The challenge of housing in Uganda

Sunday, 16th January, 2011	E-mail article   Print article
Dilapidated houses at Naguru housing estate. Tenants have refused to vacate the estate for redevelopment By Paul Busharizi THIS week the High Court threw out a petition by Naguru housing estate tenants to block their eviction by the Government. The Government has offered the area to developers planning a satellite city on the more than 150 acres of prime land. It is claimed that there are 100,000 residents of the area. Related to this issue is the often bundied-around number that there is at a least a 50,000 house deficit in Kampala alone. To put this in perspective, this is the equivalent of about 60 housing estates the size of Bugolobi flats. It is no secret how we fell behind in keeping up with the country’s accommodation needs. Housing is a long term investment that cannot be encouraged by the social and political unrest of the 70s and 80s. It is baffling why with such pent up demand, the private sector has not jumped in more aggressively to bridge the deficit. National Housing Construction Corporation has only recently got some private sector interest on board, but shackled by the structural deficiencies of the environment, are trudging along as best they can. The challenge for many home -builders and real estate developers is of access to affordable finance. Mortgages rates run in double digits, ensuring that assuming a generous 15% interest over 15 years, you will end up paying more than one-and-a-half times in interest than the original principal. The banks in their defence point out that with official interest rates at under 10%, it is unrealistic for them to charge any less, seeing as they load their administrative costs, risk and margins on this benchmark rate. In addition, the banks are suffering a shortage of long term funds and by the law of supply and demand means these funds will come with a built in premium. Aside from those among us who can out of pocket put down billions of shillings in cash to develop property, many developers have found a way around high lending rates, borrowing in hard currency, which allows interest rates of as little as 5%. The challenge would be the exchange risk – the chance that the shilling can lose value against the dollar, forcing up your finance costs in shilling terms. They mitigate against this by charging tenants in dollars, a temporary measure that has persisted longer than it should. The day a big-time developer finds a way to hedge against exchange risk and charge in shillings, the market will be irreversibly changed. Who thought for instance that 14 years ago we would be paying for air time in shillings? The issues dogging real estate development, therefore, are mainly structural and can be addressed by our planners. To begin with, giving credit where it is due. The decision in the 80s not to impose rent controls must be lauded. Were rent controls imposed, there fore discouraging new investment in the sector, our housing situation would be far worse than it is now. Seeing how National Housing most recent projects in Kiwatule and Namugoona were snapped up, it is clear that there is no lack of demand for new developments. The challenge then for the Government is encourage developers. One way is to underwrite the laying out of infrastructure – roads and utilities in big housing estates. This will not only lower the cost of development, but also lower the cost of the individual units. In addition, we need to get the pension sector reform out of the way. By allowing other players beyond NSSF to collect workers’ savings, we will boost the pool of long-term savings in the financial sector for on-lending to developers, and for mortgages. Running concurrently, the Government needs to streamline the land tenure system and its administration, as well as create greater efficiency in our court systems to tackle issues of foreclosures and land. I like Equity Bank’s attitude. The management starts from the principle that everybody has a right to financial services and then work backwards tailoring products for anybody and everybody. Their success in Kenya, where they control more than half the bank accounts, speaks to the success of this mindset. Let us commit to the premise that every Ugandan has a right to decent accommodation and work backwards to effect this. Construction is already one of the main drivers of the economy because of its ripple effect through job creation and market for local produced materials. On a more intangible level, improved housing improves the emotional wellbeing of populations and reducing the risk of instability.