The cost of raising finance for real estate projects has always been a subject of hot debate in Uganda, because while countries like Kenya and Ethiopia have various options for Housing finance, Ugandan developers continue to depend on very expensive money coming from banks or that from abroad, which is cheap in terms of interest rates but gets expensive due to the volatility of the country’s exchange rate.
Speaking during the Africa Cities and Urban Development Conference held in Kampala Parity Twinomujuni the CEO of National Housing and Construction company said that the repayment period for loans from Banks is usually 5 years and they can only get a 2 percent reduction from the Prevailing market interest rates, he also pointed out that the sale of houses they construct being tax exempt also increases their cost, because being VAT exempt means they can’t inturn claim VAT on inputs during construction, this he said would only reduce their costs if instead of being VAT exempt the Minister instead made them Zero VAT rated, allowing them to claim VAT on inputs.
Mr Twinomujuni also lambasted what he called ‘’ Parasitic institutions’’ which benefit from the developers work ‘’you pay for power lines, roads and water to be extended to your project, then these companies come and started collected monthly user fees off infrastructure they didn’t establish, we should instead be working together, that way we can also bring down the costs on our side’’ He said.
This is one of the reasons even what should be low cost houses are priced higher than what the target market can afford, he gave an example of the country’s Naalya housing estate which was constructed by the National housing and Construction Company as a low cost housing project but on completion, people with high income occupied the houses.
The cost of what should be a low-cost house in Uganda that is a basic stripped two bedroom apartment is 15,000 dollars a price way above the country’s urban poor.
Housing not a Priority
According to the world bank, Every dollar invested in housing has a multiplier effect of 5-12 dollars in terms of investment, taxes and employment, however Listening to the country’s Budget reading, one can easily get the idea Housing is not a priority in Uganda, however the country has a housing deficit of 1.5Million according to official statistics from the Uganda Bureau of statistics and 200,000 of this deficit is in urban areas and 100,000 of these houses will be needed in Kampala.
Data from National Housing and construction company shows that about 11% of the people in rural areas live in houses that can be referred to as permanent, all these statistics would be a call to action for the Government, however the country’s Minister for Lands and Urban Development Hon Daudi Migereko the country has just finished drafting a housing policy and will be drafting a real estate law, Mr Parity Twinomujuni however would rather government started subsidizing housing in the country instead of leaving everything to market forces, this he says is the reason houses in Uganda are priced beyond the target market as is the case with low-cost houses.
The path to affordable housing.
Recently at the Housing conference, the country’s pension provider National social security fund offer a 40 billion shillings guarantee to developers, offering to buy the houses they construct from the money coming out of this guarantee at 150 Million shillings each which is still high because NSSF also needs to make a profit, so if it is buying a house at 150 million shillings,(40,000 dollars) it will end up selling the house at 200 million shilling (50,000).
For housing to be affordable the monthly mortgage installment should not be above 30% of the mortgagee’s income, because anything above that according to Mr Twinomujuni will lead to mortgage defaults and drop out in house bookings. This however is impossible as of now because while those who need affordable housing are staying in the city, the available affordable housing can only be out of town due to the cost of land in the city among other factors.
Calling the pathway to affordable housing a political issue, Mr Twinomujuni called on Government to review the VAT policy on house sells from Tax exempt to Zero rated that way allowing companies to register for VAT and claim refunds on inputs. He also called on Government to look at liberalizing the pension sector so Developers can have access to cheap money and long term financing for projects this he says will bring down the cost of housing in the Country, however Joseph Lutwama the Director of Planning at Uganda’s Capital Market’s Authority disagrees, he argues that cheap money and financing options are already available through products on the country’s Capital Markets , it’s the developers who don’t want to look at them as an Option.
Charles Nsamba the Communications and investor Education Manager at the Uganda Capital Market’s Authority says asset backed securities are a good vehicle ‘’but just like many other products in the capital markets, it’s not that these guys are not totally aware’’ he says that some developers do not seek to find this information, and while others are scared of the capital markets requirements, such as good governance and disclosure. Charles also says that the country’s Capital Markets Authority is in the process of Developing Real estate investment trusts which would help real estate developers raise capital through the capital markets while also giving investors and savers access to real estate investments.
The Hope for Cheaper housing lies in the hands of Pension funds like NSSF whose savings would be one way to provide access to cheap finance for developers; however developers insist government must play its role, reduce taxes and subsidise the big projects because the country still has a housing deficit of over 500,000 units.