents proving ownership to be qualified for the loan. This was a cul-de-sac scenario - a route or course leading nowhere.
- Political considerations: The States were more inclined to implement their housing projects rather than contribute to the NHF because such projects had greater political gain to them than the NHF which is seen as a Federal Government institution and the means/arm through which the Federal government executes its own housing projects (political mandates/promises). Any accomplishment of the FMBN was therefore seen as a certain credit to the Federal Government rather than the State Government or Governor’s achievement.
“Without abrogating the land use act, housing can never become affordable in a million years in Nigeria. Freehold property rights is a pre requisite for accessing affordable 30yr mortgages which is necessary for cheap housing” - Kola Ibrahim @alpontif
What has the NHF achieved since inception?
According to the Federal Mortgage Bank of Nigeria (FMBN) Managing Director, Ahmed Dangiwa, the NHF since inception (i.e. 27 years ago), has disbursed a total of N193.4 Billion in loans to about 23,000 beneficiaries and made refunds to about 230,000 retirees.
While a significant part of the fund has been accessed by developers resulting in thousands of housing units constructed, it must also be noted that the fund has been most active in recent years due to increased collaborations with Labour, States and the Organised Private Sector (OPS).
Challenges of the NHF 2018 Recently Passed by NASS
PriceWaterhouseCoopers (PwC) recently posted ten (10) reasons why the bill in its present form is a bad idea. Permit me to highlight seven (7) of them for specific reference.
- The contribution is regressive as it taxes the poor more than the rich. For instance, minimum wage earners will pay about 250% of their personal income tax (PAYE) to the NHF monthly.
- Making all employers liable to deduct and remit the contributions monthly (without a threshold) will worsen the ease of doing business and Nigeria's paying taxes ranking;
- Cost of borrowing will increase as banks are required to invest a minimum of 10% of their profits at 1% above current deposit rates;
- Increasing the tax burden without addressing other fundamental issues like land regulation, REITS framework etc is not consistent with the 2017 National Tax Policy;
- Imposition of the 2.5% levy on cement is a tax on property development which will make housing even less affordable;
- The requirement for PFAs to invest pension funds in the scheme means less returns for pension contributors which will erode value for pensioners; and
- The return of 2% per annum for contributors withdrawing after attaining 60 years of age or 35 years of service is far below inflation rate and grossly insufficient to compensate for time value of money.
This bill (as is) is clearly an attempt by the National Assembly to mobilize more funding for the NHF which in 27 years has not been able to mobilize much in terms of finance. That is clearly understood.
However, the challenges of housing, goes beyond just funding. First, there are systemic challenges around property rights for example that needs to be resolved. If this is not fixed, contributors cannot access loans and the funds will just be another big government effort to trap people’s money until they retire or worse die.
Secondly, I am of the opinion that perhaps the emphasis should be more about ensuring that banks and insurance companies comply with the law as it currently is rather than enacting another law that will most likely be defaulted. For instance, the Central Bank of Nigeria (CBN), and the NAICOM statistics indicated that between 2008 and 2017, total loans and advances by deposit money banks and non-life and life funds from insurance companies amounted to over N100 trillion. At 10% investment of their loan advances and non-life and life insurance with the NHF, about N10 trillion should have been invested in the fund by the banks and insurance companies over the period. Can we strive to achieve this first before increasing the burden of contribution on workers?
It is telling that the fund has refunded more to retirees than it has actually granted loans to contributors.
Without an integrated solution, plan and strategy in place, (which must also include increased funding), we would simply be increasingly the burden on workers.
In trying to solve one problem (the lack of adequate funding), we should not in the process create additional problems for the Nigeria worker and corporate entities (the cobra effect).
This bill, in my opinion, should not be signed into law in its present form. The President should send it back to the NASS for further review and more stakeholders input to deliver on the practical objectives.