New law eases home ownership

Savers who have been members of a retirement scheme for at least 10 years can now borrow from financial institutions against up to 50 percent of their accrued benefits, but only for housing development.

The offer is provided in the Uganda Retirement Benefits Regulatory Authority (Assignment of Retirement Benefits for Mortgages and Loans) Regulations, 2022, which Finance minister Matia Kasaija, the sector political oversee, launched in Kampala yesterday.

The retirement schemes, whose members are eligible, should be registered and supervised by Uganda Retirement Benefits Regulatory Authority (URBRA).

Section 5 of the Regulations on eligibility criteria provides that “a member is eligible for an assignment under these regulations where he or she has been a member of a retirement benefits scheme for not less than 10 years”.

However, out-of-job members and retirees can stake a proportion of their accrued benefits for mortgage or housing loans without having to be members of a retirement scheme for a decade.

“Apart from the prospect of decent housing, members will also get to use their benefits without necessarily drawing down. Indeed, these regulations are not about premature access to retirement benefits,” URBRA chief executive Martin Nsubuga tweeted yesterday.

At the launch, Minister Kasaija said “the key objective of the regulation is to ensure that retirees have decent shelter so that they don’t suffer homelessness and indignity.”

He added: “Research shows that when members receive their lumpsum pay-out of retirement benefits, they spend up to two-thirds of the package constructing retirement homes. They tend to use up their benefits sometimes without even completing the construction. This leaves them with neither cash nor shelter.”

Sections of the public welcomed the regulations, which operationalise some provisions provided URBRA Act 2011, as a relief, but expressed worry that high commercial loans interest could wipe out one’s savings during debt settlement.

Anticipated risk

There is also the risk that a dash to borrow against the savings, as mass withdrawal of benefits under the National Social Security Fund (NSSF) mid-term access has shown, will leave savers with little benefits to live decently in old age where failing health and dried-up income stream make demand for cash more urgent.   

The regulations provide that beneficiaries will be able “to assign up to 50 percent of their accrued benefits as security for a mortgage or loan for purchasing a residential house before they reach retirement, which in essence reduces the pressure on their retirement benefits.”

The lender or mortgage institutions specified in the rules include commercial banks, micro-finance deposit-taking institutions and an institution providing residential house facilities recognised under written law.  

The regulations define a member to mean a “person who is admitted to the membership of a retirement benefits scheme, who makes contributions or on whose behalf contributions are made to a retirement benefits scheme”.

URBRA chief executive Nsubuga yesterday told this newspaper that the regulations had been issued on the back of a two-year engagement with different sector players, among them, pension and retirement schemes, banks and government.

“Many people end up retiring with lots of money and only begin to build their homes. What we are saying is that can you use your retirement money as a collateral to get a mortgage,” he said, noting that in principle, this will help savers to build while in service

Housing shortage remains a key problem in a rapidly urbanising Uganda, with the government estimating housing unit shortfall in millions. 

Officials said land values fuelled by speculative pricing and high demand mean majority Ugandans cannot easily at once mobilise resources to buy plots, or develop them, without borrowing from either friends, relatives, banks or local savings groups.

Mr Richard Byarugaba, the NSSF managing director, yesterday said URBRA’s decision was a step in the right direction, noting that it would go a long way to benefit savers more than some earlier decisions such as the 20 percent midterm access. “We are big fans of the mortgage market and we have always wanted the people of Uganda to access the mortgage market because we believe utilising 50 percent of your savings as collateral is a much better use of your benefits than the 20 percent midterm,” he said.

Some members and experts in the past proposed that NSSF members be allowed to borrow directly from the Fund against their savings for fees, medical and mortgage, but Parliament eventually legislated the more popular midterm access.

Impact on NSSF

Mr Byarugaba, a former banker, said it was not immediately clear how the accrued benefits-mortgage arrangement will impact NSSF, or the pension sector generally, but added that they will work out the logistics and comply with the guidelines.  “This is going to unlock the full potential of Uganda’s mortgage industry,” he said.

In a 2016 interview, Mr Mathias Katamba, the then Housing Finance Bank managing director, who has since moved to dfcu Bank, told NTV that mortgage uptake had remained muted despite potential, contributing to the chronic housing deficit.

Uganda’s housing sector, according to Minister Kasaija, is characterised by inadequate homes in terms of quality and quantity in both rural and urban areas, which results into a housing deficit of 2.4 million units, of which an estimated 900,000 units are substandard, thus requiring replacement or upgrading.

Older persons, who constitute 4.3 per cent of Uganda’s population with more than 98 percent of them living in rural areas, he noted, are among the most affected by the housing crisis.

What public says

Kenneth Kyamanywa, UAP Insurance: I have not yet accessed the NSSF mid-term money because I have not reached 45 years. Hwoever even with this window I will have to think twice before I withdraw the money because I should plan for it. I have property in Masindi will need  a small push if I didn’t have this then I wouldn’t have gone for it but it will help me complete that project

Leo Kirunda, managing director BAT Uganda: I have always supported the culture of saving as exemplified by NSSF with the 20 percent midterm access. However, where they deploy that money matters for sustainability purposes given the current economic conditions. They should put it where they will get the best value for money. 

Josephine Nakibuuka, staff Jubilee Insurance: I am not aware about this opening, I know only the NSSF mid-term access 

Abiaz Rwamwiri, NDA spokesperson: The truth is we are in very tough times; the economy is struggling. The way people have been struggling to access credit, this gives relief but we should appreciate why we were saving this money. It is critical that any investment you are making projects into the future and you have afall back position it is important to access credit now think of where you are investing the money be calculative it brings extra money into the economy