East Africa HakiPensheni
Housing project by one of Uganda’s real estate firms, Kakungulu Housing Estate. Picture: Morgan Mbabazi
Middle income pensionable workers in Uganda who plan to own houses should brace for a tough 2012.
Analysts predict that the cost of mortgage loans
guaranteed through pension savings will rise due to steep interest rates
while the prices of houses will also shoot up owing to surging land
prices.
For example, an acre of land in Uganda’s suburbs, which was fetching $34 million at the beginning of 2011, is now selling at $45 million. Experts expect the upward trend to continue this year.
“Property developers are now opting for remote areas, which are cheaper. We have also been compelled to cut space allocated for each unit in order to economise on land,” said Charles Lwanga, who works for Tal Investments Ltd, a real estate developer.
Thus low and middle income earners, many of whom have limited savings, are finding it increasingly difficult to acquire decent houses.
“The interest rates are so high that it makes it difficult to sustain repayments. Islamic banking offers a better option for acquiring a decent house,” said Sarah Nabeta, a civil engineer with Newplan Ltd in Kampala.
Pension backed mortgages are popular as they spare borrowers the costly down payments that accompany ordinary transactions.
For example, in order to access an ordinary mortgage, the borrower must pay between 10 and 30 per cent of the value of a selected property as down payment. Minimum prices are estimated at more than Ush70 million ($28,169).
Pension contributors are entitled to a mortgage loan of 30 per cent of their savings after 10 years of steady contributions. A minimum level of pension savings of Ush50 million ($20,121) for example, entitles a borrower to a mortgage loan of Ush15 million ($6,036), while savings worth Ush100 million ($402,414) guarantee one Ush30 million ($12,072) loan.
Middle income earners who take home between Ush1 million ($402) and Ush5 million ($2,012) per month fall in between the two segments.
“This implies that the minimum pension benefits are inadequate to secure a decent house. Such benefits should be reviewed to match the prevailing conditions in the real estate market, boost access to housing facilities and stimulate further growth in the mortgage industry,” said David Dansor Ninyikiriza, a mortgage specialist at Housing Finance Bank.
Uganda is expected to liberalise its pension sector by enacting relevant laws, which among other things, will give pensioners the freedom to choose their fund managers.
“Also, a higher mortgage guarantee ratio of say 60 per cent would widen access to decent housing for low and middle income earners as well as opportunities for lenders in a country hit by a huge housing shortage and a fast growing population,” said Njoroge Ng’ang’a, head of investment at HFB.
Kampala’s housing shortage is estimated at 500,000 units by 2015, according to local mortgage players while its annual population growth is estimated at 3.2 per cent — one of the highest in the region.
But government technocrats argue that the anticipated oil boom is likely to minimise barriers to decent housing for low and middle income earners. “We expect salaries to rise on the back of the oil boom which will then expand average incomes and net disposable funds available for pension backed mortgages,” said
Moses Bekabye, an economic advisor at Uganda’s Ministry of Finance, Planning and Development.
In comparison, Kenya’s housing deficit stands at 150,000 units per year while in Rwanda, only five per cent of locals own modern houses.
A preference for low cost home construction loans from commercial banks has also constrained growth in Uganda’s mortgage market which boasts of roughly 5,000 client accounts.
“A two-bed roomed house for instance, could cost Ush50 million ($20,300) compared with a minimum of Ush 70 million ($28,400) required for a modest mortgage,” said Ismail Bakulumpagi, the construction manager at Skil-Plan and Associated Engineers Ltd.
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