Classic financing models

Policies and regulations

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China’s Housing Provident Fund (HPF) 

The Housing Provident Fund was trialled in China in 1991 and established as a national housing programme in 1994. Modelled on Singapore’s Central Provident Fund, it is essentially a housing savings scheme to promote home-ownership. Employers and employees contribute a certain percentage to an HPF account. Employees can get their funds for home purchase, or improvement, or self-construction at low interest rates (often one per cent lower than market rates). Therefore, rather than workers or employers building their housing they save for it and buy it on the open market and in theory it is compulsory for both public and private employees (before 2002 it was only public sector employees). The Fund is centrally controlled in terms of decisions, the setting of rates, etc, and money is held in the China Central Bank. Local governments, however, do the day to day running of loans.  

The challenge of affordable housing finance in Uganda 

2.2b

As a consequence of continued urbanisation and population growth Ugandan urban residential real-estate markets are emerging as strong and dynamic and there is notable interest from private sector developers to expand housing provision in cities. One major challenge, however, is that the existing housing finance sector is relatively small in relation to the housing needs of the country. Furthermore, the sector has principally been serving middle- and high-income households. Consequently, there is an acute need to address the housing finance demands of the majority of citizens through the mobilisation of funds for adequate and affordable housing.  

Formal micro-finance is gaining strength in Uganda but is weaker than in other African or Asian countries. Micro-finance institutions have had a limited impact on assisting the urban poor in Uganda where their lending policy is designed to work for the salaried middle-income workers and rural poor whose access to finance is based on their salary payments (for the former group) or land assets as co-lateral (for the latter group).  

Partly as a result of their limited access to formal banking finance and microfinance, several innovative saving and credit methods have emerged in urban informal areas such as family organisations, rotating credit societies and savings clubs. Their success is due to the fact that they are based on social ties and social capital, and are hence able to bridge the gap between incomes. Since many poor individuals cannot provide conventional collateral to ensure compliance with loan repayment responsibilities, these savings, credit, and cooperative societies issue loans on a revolving fund mechanism in which individual borrowers are not only responsible for the repayment of their individual loan, but also for the outstanding loans of other group members.  

The rise of such finance-orientated groups is partly a response to the shallow, narrow and generally underdeveloped Ugandan housing finance market. There are only five major finance institutions and their housing finance products remains prohibitively expensive for lower-income households. The housing mortgage terms are short and interest rates are high, as are down payment requirements that are sometimes up to 50 per cent of the total cost of the house. Such finance terms make formal housing finance prohibitively expensive for lower- and many middle-income households.  

The major challenge remains the need to scale up the innovative savings and credit mechanisms that have been shown to be capable of improving the livelihoods and living conditions of the poorest. While by themselves they will not be a panacea to the problem of large-scale affordable land and housing provision, they do highlight the potential ability for grassroots organisations to mobilise themselves and improve their financial circumstances through collective action.  

Unfortunately, as in many other African countries, in Uganda such approaches will perpetually remain underutilised if the regulatory land and finance frameworks remain weak and there is a lack of political will to implement supportive housing policies that can work with such finance approaches to increase access to affordable land and housing at scale.  

More information: 

UN-Habitat’s Affordable Land and Housing in Asia Report. Source: Source: https://mirror.unhabitat.org/pmss/getElectronicVersion.asp?nr=3225&alt=1     

UN-Habitat’s Affordable Land and Housing in Africa Report. Source: UN-HABITAT, 2011, Source: https://unhabitat.org/sites/default/files/download-manager-files/Affordable%20Land%20and%20Housing%20in%20Africa.pdf 

 

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