Rent or own your home?

Let us assume the cost of your home is UGX 150,000,000. If you borrowed the entire sum at the
market mortgage interest rate in Uganda of 18% per annum over 20 years (240 months), your
monthly mortgage is UGX 2,314,967. In addition to the mortgage, there are extra costs to owning a
home: periodic painting, plumbing, electrical repairs, replacing broken fixtures, pest control, and
landscaping. These costs may average UGX 200,000 a month. The total monthly cost of owning this
home amounts to UGX 2,514,967. The maintenance, as mentioned earlier, is typically delegated to a
landlord if one opts to rent.

If you purchase the house without a mortgage, you still have to consider the opportunity cost of not
placing the funds in risk-free investments such as treasury bills, which provide pre-tax returns of
about 12% per annum. Interest income would be foregone.

The bulk of payments made during the first half to three-quarters of a 240-month mortgage go to
interest. The owner derives minimal additional equity each time they make a payment during the
initial period. Besides, Uganda's home prices tend to appreciate a paltry 2 – 3% a year, depending on
the neighborhood. The gain from the home's appreciation, which is saddled by inflation, is not a real
incentive.

One can rent a house or apartment of equivalent value, UGX 150,000,000, in the greater Kampala
area (Najera, Kira, Kyanja, et al.) for a monthly rent of UGX 600,000. The difference between UGX
2,514,967 and UGX 600,000 is UGX 1,914,967. One can use these monthly savings to invest in
treasury bills and enjoy interest income. In other words, on the surface, it appears that it makes
more sense to rent versus own your home.

Why then would one choose to own a home in Uganda? Beyond the utility derived from the sense of
achievement upon owning your home and freedom to make modifications on the house without
seeking approval from a landlord, a critical factor that favors homeownership over renting is the
unpredictability of future cash flows in our banana republic. Job loss, disability, political instability,
and potential hyperinflation are all plausible causes.

The world is battling the ongoing effects of COVID 19. Several businesses and nonprofit organizations
have responded by shrinking their workforce. A family that has suffered job loss but owns their
home is naturally in a better position than renting. One may argue that an individual renting would
have savings by having done so and can utilize those during a short-term job loss. However, what if
the short-term extends to "long term?" What happens if there is a triple whammy as seen in
Zimbabwe, which simultaneously experienced heightened unemployment, political instability, and
hyperinflation a few years ago? Libya, Tunisia, Egypt, Yemen, Somalia?

One may rightfully argue that a family with a mortgage may lose their home to the bank during a
period of negated cash flow. True. On this basis, given Uganda's unique market dynamics, the better
option is for you to buy a plot of land, not buy a house using a mortgage, and build incrementally –
brick by brick. That way, when times become tough, the worst-case scenario would be for your
family to pitch a tent, literally, on your piece of land and still benefit from the shelter that you OWN.
Begin your journey today to homeownership!

Authored by Jaffar Tonda (MBA, MAM), Director Synergy Properties – a leading real estate developer
with a focus on incremental housing.