Mortgage Market in Uganda is still in its infancy due to lack of regulation

By Sam Stewart Mutabazi

The Housing Mortgage Market in Uganda is less than 2% of the country’s GDP. This is very low even by Africa’s standards. Housing Finance Bank and Stanbic Bank are the only financial institutions providing long term mortgages in the real sense. Even then, their terms are very restrictive and their interest rates scandalous. Banks in Uganda are not ready to commit their capital to long term ventures. Private sector is timid when it comes to large scale investments in real estate. So what is the alternative?

The market needs to be organized and regulated by government to create a semblance of stability. This will attract genuine investors with long term perspective. Housing development needs long term financing with low interest rates. Lack of it means that people struggle for years to build houses. Even when they do, the houses are of poor quality and not built according to plan. In the absence of long term financing citizens use their meagre incomes to put up small units which are poorly constructed.

The working class who earn slightly more than the average class may be able to build somewhat better houses compared to low income earners who struggle to complete the houses in a short period. In fact, various studies have indicated that it takes average income earners up to ten years to complete a house compared to three years for those that access mortgages.

When the mortgage market is well organized, it can stimulate the housing sector leading to not only orderly development but also quicker housing construction. Additionally, banks that offer mortgages can extend professional advice to their clients on how to better utilize the mortgage in order to get quality housing.

The limiting factor today about the mortgage market in sub Saharan Africa is that there isn’t aggregation of resources which would be made available to the borrowers over a long period of time. Only a few banks are able to provide mortgages. Even those that are doing so lend at very prohibitive interest rates and with uncompetitive terms and conditions. Banks tend to be timid about locking their finances in long term ventures like housing. Besides, they fear the borrowers may not be able to pay back the loans leading to loss on the part of the bank.

According to Bank of Uganda, the default rate on loans by borrowers is still high in most countries especially among the informal sector due to the fluidity of its operations. Citizens in the informal sector tend not to posses permanent addresses and are difficult to trace in case of defaulting on their loans. Yet this is the category that would ordinarily need the mortgages. Furthermore most of them are not credit worthy as they may not posses any form of collateral to be used in securing the loan.

Government of Uganda has in the recent past started on updating the national identification database which when complete would go a long way in helping identity credit worthy individuals which the banks can use in giving out loans and mortgages. The Credit Reference Bureau (CRB) will also come in handy as banks get to access the national information database of all the citizens before giving them loans.  In the meantime however, the private sector will need to come together to mobilize the market as they wait on government deliberate intervention.

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