Mortgages will boost local savings
Jul 19, 2008
LAST week, dfcu Bank in partnership with the National Housing Construction Corporation (NHCC), launched an initiative, which will see the bank’s clients get 100% mortgages to buy NHCC houses. Ordinarily, a house buyer would put down a mandatory deposit of up to 30% of the value of the house before
By Paul Busharizi
LAST week, dfcu Bank in partnership with the National Housing Construction Corporation (NHCC), launched an initiative, which will see the bank’s clients get 100% mortgages to buy NHCC houses.
Ordinarily, a house buyer would put down a mandatory deposit of up to 30% of the value of the house before he can qualify for a mortgage. But the new arrangement means that the intending house buyer will get all the money from the bank.
This is a useful development as it takes away one more barrier, the down payment to qualify for a mortgage, to house ownership.
But at 16%, interest rates remain very high and give little incentive for the ordinary Ugandan to break away from continuing to build their houses brick-by-brick.
The need for quality housing is critical as there is a shortage of about 50,000 houses in Kampala, a figure that is growing annually.
By activating the mortgage market, this can stimulate demand and boost the real estate development industry.
Across the border from us in Kenya, lawmakers are putting finishing touches to a piece of legislation that will see intending homeowners use their pension contributions to guarantee mortgages.
Initial indications are that under the initiative, Kenyans will be able to buy houses of up to sh125m. They will be allowed to use 25% of their pension contributions to offset the down payment and then pay only interest over the duration of the mortgage. This will greatly reduce their monthly payments. The principle for the mortgage loan would be paid on retirement. Apart from speeding up the acquisition of a personal house, individuals will be able to beat the inflation on housing prices, which are currently doubling every five years.
For the industry, this single stroke will unlock an estimated 10 times the amount of money lent out last year by the leading mortgage provider. The knock on effect is that Kenya will be far along their way to bridging a 120,000 unit deficit in housing in the country once this law comes into effect.
As a consumer of local labour, raw material and related services, a vibrant housing industry can act as a dramatic spur to the economy.
In addition, by activating the mortgage market, the urgency for local mobilisation of long-term funds will be appreciated. Following from the above, the benefit for the economy in job creation, trade and deepening of the financial sector is self evident. In addition, home owning populations are a qualitatively better people in terms of their ability to appreciate private ownership, hold a long-term view about their future and have a tangible stake in the continued stability of the nation.
Reading an international investor’s analysis on investment in China recently, I noted that Chinese savings are 40% of GDP and this suggested that not only is there a large pool of local resources ready for deployment but also that this is a citizenry that are committed to their country beyond barely felt national anthems and mottos.
We rationalise the East Asians’ ability to save as due to a culture of thrift handed down from generation-to-generation, but you can be sure the governments in those parts do everything to encourage this phenomenon.
At one time, Singapore’s workers saved as much as 42% of their income in legislated pension and mortgage schemes.
Encouraging the mortgage market is a sure way of driving up local savings.
No country has ever effected meaningful development without raising its national savings.
Our current savings rate of 7% of GDP is sure indication that we will be doomed to donor dependency far into the future.
pbusharizi@newvision.co.ug
LAST week, dfcu Bank in partnership with the National Housing Construction Corporation (NHCC), launched an initiative, which will see the bank’s clients get 100% mortgages to buy NHCC houses.
Ordinarily, a house buyer would put down a mandatory deposit of up to 30% of the value of the house before he can qualify for a mortgage. But the new arrangement means that the intending house buyer will get all the money from the bank.
This is a useful development as it takes away one more barrier, the down payment to qualify for a mortgage, to house ownership.
But at 16%, interest rates remain very high and give little incentive for the ordinary Ugandan to break away from continuing to build their houses brick-by-brick.
The need for quality housing is critical as there is a shortage of about 50,000 houses in Kampala, a figure that is growing annually.
By activating the mortgage market, this can stimulate demand and boost the real estate development industry.
Across the border from us in Kenya, lawmakers are putting finishing touches to a piece of legislation that will see intending homeowners use their pension contributions to guarantee mortgages.
Initial indications are that under the initiative, Kenyans will be able to buy houses of up to sh125m. They will be allowed to use 25% of their pension contributions to offset the down payment and then pay only interest over the duration of the mortgage. This will greatly reduce their monthly payments. The principle for the mortgage loan would be paid on retirement. Apart from speeding up the acquisition of a personal house, individuals will be able to beat the inflation on housing prices, which are currently doubling every five years.
For the industry, this single stroke will unlock an estimated 10 times the amount of money lent out last year by the leading mortgage provider. The knock on effect is that Kenya will be far along their way to bridging a 120,000 unit deficit in housing in the country once this law comes into effect.
As a consumer of local labour, raw material and related services, a vibrant housing industry can act as a dramatic spur to the economy.
In addition, by activating the mortgage market, the urgency for local mobilisation of long-term funds will be appreciated. Following from the above, the benefit for the economy in job creation, trade and deepening of the financial sector is self evident. In addition, home owning populations are a qualitatively better people in terms of their ability to appreciate private ownership, hold a long-term view about their future and have a tangible stake in the continued stability of the nation.
Reading an international investor’s analysis on investment in China recently, I noted that Chinese savings are 40% of GDP and this suggested that not only is there a large pool of local resources ready for deployment but also that this is a citizenry that are committed to their country beyond barely felt national anthems and mottos.
We rationalise the East Asians’ ability to save as due to a culture of thrift handed down from generation-to-generation, but you can be sure the governments in those parts do everything to encourage this phenomenon.
At one time, Singapore’s workers saved as much as 42% of their income in legislated pension and mortgage schemes.
Encouraging the mortgage market is a sure way of driving up local savings.
No country has ever effected meaningful development without raising its national savings.
Our current savings rate of 7% of GDP is sure indication that we will be doomed to donor dependency far into the future.
pbusharizi@newvision.co.ug