Capital market operators have called for securitisation of assets, and establishment of a mortgage-backed securities market, to facilitate capital formation, and tackle rising housing deficit in Nigeria.A mortgage-backed security is a type of instrument, which is secured by a mortgage or a collection of mortgages. The mortgages are sold to a group of individuals (a government agency or investment bank) that securitises, or packages the loans into a security that investors can buy.
Securitisation of assets is a financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages among others and selling their related cash flows to third party investors as securities.
According to them, this form of instrument would help to grow the capital market, and address the nation’s housing deficit challenges, because it would lead to the creation of more tradable securities, while money raised in terms of structured bond can be deployed for more housing projects.
The operators stressed the urgent need to increase the equity component of real estate companies due to insufficiency of government subversions, and the vulnerability of these firms occasioned by increasing interest rates and rising debt to equity ratios.Furthermore, they argued that the average investor likes to move his money from strategic investment from time to time, and securitisation of assets will provide more tradable securities and grow the market.
Specifically, the Managing Director, GTI Asset Management and Trust Limited, Amos Aledare, said Securitisation of assets is urgently needed in the market because it would help fast-track market growth by creating more tradable securities and improving liquidity for the underlying financial claims.
Similarly, the Managing Director, Highcap Securities, David Adonri, said: “Asset is an income yielding item. After creating an asset, the bulk can be broken down into units called securities, which can be sold to investors in the capital market. “The cash flow from the primary asset is used to remunerate the investors by way of dividend or interest. Securitisation of assets enables the primary owner to raise fund from the investing public while maintaining possession and control of the asset. This facilities capital formation and forms a good investment outlet for investors and deepens the capital market.”
A stockbroker with Calex Securities Limited, Tunde Oyediran, said one of the advantages of securitisation is the ability of the property owner, who requires some liquidity to be able to offer for sale the notes created based on the property involved. “This will facilitate the speed and transparency needed to manage investments in the country. The process does not require the seller or buyer to pay consent fees on the land and property transactions to the treasury of the government, and yet, the property has been put up for sale. It is the note on which the value of the asset is predicted that will now go either to the Stock Exchange or registrar when you want to register it.
“When the investing public eventually buys into the asset in verifying amount (piecemeal), documents that entitled them to portion of the ownership of the property will be issued to them. The property and its title remain unchanged. The management will change into the hand of a trustee, and the owner will then be the people that bought the notes.”
He explained that the unique benefit of the stock market to property companies and other corporate entities is the provision of long term, non-debt capital. It also offers a number of financial instruments that meet long-term investment needs such as the development of housing that range from equity to debt.
