• Mon. Jan 17th, 2022

Rent-to-own Scheme as a Solution to Owning a Home

UGANDA, Kampala | Real Muloodi News | Owning a home, whether through purchase, self-build, is achievable by those who put forth the effort and commitment to realise their dream of homeownership. In Uganda, buy-to-build and build-to-rent/own projects are the order of the day. Why not consider the rent-to-own scheme as a solution to own a house?

Purchasing and self-building avenues require commitment and funds that are difficult to come by for most of the young population. To a greater extent, this has led to the increase in build-to-rent houses that are often single or double bedroom units, says Ivan Matthias Mulumba, the chief valuer at Buganda Land Board.

Such units are usually strategically located close to the city centre and are convenient for those with small families or who have just joined the employment or business world.

Kampala has the highest number of commuters, many of whom spend hours moving to and from their homes to work. The few who do not wish to waste time on the road prefer renting in areas close to their places of work.

Many Ugandans pay as much as USh36 million in rent annually, excluding utilities. When you compound the money paid in rent over time, one wonders whether they would spend such an amount in monthly deposits that would make them homeowners.

Such a deposit would be higher than what one pays in rent but would take them closer to homeownership. 

A rent-to-own scheme works best for tenants who cannot afford large initial deposits that would help them qualify for a mortgage. With high-interest rates on mortgages, rent-to-own would be a solution for many who can’t afford to build a home.

For an individual who can afford to pay USh1.5 million in monthly rent, it means they can spend as much as USh18 million annually on their homeownership account. The monthly rent of USh 500,000 would amount to USh6 million in a year. Mathematically, a rent-to-own scheme makes sense, and yet some property developers have not ventured into it. This makes us wonder what could be the problems with this arrangement?

Why Ugandans are not Venturing into Rent-to-own Schemes

The low levels of savings in Uganda point to our inability to commit to long-term projects, a factor that is important if a build-to-rent scheme is to bear fruit. If a total purchase amount for a house is USh70 million to be paid within eight years, one would need to save USh750,000 monthly for eight years. A Few Ugandans can consistently save such an amount for an extended period.

An assured source of income is another requirement for the rent-to-own scheme. With many Ugandans employed in the informal sector and with unstable earnings, developers shy away from a rent-to-own plan for fear of uncertainty.

We need finance to meet the demand and the supply of real estate. In the rent-to-own option, the high-interest rates determine the projected payback period that might not be achieved in the shortest time possible.

On the buyer’s side, when a tenant defaults on payments, the landlord can legally take over the property since they keep ownership.

Also, in the rent to own option, the tenant handles house repairs that are often done by the landlord, which makes it expensive for the tenant.

But should we give up completely, or should we give hope to the millions that seem destined to remain renters for life?

How Can Rent-to-own Work for Ugandans?

According to Mulumba, the solution is to bring down the cost of the house by either building on cheaper land, using materials that don’t cost much, or by constructing storied structures with multiple units to increase the number of residents per acre.

Another solution is to target the market of corporate clients or clients with stable sources of income who pay high rent.

Mulumba explains that a group of people can get a loan, buy land and build houses for themselves, and then contribute what they would have paid in rent to repay the loan.

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