Market Conditions for Housing Loans in Uganda Annika Nilsson Ph.D student Centre for banking and finance (Cefin) Royal Institute of Technology, Sweden
Background In developing countries the majority build their houses incrementally over a period of some years Some use small short term loans In Uganda, like in most developing countries, less than four per cent of the population can afford/qualify for a long term mortgage loan Purpose: Could the group of people building incrementally with the help of small loans be part of the mortgage market? Survey in Kampala, Uganda Potential demand of mortgage loans Actual demand of mortgage loans
A common example
Data collection: Centenary Bank in Uganda: one branch randomly selected in Kampala. Centenary Bank selected due to its popularity, the fifth largest bank, and way of screening and enforcing contracts Three and a half weeks survey: December-January 2010-2011 ALL clients applying for a loan that was going to be used for housing or land were asked to fill in the questionnaire Response rate: 63%. 67 out of 107 clients filled in the questionnaire Approved: 82% of total sample. 76 % of men and 88 per cent of women.
Mortgage loan Home improvement loan Salary loan Housing Finance, DFCU, Stanbic etc. Centenary Development Bank Interest rate 16% 18-22% 19 % Repayment period Forcelosure Income Loan amount Max. 20 years After six months of failing to pay back is the security gone Monthly repayment not exceeding 40% of formal salary - Residental units 80% Loan to value ( LTV ) -To complete construction 50-70% LTV Average loan: ca UGX 100-200 Max. 3 years The bank do everything to get the client to pay back Good source of income, formal and informal. Good relations with the bank. Minimum loan amount: UGX 100,000 Maximum loan amount : UGX. 30 000 000
Potential demand for mortgages among short tem lenders Gender: 40% are women Age: 37% 26-35 years, 24% 36-45 years Employment: 72% regularly employed (62% of men, 85% women) Education: 83% have a University degree (66 % bachelor degree and 16 % a masters degree) Land ownership: among those owning land since before (62%) do 73% have a land title that is acceptable as collateral for long term mortgage loan. 22
Short term loans for incremental building Use of the loan: Most, 66%, apply for a loan in order to buy land. Women want to buy land to a higher degree than men, 84 and 55 percent respectively. According to WB study do women only own 7 percent of registered Uganda (Ellis et al., 2006) Other financial sources: Mainly savings, around 80%, few had taken other loans, no loans from friends, relatives, very few inheritated land and house Demand for short term loans: The majority (42 per cent ) want to cover 30-50 percent the cost of their housing with short term loans Estimated time to finish the house: The majority estimate it will take three years to finish their house
Actual demand for mortgage loans: Have you applied before or will you within three years from now apply for a larger long term mortgage loan? % Total sample Regular job Women Men YES 5 7 8 3 NO 54 58 54 54 Do not know 41 36 37 43 Answered 63 45 24 37 Not answered 4 3 2 2
Why haven t you applied neither want to apply for a mortgage loan? Total Regular job Women Lack land as security 3 4 8 0 Income to low 27 36 33 25 Afraid loosing title if can t pay back in time Afraid loosing title due to corruption in Land Ministry 24 24 25 25 0 0 0 0 Too complicated 61 60 42 70 Bad credit history 0 0 0 0 Other reason 21 16 42 10 Answered 33 26 12 20 Not answered 1 0 1 0 Men
Final discussion Potential demand for mortgages larger than actual demand Lack of collateral not the main binding constraint to take long term mortgage loan Too complicated to apply for a mortgage loan Income too low Fear loosing title if fail to pay back in time (foreclosuring process) Market institutions available (banks) but not a strong legal system protecting borrowers
Cont. final discussion Access to finance increases women s ownership of land 40 % of respondents in this survey are women. 84% of women are going to buy land. Women holds 7 per cent of registred land titles in Uganda. 9 % of all credit in Uganda goes to women.
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