MAKERERE UNIVERSITY

COLLEGE OF ENGINEERING, DESIGN, ART AND TECHNOLOGY SCHOOL OF BUILT ENVIRONMENT DEPARTMENT OF CONSTRUCTION ECONOMICS AND MANAGEMENT TOPIC THE EFFECT OF INTEREST RATES ON THE SUPPLY OF REAL ESTATE FINANCE IN

BY ATUKWASE POLLY 14/U/5637/PS

“A Research project submitted to the Department of Construction Economics and Management in partial fulfillment for the Award of a Degree of Bachelor of Science in Land Economics of University”

i

Scanned by i

ACKNOWLEDGEMENT

I thank the Almighty God for health and strength throughout my academic work. My gratitude goes to my family, my relatives and all those who have contributed to my success in one way or the other. I sincerely thank my Supervisor, Mrs. Hakiri Julian for her guidance, advice, support and for awakening my enthusiasm for carrying out this research study. I appreciate her for timely response and professional knowledge throughout the research period. A token of appreciation also goes to the respondents who gave feedback on the questionnaires on timely basis. I thank all my Course mates for their ideas, support and inspirations to actualize my dream.

To my sisters and brothers, I cannot thank them enough for their exemplary guidance and being on my side throughout my research work. My indebtedness appreciation goes to my mother for her motivation and assistance throughout the research work.

May the Almighty God protect and bless all of you for your tireless support. Our God reigns.

ii

DEDICATION

This project is dedicated to my parents, Mr. Kanyamurwa Francis and Mrs. Jolly Kyasiimire, and my brothers, Ronald Natukwasa and Innocent Bwengye not forgetting my Lovely sisters, for their social, financial and spiritual support throughout my education life and for laying down my academic foundation.

To my friends Anthony, Ivan, Ambrose and Max for love, development, motivation ideas and encouragement throughout the research period. To my Uncles and Aunts, I cannot find a better word to express my thanks to them. They have given me the discipline and drive to tackle this task with enthusiasm and determination. Without their love and support this project would not have been possible.

iii

ABSTRACT

The purpose of the study was to portray the effect of interest rate on the supply of real estate finance with a focus on Kampala. The real estate sector being one of the major sectors of the economy in has been largely affected by fluctuating interest rates. The study sort to show case this effect by showing how property developments are affected by the cost of borrowing, other available sources of real estate finance and the property developers attitude towards the fluctuating prices. Real estate is a large investment which requires huge capital that most ordinary Ugandans cannot raise, therefore they turn to banks to finance this cost of construction or purchase.

The cost of borrowing in all banks is driven by the real interest rate which is fuelled or largely accommodates inflation and political interplay in Uganda. Inflation is the key driver of interest rates. The banks are highly supervised and are under the obligatory role of the of Uganda which determines and controls the base lending rate accommodating all factors in the economy, based on this the commercial bank can then come up with their own mortgage rates or borrowing rates a few basis points from the Central Bank lending rate.

The research problem was analysed through the use of the simple user cost model. The target population of this study was the 9 top mortgage lending banks in Uganda as at March 2018, and 4 real estate developers as all were analysed to solve the research problem. Data for the purpose of the study was collected using data interviews guides in mortgage lending banks that have been running the mortgage product from 2010-2018. In addition, Questionnaires were also used on a sample of 4 property developers where 2 respondents from each company responded. Study findings indicated that when interest rates are lower, people are generally more willing to take out a mortgage than when rates are higher. Though higher interest rates typically mean a cooling of demand for real estate, since a purchaser will have a higher payment on the same property, the opposite is happening in the short term.

The following recommendations are made. Firstly, the government should play a more active role in control of interest rates through the Central frequent bank supervisions

iv and policy implementations as most commercial banks are out to fleece lenders and stabilize inflation through the implementation of tough monetary policies. Secondly, the property market should be controlled through a house pricing index to protect the rights of both the owners and the investors. Thirdly, the Real Estate Investment Trusts should start functioning as soon as possible so that real estate developers can borrow money at a cheaper rate in a bid to protect the interests of real estate investors. The study recommends that there is need for further research to be done on all the financial Institutions providing mortgage such as Life insurance companies and others because they also determinant mortgage interest rates and yet their rates are different from those of commercial banks. Furthermore, a research can be done to determine on the other forms of real estate financing and the determinants of the final market value of real estate products.

v

Table of Contents DECLARATION...... Error! Bookmark not defined. ACKNOWLEDGEMENT ...... ii DEDICATION...... iii ABSTRACT ...... iv LIST OF TABLES AND FIGURES ...... ix LIST OF ABBREVIATIONS ...... x CHAPTER ONE: INTRODUCTION ...... 1 1.1 Introduction ...... 1 1.2 Background of the study ...... 1 1.3 Statement of the problem ...... 2 1.4 The main Objective ...... 3 1.5 Specific Objectives ...... 3 1.7 Scope of the study ...... 4 1.7.1 Geographical scope ...... 4 1.7.2 Time scope ...... 4 CHAPTER TWO: LITERATURE REVIEW ...... 5 2.1 Introduction ...... 5 2.2 The concept of the interest rates ...... 5 2.3 Industry’s Driving Forces...... 6 2.4 Real Estate Financing ...... 7 2.4.1 Credit Unions ...... 7 2.4.2 Commercial Banks ...... 8 2.4.3 Life Insurance Companies ...... 8 2.4.4 Real Estate Investment Trusts ...... 8 2.5 Conclusions ...... 9 CHAPTER THREE: RESEARCH METHODOLOGY ...... 10 3.1 Introduction ...... 10 3.2 Research Design ...... 10 3.3 Study Population ...... 10 3.4 Sample size ...... 10 3.5 Sampling procedure...... 11

vi

3.6 Research Approach ...... 11 3.7 Data collection and techniques ...... 11 3.7.1 Primary data ...... 11 3.7.1.1 Methods of Data Collection ...... 12 3.7.2 Secondary data ...... 12 3.8 Data analysis and presentation...... 12 3.8.1 Coding ...... 12 3.8.2 Presentation ...... 13 3.8.3 Anticipated problems ...... 13 CHAPTER FOUR: DATA ANALYSIS, PRESENTATION AND INTERPRETATION ... 14 4.1 Introduction ...... 14 4.2 Analysis and Presentation ...... 14 4.2.1 Response Rate ...... 14 4.2.2 Questionnaires and Interviews ...... 14 4.2.3 Respondents Level of experience working in the bank...... 15 4.2.4 Respondents working experience in the Property development companies...... 15 4.2.5 Respondents involved in the process of finance acquisition...... 16 4.3 Sources of real estate finance ...... 17 4.3.1 Most used forms of real estate financing in Kampala ...... 18 4.4 How often people go for mortgage loans ...... 18 4.4.2 Types of loans people usually acquired ...... 19 4.5 lending factors affecting mortgage uptakes...... 20 4.6 Lending Rates ...... 21 4.7 Mortgage uptakes ...... 23 4.8 Combined Variables ...... 24 4.9 Data Presentation...... 26 4.10 Summary and Interpretations of the Findings ...... 28 CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ...... 30 5.1 Summary ...... 30 5.2 Conclusions ...... 31 5.3 Policy Recommendations ...... 32 5.4 Limitations of the Study ...... 33

vii

5.5 Recommendations for Further Research ...... 33 References ...... 35 Appendices ...... 38 Appendix 1: Interest rates Data 2010 to 2018 ...... 38 Appendix 1I: List of Commercial Banks and their Address...... 39 Appendix I1I: A Gant chart showing the schedule of activities ...... 40 Appendix IV. Budget estimates ...... 41 Appendix V. Request letter for data collection ...... 42 Appendix VI. Questionnaire ...... 43 Appendix VII. Interview guide ...... 45

viii

LIST OF TABLES AND FIGURES Table 1 presents data of the level of experience of the respondents...... 15

Table 2 ...... 16

Table 3: A table showing the most used form of financing real estate in Kampala ...... 18

Table 4 The extent to which people come for Mortgage loans ...... 18

Table 5. Shows the leading factors affecting mortgage intakes...... 20

Table 6: Mean average interest rates 2010 to 2017...... 21

Table 7. Mean Mortgage Rate League Table as at April 2018 ...... 23

Table 8 The Mortgage Intakes Index 2010-2018 ...... 24

Table 9: Interest rates 2010-2018...... 25

Table 10; Regression statistics ...... 26

Table 11 ANOVA test ...... 27

Table 12 Coefficient of regression analysis ...... 27

Figure 1 shows the level of response rate...... 14

Figure 2 below shows the response rate in percentages ...... 16

Figure 3: A pie chart showing other sources of real estate financing...... 17

Figure 4,A pie chart showing the type of loan by percentage ...... 19

Figure 5 Lending Rates Trend ...... 22

Figure 6: Relationship between Interest rates and Mortgage Sales ...... 25

ix

LIST OF ABBREVIATIONS

CBU Central Bank of Uganda

LVR Loan to Value Ratio

CBR Central Bank Rate

NHC National Housing Corporation

NHP National Housing Policy

PPP Private Public Partnership

RIETs Real Estate Investment Trusts

HFB

NPLs Non-Performing Loans

UNHABITAT United Nations Human Settlements Programme

Hon. Honourable

MLHUD Ministry of Lands Housing and Urban Development

x

CHAPTER ONE: INTRODUCTION

1.1 Introduction

This chapter presents the background of the study, statement of the problem, the main objective, specific objectives, Research questions, scope of the study and relevance of the study.

1.2 Background of the study

Kampala is one of the most populous cities in Africa and the best in East Africa in terms of cost of living. Based on the firm's website www.mercer.com as analysed between September and March 2016, Kampala was ranked 169th, in the whole world ahead of (184th), Kigali (191st) and Dares Salaam (198th), making it East Africa's most comfortable city1. Kampala District is made up of five divisions which are Central, , , and Divisions all with household number 418787 units and each with household average of 3.6 and a current estimated population of about 1.5 million (UBOS, 2016).

The current increased demand for dwellings has created a lucrative opportunity for real estate agencies, developers and other companies to join the business but since real estate development requires a lot of capital, the risk is also high. Based on the 2012/13 survey data, 19.7 per cent, that is 6.7 million of Ugandans are poor (Uganda Bureau of Statistics, 2014a). The high poverty levels as manifested in the rather low levels of household incomes estimated at US$ 150 p.a.

(Uganda Bureau of Statistics, 2014b). Dixit & Pindyck, (1994) stresses it that among all variables that might affect investment, interest rates changes have important implications for monetary and fiscal policies. The real estate market operates under the same pressures and forces that guide the rest of the markets. There are 6.5million Ugandans in the age group 18-30 years and these constitute 21.3% of the population which is evident that the demand for housing will rise steadily as those aged twenty years and below will reach adulthood and start family life2.

1 https://www.mercer.ca/en/newsroom/2016-cost-of-living.html 2New Vision Monday, November 20,2017

1

The shortfall is more acute among low income households whose present demand is about 48% of the total new constructions required in Kampala (“Uganda Housing Market Mapping,” 2013). In order to address this shortfall, there is need to balance between housing supply and demand. The Government needs to have several initiatives in place including direct development of housing, financing developers and other tax incentives. Companies or Individuals that want to acquire residential or a commercial houses, need to have ways of financing the construction of the buildings and this could be in form of mortgages through home financing institutions. As the population grows, there are factors that affect the provision of real estate finance among which is the Interest rate. With the banking and real estate sectors growing in Uganda, over nine banks are currently providing real estate finance though at varying interest rates due to the economic volatility in the country and this has somehow impacted the real estate industry. Interest rates can significantly affect the cost of financing and mortgage rates, which in turn affects property-level costs and thus influences values.

1.3 Statement of the problem

Kampala is the capital city of Uganda and inhabiting the highest number of people living in urban areas. Like other African cities after independence, Kampala experienced a rapid increase in rural-to-urban migration. “Roughly over 909,730 people, who translates to 60% of Kampala’s official total population, live in slums” (Habitat, 2014). This has had a negative effect on individual accessing long term amortized loans to develop homes on the land. The pressure of growing population does not match the supply of real estate and the demand for residential homes far outweighs the supply. Statistics shows the demand for houses in the cities in Uganda is over 200,000 units per annum compared to the supply of only 65,000 units per annum (UBOS, 2016).

Therefor while it is a dream for everyone to own a home, the prospects of getting one are sometimes based on the possibility of attaining the mortgage credit. This dream has not been achieved due to high cost of finance in Uganda caused by bank rates charges, high mortgage rates to consumers which stifle the supply for the real estate.

2

The dramatic increase in mortgage rate has been blamed for the housing crisis. However, the relationship between the two remains largely unexplained. With the current continued growth of banking sector and the real estate industry in Uganda, this study is aimed at filling the existing research gap by conducting a study in determining the effect of interest rates and supply of real estate financing in Kampala.

1.4 The main Objective

The research objective is to establish the effect of interest rates on the supply of real estate finance in Kampala.

1.5 Specific Objectives

The specific objectives of the study are:

 To identify the various sources of real estate finance and its suppliers.

 To determine the most used source of funding by the real estate developers in Kampala.

 To analyse fluctuation in the interest rates from 2010 to 2018

 To determine the extent to which interest rates affect real estate financing in Kampala.

1.6 Importance of the Study

The study is important to the following groups of people:- i. Investors The institutions that provide housing such as real estate developers, real estate managers, Insurance Companies and Pension funds which have become equity investors in housing projects will benefit from this study. They will understand how interest rates will affect their influx of capital into the real estate development in order to satisfy their needs for higher yield particularly in the development of new property. They will be able to make investment decisions. ii. Government and Regulatory Agencies. The study provides a good foundation for showing effects of interest rates and the supply of real estate as a means of enforcing good provision of housing to millions of Ugandans in Kampala. The government might also find the findings

3

of this study useful for informing regulations of the subsector to ensure fair competition and observe strict professionalism in this field. iii. Academicians and Researchers Real estate and interest rates is a major area of discussion and research and the study contributes by providing additional dimensions about the supply of real estate finance in Kampala. Scholar’s findings of this study could form basis for further research as well as adding to the body of knowledge in finance and real estate discipline. iv. The Central Bank. Being the regulator on the operations of Commercial banks, the study will inform the bank in formulating and process policies geared towards regulation of interest rates within the real estate sector. It will get to know how the real estate industry is affected by the change in interest rates.

1.7 Scope of the study

1.7.1 Geographical scope The sturdy shall be limited to Kampala District which is made up of five divisions which are Central, Kawempe, Lubaga, Nakawa and Makindye Divisions.

1.7.2 Time scope The study was conducted from September 2017 to 19th May 2018.

4

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

This chapter will provide an overview of previous studies, related data and studies that are related to financial leverage and stock returns. The chapter will also help the researcher to collect more data related to the effects of interest rates on real estate financing in Kampala. The remainder of the paper will be concerned with the results of numerous empirical studies that have been published during the past decades. The source of the literature will be the related journal articles, textbooks and the internet.

2.2 The concept of the interest rates

Interest rates is the amount the borrower must pay to the lender over and above the total borrowed expressed as the percentage of the total amount of the funds borrowed (Appelt, 2016). Mortgage financing refers to a loan secured by collateral of some specified real estate property that the borrower is obliged to pay back with predetermined set of installments (Bienert & Brunauer, 2006). An interest rate is the rate at which interest is paid by borrowers for the use of money that they borrow from a lender. Specifically, the interest rate (I/m) is a percent of principal (P) paid in a certain amount of times (m) per period usually quoted per annum (In et al., 2013). It is charged when the money is being borrowed, and paid when it is being loaned. The interest rate that the lender charges is a percent of the total amount loaned (Kimberly, 2012). It is the time value of money for the funds granted to borrowers in a specific period of time. Higher interest rates reduce the capital required to expand businesses, strangling supply and others. This reduction in liquidity usually slows the economy down (Kimberly, 2012). Interest rates act interchangeably between the lending institution and the borrowing institution. lower short-term interest rates tend to increase net interest margins and so lead to higher bank profits, which result in an improvement in bank balance sheets over time whereas Raising interest rates causes firms’ interest payments to increase, thereby causing cash flow to fall (Mugume, Okello, & Opolot, 2011). Since April 2016, the CBR has been reduced by 600 basis points to 11% in March 2017 and central bank is expected to further reduce the CBR to 10.0% hopefully by the June 2017 budget (Han, 2017).

5

Currently as of now the CBR is at 9.5% which was approved on 9th September, 2017. However, this has not swiftly impacted the commercial banks since they are reducing their lending interest rates sluggishly and the current average being 22%(Han, 2017). According to financial stability bank report, Uganda’s banking sector comprised of 25 commercial banks at the end of June 2016. However, 57.0 per cent of bank branches and 64.4 per cent of ATMs are located in the Kampala and Metro regions of Uganda respectively (Bank of Uganda, 2016).

2.3 Industry’s Driving Forces

Real estate is often used to refer to things that are not movable such as land and improvements permanently attached to the land (Capital & Limited, 2014). Real estate market is one that is characterized by almost predictable cycles of booms and busts (Seki, n.d.). In a financially under-developed economy with a limited supply of financial assets, housing becomes a natural investment option for currently productive entrepreneurs-they rationally anticipate a strong demand for such an asset by future generations. This sustains a self-fulfilling growing housing bubble, with growth rates significantly higher than the average disposable income during the transition despite very high returns to capital (Reserve et al, 2011).

The growth areas for residential housing, for both rent and sale, still remain in the Greater Kampala suburbs, mainly in , Wakiso District, and Kira Town. Land values in these areas are also steadily appreciating in line with this demand (Update & Sector, 2017). The government affects the supply and cost of real estate through zoning codes and other land use regulations, fees on new land development, and building codes that restrict methods of construction (Markets, n.d.). There are several housing delivery systems which have been used and these include provision of housing by the employer, National Government or the Capita City Authorities, tenant purchase, site and service schemes and self-help housing, private tenant housing and conventional and nonconventional housing delivery systems (Brueggeman, William &Fisher, 2011). According to the finance minister of Uganda Hon. Matia Kassaija while talking at the National Housing Conference in October 2016, “The government will partner with the private sector to set up more planned housing estates under the new national housing policy, which was launched earlier this month”(Update & Sector, 2017). A slowdown in the ratio at which demand is

6 growing nearly always portends mounting rivalry and increased efforts by some firms to maintain the high interest rates of growth by taking sales and market share away from rivals (Mintzberg, 2007). Industries significantly differ due to several factors that affect the attractiveness of the same, this may include the conditions of supply, the geographical setting, the degree of product differentiation, extent of vertical integration and the extent of economies of scale and the learning curve effects (Luffman et al, 1996). However due to the construction lead time, the industry may not be so attractive to investors who would wish for a quick conversion.

Su, (2010) observes that commercial real estate value generally exhibits a low correlation with other popular asset classes. In addition, an increase in nominal interest rates, for example, translates into an increase in the real rate of interest and the user cost of capital (Mugume et al., 2011). In other words, there has been an increased efficiency in financing as the local banks are heavily chipping in real estate and Infrastructure (Schwartz et al, 2006). For house prices and credit in the short run, they conclude that the relationship is one- way; a change in house prices causes changes in bank credit (Gerlach, 2005). This explains the Post-Keynesian theory of debt deflation taking a demand-side view, arguing that real estate property owners not only feel richer, but borrow against the increased value of their property.

2.4 Real Estate Financing

There are different ways of real estate financing; these may be governmental or commercial sources and institutions. Home buyer or builder can obtain financial aid from savings and loan associations, commercial banks, saving and Credit Unions, mortgage bankers and brokers, life insurance companies, and many others. Government officials acknowledge that current financing for housing is on the high side. “One of the challenges we have in the housing sector is the lack of long-term credit which is affordable and sustainable”,(MLHUD, 2016). The real estate financing parties include among others; 2.4.1 Credit Unions Credit Unions are cooperatives which provide financial assistance to people who share common bond to offer home loans among other .

7

2.4.2 Commercial Banks Due to changes in banking laws and policies, commercial banks are increasingly active in home financing. Commercial banks finance mainly residential property and a few commercial property developments. Financed residential property developments which are offered by all the 9 commercial banks include: (i) house construction, (ii) house completion, (iii) home improvement, (iv) purchasing of houses, (v) equity release and (vi) refinancing mortgage. Granting of loans is negotiable depending on the credit rating of the mortgagee and the quality and value of the houses to be built or purchased (Allen, Johnsen, & Massala, 2008). Mortgage uptake in Uganda stands at slightly under 10,000 homes notwithstanding the fact that several banks offer mortgage lending that is Housing Finance Bank has reduced its mortgage lending rates to 17%3. High interest rates have seen both property developers and home buyers affected, owing to the high cost of borrowing and this is one of the reasons why some mortgage loans have been defaulted. When lending to customers, the banks will add a margin of between 2% and 6 %, depending on the risk assessment of the project and the borrower (Kalema & Kayiira, 2011). In Uganda the non-performing loans (NPLs) to gross loans have nearly doubled over a period of the last 12 months rising from 3.8% in September 2015 to 7.7% in September 2016 (Han, 2017). Mortgages are given financing to cover 80% of the costs required to meet an individual’s housing needs. DFCU and HFB also provide up to 80% of the costs for big developers whereas other banks provide up to 70% (Allen et al., 2008). 2.4.3 Life Insurance Companies Life insurance is another source of financial assistance. They lend on real estate as one form of investment and adjust their portfolio from time to time. National Insurance Company (UIC) and ICEA have the package to deal in real estate in order increase their inflows and reduce on high risks associated with liquidity. 2.4.4 Real Estate Investment Trusts REIT’s are committed to real estate lending and can do serve the national real estate market. REIT’s are the only truly liquid assets related to real estate investments. Benveniste et al (2001) observed that REIT’s makes it easy to invest in real estate. Sharpe et al (1999) define REIT’s as an investment fund similar to an investment company whose main objective is to hold primarily real estate related assets either through mortgages, construction or development loans. REIT’s

3 http://www.monitor.co.ug/Magazines/HomesandProperty/mortgage-rates-high/689858-2862806-yfevu4/index.html

8 structure was designed to provide similar structure for investment in real estate as mutual funds provide for investments in stocks. The Real Estate Investment Trusts was approved in Uganda under Section 14, 30, 31 and 84 of the Collective Investment Schemes Act, 2003, Act No 4 of 2003 in 2015 (Collective et al, 2015).

2.5 Conclusions

Research has been carried out on various parts of the world in the area of real estate financing. The section has reviewed literature related to interest rates in relation to the real estate financing. The literature review has shown that response of the supply of real estate finance to the interest rate changes depends on the difference between the interest rate and the expected future income growth rate.

9

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

This chapter describes the research design and methodology that were used to carry out the research. It presents the research design to the study population, sample size and sampling procedure, data collection instruments, data analysis, validity as well as reliability.

3.2 Research Design

Research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevant issues for the research purposes (Kothari, 2004); otherwise as Selltiz et al (1962) says “it is a conceptual structure within which research is conducted”. It is also considered as a movement, movement from the known to the unknown (Creswell, 2009). This study is a descriptive research. Investigations were conducted and quantitative data collected and analyzed in order to describe the specific phenomenon on the current trend on supply of real estate finance and interest rates studying the linkages between the two factors.

3.3 Study Population

Population is a well-defined set of people, services, elements, and events, groups of things or households that are being investigated (Creswell, 2009). The population of interest in this study was obtained from the list of Commercial banks, real estate developers in Kampala, and other related fields. Real estate investors like companies and private individuals were included.

3.4 Sample size

The sample was culled from the mortgage lenders and consumers. A desired sample of 9 Commercial banks and these included Housing Finance Bank, , DFCU Bank Stanbic Bank among others were consulted and 2 officers in the loans section from each bank were interviewed using purposive sampling method. The researcher also employed the Convenience sampling technique to obtain required information from 4 real estate development companies around Kampala and these included, Arkright project Limited, National Housing

10

Cooperation, Universal Enterprises and Comfort homes Ltd. The secondary data was got from the selected banks and real estate agencies reports and publications.

3.5 Sampling procedure

Due to the large size of the population and other constraints, the researcher used both convenience and purposive selection to reduce on the size of the sample. This was opted for basing on the fact that the study targeted officials responsible for and in charge of loan distribution and real estate development.

3.6 Research Approach

The research approach can either be categorized into a quantitative or qualitative nature or a combination of both (Bhawna & Gobind, 2015). Both approaches were used in this study. i. Qualitative approach

This involves methods for capturing suitable entities that is people’s perceptions and feelings pertaining to the study. It is typically used to answer questions about the complex nature of phenomena, often with the purpose of describing and understanding the phenomena from the participants’ point of view (Leedy & Ormrod, 2001).

ii. Quantitative approach

This involves methods for capturing quantifiable data/information from which, results are statistically analysed. It is used to answer questions about relationships among measured variables with the purpose of explaining, predicting and controlling phenomena (Trochim, 2003).

3.7 Data collection and techniques

The findings of the study greatly depended on primary and secondary sources. 3.7.1 Primary data This data was got directly from the field. It was collected using questionnaires, interview guides and observation to some extent.

11

3.7.1.1 Methods of Data Collection.

 Questionnaires: These were given to the respondents who answered at liberty. . Questionnaires were designed in a format with closed-ended questions which were meant to make them easy, enjoyable and self-explanatory for real estate developers.

 Personal interview: This is an informal open-ended technique and involves direct and free discussion with the respondent. This was applied to credit and loans officers in the selected banks.

3.7.2 Secondary data The researcher read related literature relevant to the subject before and during the study (interest rates and loan acquisition and repayment) in commercial banking and obtained data from previous studies, text books, journals and reports from Bank of Uganda, real estate agents, developers and others.

3.8 Data analysis and presentation.

Data analysis is the process of developing answers to questions through the examination and interpretation of data. 3.8.1 Coding The responses in the questionnaires were coded for analysis using Microsoft Office tools, particularly Microsoft Excel and Word packages. The equation of the regression line can be expressed as follows: F(x) = mx + b Where; F(x) represents the Mortgage intakes x represents the mortgage interest rate b is a constant that denotes the Y intercept. Coefficient m describes the movement in mortgage intakes as a result of movement in the interest rates.

12

3.8.2 Presentation

The data was presented using written text, figures (graph, chart) and tables depending on the type of data under consideration and the intended output to be communicated.

3.8.3 Anticipated problems  Limited funds. A lot of money was anticipated to be needed to travel from place to place doing interviews and taking questionnaires which would be over demanding.  Scarcity of literature- it was anticipated that current information might be confidential and thus scarce which might affect the research.  Time constraints- it was forecasted that the time within which the study must be accomplished may prove to be inadequate and beside the researcher would be dealing with busy people.  Illiteracy, rigidity, hostility and honesty of target interviewees was anticipated to become the biggest problem since some people could be having a lot on their mind and some having problems with the interpretation of questionnaires.

13

CHAPTER FOUR: DATA ANALYSIS, PRESENTATION AND INTERPRETATION

4.1 Introduction

This chapter presents and discusses the data analysis, findings, interpretations and presentation of the study in line with the research objectives. The Research objective was to establish the effect of interest rates on the supply of real estate finance in Kampala. The data collection forms were received, data edited, coded and the findings were presented in form of tables, line graphs and pie charts. Descriptive statistics were used to select data of interest and these included frequencies, mean, standard deviation, and percentages.

4.2 Analysis and Presentation

Respondents filled in information relating to the various sources of real estate finance, the most used source of funding and the fluctuation in the interest rates from 2010 to 2018. Information on these is discussed below. 4.2.1 Response Rate Out of 18 interviews and 16 questionnaires distributed, only 32 were dully filled and returned translating to 94% response rate. Error! Reference source not found. shows the level of response rate. Figure 1. The response Rate

Response Rate

Interviews Received 47% 47% Interviews not Received Questionnairs Received 6%

Source: Primary Data

4.2.2 Questionnaires and Interviews The research considered 9 banks where 2 respondents were interviewed from each Bank and a total of 16 respondents complied while 2 from different banks never responded. In addition, 16

14 questionnaires were distributed to the targeted sample of 4 real estate development companies and all the questionnaires were received back fully filled.

4.2.3 Respondents Level of experience working in the bank The level of experience determines the level of knowledge and exposure to interest and real estate financing issues thus considered important. Table 1 presents data of the level of experience of the respondents.

Table 1 The respondents level of experience working in the Banks

Level of experience Frequency Cumulative Response in (Sample) frequency Percentage (%) Below 5 5 5 31.25 (5-10) 9 14 56.25 10 and above 2 16 12.5 Total 16 100 Source: Primary Data

From table 1 above, most of the respondents have worked in the bank for the period between 5- 10 years at yielding 56.25% of respondents, those below 5 years at 31.25% and the minimum number at 12.5% and these are the ones who had worked in the bank for 10years and above. It was found out that many bankers leave the banking section and join other businesses while others change profession which caused the number of respondents above 10 years to be minimal.

4.2.4 Respondents working experience in the Property development companies. The level of experience comes with a lot more benefits which include being conversant with the development procedures, processes and the approved cost cutting measures in the industry.

15

Figure 1 below shows the response rate in percentages

Respondents Experience

19% 31% 0-5yrs (5-10)yrs 10 and above 50%

From figure 2, most of the respondents are senior in the real estate development field and 0ver 50% have been in the same field for 5 to 10years, 31% are new entrants and have worked in the sector for less than 5 years and the Seniors in the sector were not very many since only 19% responded to the questionnaires. However, the little number showed on the senior developers was caused by several factors, the senior people were always busy thus not easy to be found. Others have decided to take up only supervisory roles and focus on corporate deals where by a lot of the beginning work is being done by the juniors. In a nut shell, commercial Real estate development is still a developing industry in the country.

4.2.5 Respondents involved in the process of finance acquisition. This number includes all the respondents from the bank since they were working in the loans sector and some from the real estate development companies as shown in the table 2 below.

Table 2 Frequency Percentage (%) Yes 28 87.5 No 4 12.5 Total 32 100 Source: Primary Data

16

From table 2, amongst the respondents who were approached, 87.5% had been involved in the process of real estate finance acquisition and only 12.5% had not been involved in any process of finance acquisition but they had knowledge about it.

4.3 Sources of real estate finance

According to the respondents, there are several ways of raising real estate finance other than relying on bank loans. In addition, the other sources of financing appear to be cheaper to those who embrace and can manage them compared to the bank loans.

Figure 2: A pie chart showing other sources of real estate financing.

Other sources of real estate financing

9% Owners equity 13% securitisation

9% Forward funding 65% Leasing 4% Others

Source: Primary Date

From Figure 2: A pie chart showing other sources of real estate financing.65% of the respondents suggested that owners’ equity is the most used form of real estate financing around Kampala, 13% suggested leasing, 9% forward funding and 4% Securitisation however respondents suggested that it’s a new form of funding and being in its infancy in Uganda. 9% represents other forms of funding amongst which the respondents suggested Partnerships, Grants and others are embracing the Public Private Partnerships (PPP).

17

4.3.1 Most used forms of real estate financing in Kampala As seen in Figure 3 above, the researcher still went further to determine the most used form of real estate Funding in Kampala and this is illustrated in Error! Reference source not found. below.

Table 3: A table showing the most used form of financing real estate in Kampala

Form of Funding Frequency Percentage (%) Owners’ equity 28 50 Leasing 3 5 Banks 14 25 Others 11 20 Source: Primary Data From table 3, above, 50% of the respondents proved that many real estate developers use owners’ equity to fund their developments, 25% proved that developers use bank loans as their source of real estate funding however many of them emphasized that it is usually at the beginning of the projects when finances are still very low. 5% who supported Leasing said that it is majorly applicable to big companies and the developers who have been in the industry for some time.

The researcher also tried to examine the focus of the 20% who supported others in order to determine which forms of financing were being referred to. In this case, Partnerships, securitization, public private partnerships and forward funding were outlined.

4.4 How often people go for mortgage loans

The researcher also went ahead to see how often people come for mortgage loans in the sampled banks and Error! Reference source not found. below shows the results collected.

Table 4 The extent to which people come for Mortgage loans

Response Frequency Percentage (%) so often 3 20 Often 5 33.3 Rarely 7 46.7 Total 15 100 Source: Primary Data

18

From Table 4, above, 46.7% of the respondents proved that people rarely come for mortgage loans however they stressed that they usually come for other loans and 33.3% pointed out that people often come for mortgage loans however, not all the numbers that come and apply reach the apex of acquiring the money. In addition, 20% showed that people so often come for mortgage loans. In this case therefore, the researcher was compelled to show which type of loans people usually come for.

4.4.2 Types of loans people usually acquired The researcher thought it was important to analyse the types of loans by percentage people are usually interested in.

Figure 3,A pie chart showing the type of loan by percentage

Type of loan by pecentage Mortgage Others Finance 10% 7% Agricultural Loans 25% Business Loan 38% School fees 20%

Source: Primary Data

Figure 3,A pie chart showing the type of loan by percentage above shows how people usually turn up in banks for loans and which type of loans they are interested in. Business loan is the leading type of loan with 30% of the total loan uptakes, Agricultural loans with 25% are the second in line and these are usually taken by all groups of people. School fees loans come in the third position taking 20% of the total loans taken and mortgage takes 7% of the total bank loans given out however this is so because of the very high incomes associated with the real estate development industry.

10% take other loans however according to the data collected, Salary loan is leading and others like youth loans, emergency loans and other short term loans.

19

4.5 lending factors affecting mortgage uptakes.

For mortgage institutions to advance mortgage loans, they require collateral as a security because in case of default, they can be able to dispose off the property and clear the mortgage outstanding amount. Mortgage institutions follow various steps and procedures before they commit to advance mortgage loans. They must ensure that valuation is done to determine the mortgage loan amount, title deed is charged against the mortgaged property, access the ability of potential homeowner, ensure that payment of legal fees, stamp duty , arrangement fees and mortgage property policy premium. All these affect the duration of the loan to be approved and authorized. The study revealed that however there are all those factors which very much affect the mortgage intakes in Kampala, the leading most factors are as shown in Table 5 below.

Table 5. Shows the leading factors affecting mortgage intakes.

Factor frequency percentage (%) High interest rate 14 29.2 Documentation 5 10.4 High taxes 8 16.7 Procedures 10 20.8 High down Payment 6 12.5 Others 5 10.4 Total 48 100.0 Source: Primary Data From table 5, 29.2% of respondents indicated that high interest rates are the leading reason why they are not running for the mortgage loans. 20.8% proved that procedures/protocol was long for one to get a loan which makes it less important for quick transactions. 16.7% confirmed to the researcher that taxes imposed on loans are too huge and with the high loan to value ratio (LVR), the borrower pays nearly half of unused money. 10.4% proved that documentation in the banks made it tighter for one to acquire a loan and still the process involves uncalled for expenses. 10.4% confirmed that there are other factors apart from the ones mentioned demoralising people from borrowing amongst those include LVR, Charges related to borrowing such as Valuation fees and legal fees.

20

Down payment represents the amount of money one has on their account taking into account the history of the minimum amount that the bank will have decided for a certain amount of loan. In addition, 12.5% of the respondents based their argument on this factor.

4.6 Lending Rates

The study computed interest rates as measured by percentage change over the period under study. The interest rate stood at 22.4% in 2010, using the 2010 interest as the base year. The interest rate increased to 24% in 2011. Furthermore, the interest rates decreased to 23.9% in 2012 and again fluctuated between 21.9% to 24.4% from 2013 to 2016 before decreasing by 1.5% to reach the 21.7% mark in 2017. This later reduced to 20.4% in 2018. These findings are illustrated in the Table 6: below. Table 6: Mean average interest rates 2010 to 2017

Year Mean interest rates (%) 2010 22.4 2011 24 2012 23.9 2013 21.9 2014 23.1 2015 24.4 2016 23.2 2017 21.7 2018 20.4

21

Figure 4 Lending Rates Trend

Mean annual interest rates (%) 25 24 23 22 21 Mean interest

interest rates 20 rates (%), 20.4 19 18 2010 2011 2012 2013 2014 2015 2016 2017 2018 DEC DEC DEC DEC DEC DEC DEC DEC MAR

Figure 4 Lending Rates Trendabove shows the trend in the annual lending interest rates for the commercial bank for the last 9 years. The final year housing Finance Africa market report4 of 2017 revealed the emergence of “break even” as banks took wider profit margins on the most recent Central Bank of Uganda interest rate cuts, rather than cutting rates to borrowers. Housing Finance led the pack as the most competitive mortgage lender, despite holding its rate at 21.4 per cent. Other banks have emerged offering mortgage rates of 22 to 23.7 per cent or higher on the same CBR rate. However, with mortgage rates now static in a range between 21.4 and 22 per cent have stimulated a revival in project finance. Marginally, the interest rates have remained rather decreasing consecutively in these recent months 2017 and 2018.

4 http://housingfinanceafrica.org/countries/uganda/

22

Table 7. Mean Mortgage Rate League Table as at April 2018

Rank BANK Mean interest rates (%) 1 Centenary Bank 23.6 2 Housing Finance 21.4 3 Stanbic Bank 23.6 4 Equity Bank 22.5 5 DFCU Bank 23.6 6 Bank of Africa 21.7 7 Standard Chartered 23.1 8 KCB 23.5 9 Barclays bank 22.1

The current information shows that some lenders cut rates to about 18%, several other lenders are charging more than 23%, resulting to most loans given at a 10 point or more spread over the Central Bank of Uganda’s rate of 9%. Centenary Bank offered 18 per cent and Housing Finance and Stanbic bank at 19.5 percent over the recent month of March. This short-term promotional rate is a new phenomenon. However, Stanbic bank is taking the lead position with the best high amount mortgage rate, on a cut from 20.2 per cent to 19.5 per cent. Despite claims of introducing Islamic banking, a few banks have already reacted and others are still waiting for the day. Equity Bank, Standard Chartered bank, Bank of Africa, KCB and DFCU Bank all are still charging in the rate on 21%. This represents an 11 point or more spread over the CBR of 9%.

4.7 Mortgage uptakes

23

This is one of the variables to test the supply for the real estate in the study. The trading economics represents all the mortgage sales on all property types in Kampala on annual basis for the period under study.

Table 8 The Mortgage Intakes Index 2010-2018

Year Average mortgage intakes 2010 DEC 145 2011 DEC 150 2012 DEC 170 2013 DEC 220 2014 DEC 240 2015 DEC 190 2016 DEC 260 2017 DEC 320 2018 Mar 350 Source: Primary Data

Index 1000 = 100 Table 8 The Mortgage Intakes Index 2010-2018, above shows the mean interest rates of the mortgages intakes for the period 2010 to 2018. The property values have increased 7.09 times since 2010. The middle market continues to ask for higher mortgages over the years as developers recover the extra costs of land, construction materials in markets where the demand remains solid. There is a trend across all the sectors of the market of households shifting to cheaper housing options. The shift comes against a backdrop of squeezed household budgets on inflationary pressures and near static pricing in housing.

4.8 Combined Variables

The study is out to establish the effect of the interest rates on the supply of real estate finance in Kampala. The two variables under study are tested against each other to determine their

24 relationship. The researcher found the annual mean of interest charged by the banks to test this against the mortgage intakes through mortgage.

Table 9: Interest rates 2010-2018

Year Mean interest rates (%) Mortgage intakes 2010 DEC 22.4 145 2011 DEC 24 150 2012 DEC 23.9 170 2013 DEC 21.9 220 2014 DEC 23.1 240 2015 DEC 24.4 190 2016 DEC 23.2 260 2017 DEC 21.7 320 2018 MAR 20.4 350

Table 9: Interest rates 2010-2018, above shows the mean interest rates versus the mortgage sales for the period 2010 to 2018. Figure 5: Relationship between Interest rates and Mortgage Sales

25

400

350

300

250

200 Mean interest rates (%) 150 Mortgage intakes

100

50

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 DEC DEC DEC DEC DEC DEC DEC DEC MAR Source: Primary Datales for the period 2010 to 2018. Figure 5: Relationship between Interest rates and Mortgage Sales above, it can be observed that there is a clear defined relationship between interest rates and the mortgage uptakes. The movement interest rates are fluctuating around the 22.4% mark in the year 2010 to 23.2 in 2016 before falling sharply to 20.4% in 2018. During this period, the mortgage intakes index has been gradually increasing from the index 145 in 2010 to index 240 in 2014 before increasing to 350 in 2018. This study shows there is a correlation coefficient between interest rates and the intakes.

4.9 Data Presentation

In this section, we used the historical data regression analysis to investigate the effect of interest rates on the supply of real estate financing.

Table 10; Regression statistics

Regression Statistics Multiple R 0.871 R Square 0.758 Adjusted R Square 0.718 Standard Error 7.425 Observations 8

26

Adjusted R squared is coefficient of determination which tells us the variation in the dependent variable due to changes in the independent variable, from the findings in the above table the value of adjusted R squared was 0.718 an indication that there was variation of 71.8% on uptake performance due to changes in interest rates at 95% confidence interval. This shows that 71.8 % changes in mortgage uptake could be accounted for by changes in interest rates. R is the correlation coefficient which shows the relationship between the study variables, from the findings shown in the table above there was a strong positive relationship between the study variables as shown by 0.871.

Table 11 ANOVA test

ANOVA Significance df SS MS F F Regression 1 26346.07 26346.07 18.80982 0.004891 Residual 6 8403.929 1400.655 Total 7 34750

The study found out in table 10, that correlation coefficient between interest rates and mortgage uptakes was R2 = 0.7178537034 and in table 12, that p = 0.004891, we can say that this model is 87.1% accurate. Since the p- value was lesser than 0.005 thresholds, the study concludes that there is significant relationship between interest rates and the mortgage uptake. As we know ANOVA test is used for analysis of variances or comparison for two or more variables.

Table 12 Coefficient of regression analysis Coefficient of Regression Analysis

Coefficients Standard t Stat P-value Lower Upper Lower Upper Error 95% 95% 95.0% 95.0% Intercept 1255.87269 235.1813 5.340019 0.001761 680.4047 1831.341 680.4047 1831.341

Average -44.616547 10.28735 -4.33703 0.004891 -69.7888 -19.4443 -69.7888 -19.4443 interest rate (%)

27

The table 12 shows coefficients of regression model which has been prepared above. This table shows the values of betas to include in an equation or model. The established regression equation was; Y = -44.616547 X + 1255.87269 From the above regression equation it was revealed that for every change in the interest rate there is a change in the mortgage uptake. In the above expression, for every increase in the interest rate, mortgage uptake decreases by 44.62 units. The study further revealed that the interest rate over long term was statistically significant to affect the mortgage intakes, as all the values were less than 0.05%.

4.10 Summary and Interpretations of the Findings

The study made use of secondary and primary data in analysing the effect of interest rates on supply of real estate finance. The secondary data was obtained from the published annual reports of selected banks and real estate property developers. The mode F-value which is significant at 1% level indicates that the model do not suffer from significant bias. However, the coefficient of determination (R2) indicates that a change in interest rate is accounted for by the explanatory variables while the adjusted r-Squared further justifies this effect. This invariably means that there is a strong relationship between the interest rates and the mortgage uptakes in Uganda.

To determine the relationship between the interest rates and real estate financing as specified in the research question, the study employed various techniques such as simple regression as well as line graphs. All the statistical tests for significance were done at 95% confidence level, therefore the threshold for the p - value was 0.05. The implication of the findings is that interest rates have significant impact on the mortgage intakes. As a result any change in the interest rates will have an effect on the mortgage intakes thus the supply of real estate financing.

In this case therefore, when the interest rate is lower, people are more likely to borrow money, as doing so will cost them less than at another time. Conversely, when the interest rate is higher, borrowing becomes more expensive and slow. This principle applies to loans that come in the form of mortgages. When interest rates are lower, people are generally more willing to take out a mortgage than when rates are higher. Interest rates are the rates at which money can be borrowed

28 for a set period of time. The higher the rate, the more money a borrower must pay in the form of interest on the loan. The Central Bank of Uganda sets a rate at which it lends money to banks and other financial institutions also known as the CBR. It still sets a limit to which banks’ lending rates should fall, which in turn affects the rate at which they lend to businesses and individuals, such as people seeking a mortgage and credit.

29

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 Summary

The main objective of the study was to establish the effect of interest rates on the supply of real estate finance in Kampala. The study hypothesized that supply for real estate was on the increase with the decline in the interest rates charged by the real estate financiers. The samples drawn from the population were broken into strata of interest rates on the supply of real estate. According to the findings by the researcher, it indicated a strong influence of the interest rates on the supply of real estate and mortgage intake. According to the data, the quantity supplied increased while the interest rates decreased. This is in line with the law of demand and supply. To establish the relationship of the two variables of capital gains and the interest rates, a correlation model was used. The correlation model showed a positive correlation implying a positive degree of association.

Mortgage lending by the banks for real estate purposes represents one of the smallest types of lending at present in Uganda, most importantly Kampala and this is because people resort to using their equity and other cheaper sources. Consistent growth in real estate financing can be explained by house prices which have been on the rising trend and the growth to access to credit not even forgetting the increased development of real estate in the country. Housing pricing plays major role in the investment of house owning, this has a direct impact on the sales levels. The study found out that interest rates and financing also depends on the property type such as Standalone houses, Town houses and Apartments. It also shows that factors that affect demand is the real disposable income which also connects to the capital cash flows, real interest rates after tax and real estate financing. This result suggests that supply of real estate finance is not triggered only by politics in the country, housing pricing, housing types, net disposable income but also the prevailing interest rates.

Financial institutions provide adequate information to potential homeowners thus there is flow of information hence reduction in cases of moral hazard and adverse selection. To boost performance of real estate market, the government has introduced RIETs, private public

30 partnership, use of pension funds is also being looked at to be used as security to access the mortgage finances.

5.2 Conclusions

From the findings, the study concluded that positive relationship exists between interest rate and real estate financing in Kampala. Real investors especially homeowners, focus on changing mortgage rates because they have a direct influence on real estate prices. However, interest rates also affect the availability of capital and the demand for investment. Real estate market has been used as a vehicle towards economic development. Performance of real estate is triggered by growth in population as there is adequate demand thus real estate participants provide housing units through mortgage financing and other forms. Due to presence of market imperfections, there have been economic bubbles and cycles and lack of information has led to two or various identical properties possessing different values and prices. The real estate values are influenced by the supply and demand for properties in a given locale and the replacement cost of developing new properties. These capital flows influence the supply and demand for property and, as a result, they affect property prices. In addition, interest rates also affect returns on substitute investments, and prices change to stay in line with the inherent risk in real estate investments. These changes in required rates of return for real estate also vary during destabilization periods in the credit markets. As investors foresee increased variability in future rates or increase in risk, risk premiums widen, putting increased downward pressure on property prices. The study set out to determine the effect of the interest rates on the supply of real estate finance and found out that more people are likely to borrow money when the interest rate is lower as doing so will cost them less than at another time. It was also evident that when the interest rate is higher, borrowing becomes more expensive and slows investment. Hence there was significant increase in the mortgage intakes matching with the drop in the mortgage interest rates. This principle applies to loans that come in the form of mortgages. When interest rates are lower, people are generally more willing to take out a mortgage than when rates are higher. Though higher interest rates typically mean a cooling of demand for real estate, since a purchaser will have a higher payment on the same property, the opposite is happening in the short term.

31

The study also found out that there was a positive relationship between the interest rates and mortgage uptakes. It can therefore be concluded that the movements of relative interest rates and mortgage uptakes are positively correlated, indicate conclusively that there is a relationship between the two. The conclusion of this causal study, drawn from the regression analysis is that there is clear defined relationship between the interest rates and mortgage intakes in Kampala.

5.3 Policy Recommendations

The study recommends that there is need for the monitoring of the capital flow. The interest rates can significantly affect the cost of financing and mortgage rates, which in turn affects property- level costs and thus influences values. However, supply and demand for capital and competing investments have the greatest impact on required rates of return (RROR) and investment values.

The study therefore proposes various policies to stakeholders. Firstly, the government should play a more active role in control of interest rates through the Central bank of Uganda by frequent bank supervisions and policy implementations as most commercial banks are out to fleece lenders and stabilize inflation through the implementation of tough monetary policies.

Secondly, the property market should be controlled through a house pricing index to protect the rights of both the owners and the investors and the government through the central bank should intervene and reduce the rates on Real estate financing in order reduce the high property prices.

Thirdly, the Real Estate Investment Trusts should start functioning as soon as possible so that real estate developers can borrow money at a cheaper rate in a bid to protect the interests of real estate investors. Fourthly, the mortgage lenders need to reduce procedures, documentation and also leas with government on the taxes being charged in order to encourage more mortgages intakes and home supply to the people.

32

5.4 Limitations of the Study

During the research work, various problems were encountered. The study was based on a sample limited to Kampala and the leading mortgage financial institutions (Selected commercial banks). It did not cover other mortgage financial institutions in the whole of Ugandan market.

Considering the high level of confidentiality and competition within the financial sector, it was impossible to acquire secondary data in form of management reports relating to the total mortgage uptakes within the prevailing mortgage rate which resulted to the researcher to work with the mean interest rate. This to some extent limited the scope of literature review.

Thirdly, the study didn’t receive 100% response level. Some respondents flatly refused respond to the questionnaires since they thought that the information will be used against them. They feared providing confidential information about their financial details on property. The inability to include more organizations to the research was a limiting factor. The study only sampled selected commercial banks whereas the study could have covered more institutions across all sectors offering mortgages such as the private public partnerships, Life Insurance Companies so as to provide a more broad based analysis.

The scope and depth of the study was also limited by the time factor and financial resource constraints which made it tedious. The time allocated for the study was insufficient while doing it together with other course units made it very much hectic. However the researcher tried to conduct the research within the time frame specified.

5.5 Recommendations for Further Research

From the findings and conclusion, the following for future research in finance and real estate were recommended. The study recommends that there is need for further research to be done on all the financial Institutions providing mortgage financing such as Life insurance companies and others because they also determinant mortgage interest rates and yet their rates and agenda are different from those of commercial banks.

33

It was also found out that politics in Uganda to some extent determine the interest rate and still affect the real estate industry. The researcher therefore recommends that for future research, this should be put to book and the existing relationship introduced. In addition, attitude of real estate developers towards mortgage financing affects performance of real estate market. Further research is recommended to establish this relationship

Furthermore, a research can be done to determine on the other forms of real estate financing and the determinants of the final market value of real estate products. This can give a scientific explanation of why specific prices are charged on a certain market value not the other.

34

References Africa, C. for A. F. in. (2012). Housing Finance in Africa: A Review of Some of Africa’s Housing Finance Markets. Development, 7(10), 441–448. Allen, C., Johnsen, V., & Massala Consult. (2008). ACCESS TO HOUSING FINANCE IN AFRICA : EXPLORING THE ISSUES Overview of the housing finance sector in , commissioned by the FinMark Trust with support from. FinMark Trust, 7(7), 1–22. Retrieved from http://www.housingfinance.org/uploads/Publicationsmanager/A2HF_Moz.pdf Appelt, K. (2016). Keynes‟ Theory of the Interest Rate: A Critical Approach. Club of Economics in Miskolc’ TMP, 12(1), 3–8. https://doi.org/10.18096/TMP.2016.01.01 Bank of Uganda. (2016). Bank of Uganda Financial Stability Report, (8). Bhawna, & Gobind. (2015). Research Methodology and Approaches. IOSR Journal of Research & Method in Education Ver, 5(3), 2320–7388. https://doi.org/10.9790/7388-05344851 Brueggeman, William B;Fisher, J. D. (2011). Real Estate Finance and Investments. Publish. https://doi.org/10.1108/jpif.2012.30.1.99.1 Capital, A. M. P., & Limited, I. (2014). Understanding Real Estate 2014. Collective, T. H. E., Schemes, I., Estate, R., & Trusts, I. (2015). The collective investment schemes (real estate investment trusts) regulations, 2015. Creswell, J. (2009). Research Design. Journal of Chemical Information and Modeling, 53(9), 1689–1699. https://doi.org/10.1017/CBO9781107415324.004 Dixit, A., & Pindyck, R. (1994). Investment Under Uncertainty. Investment Under Uncertainty, 1–17. https://doi.org/10.2307/1909571 Gerlach, S. (2005). Bank lending and property prices in Hong Kong, 29(December 2003), 461– 481. https://doi.org/10.1016/j.jbankfin.2004.05.015 Habitat, U. (2014). African cities 2014. Han, J. (2017). Korea Outlook 2017, (November 2016). In, S., Fulfillment, P., The, O. F., Of, R., Degree, T. H. E., Master, I. N., … Finance, I. N. (2013). THE EFFECT OF INTEREST RATES VOLATILITY ON THE GROWTH OF REAL ESTATE MARKET IN KENYA. Kalema, B. W. S., & Kayiira, D. (2011). Overview of the Housing Industry and Housing Finance Sector in Uganda, (June), 23–28.

35

Kothari, C. R. (2004). Research Methodology: Methods & Techniques. New Age International (P) Ltd. https://doi.org/10.1017/CBO9781107415324.004 Markets, R. E. (n.d.). The Nature of Real Estate, 1–17. MLHUD. (2016). Uganda National Housing Policy. Mugume, A., Apaa-okello, J., & Opolot, J. (2011). The Bank of Uganda, 4(1), 3–52. Reserve, F., Louis, S., Neely, C. J., & Weller, P. A. (2011). Research Division. Schwartz, A. E., Ellen, I. G., Voicu, I., & Schill, M. H. (2006). The external effects of place- based subsidized housing. Regional Science and Urban Economics, 36(6), 679–707. https://doi.org/10.1016/j.regsciurbeco.2006.04.002 Seki, B. S. (n.d.). Risk of a Housing Bubble Collapse in China Extremely Remote, XII(44). Su, J. A. C. H. (2010). for Bonds. Spring, 36(3), 117–130. Trochim, M. K. (2003). Research Methods, 5(3), 65–72. https://doi.org/10.3794/johlste.41.res UBOS. (2016). National Population and Housing Census 2014: Main Report, 84. Retrieved from http://documents.worldbank.org/curated/en/2014/07/20328140/results-based-financing- municipal-solid-waste-vol-2-2-main-report# Uganda Bureau of Statistics. (2014a). Uganda Bureau of Statistics Statistical Abstract, 1–305. Retrieved from http://www.ubos.org/onlinefiles/uploads/ubos/statistical_abstracts/Statistical Abstract 2014.pdf Uganda Bureau of Statistics. (2014b). Uganda National Household Survey 2012/2013. Uganda National Household Survey, 1(1), 230. https://doi.org/UGA-UBOS-UBOS-2012-v01 Uganda Housing Market Mapping. (2013), 1–88. Update, E., & Sector, S. B. Y. (2017). Uganda Market.

Bienert, S, and Brunauer, W. (2006). The Mortgage Lending Value: Prospects for development within Europe. Emerald Insight. October, p. 542 - 578. Podenza, Randall Johnston. (1988). The Modern Economics of Housing: ‘A Guide to Theory and Policy for Finance and Real Estate Professionals’. New York: Quorum Books. Porter, Mintzberg, (2007). ‘The Strategy Process - Concepts, Contexts and Cases.’(4th Edition). England Pearce Education Ltd.

36

Luffman, G.,Lea E, Sanderson, S and Kenny B (1996) Strategic Management (3rd Edition). Oxford Blackwell Publishers inc. Benveniste, L., Capozza, D.R. and Seguin, P.J (2001) ‘The value of liquidity’ Real Estate Economics 29, 633-660. Redman, L. V and Mory, A.V.H., (1923) ‘The Romance of Research’, P.10 Sharpe,

37

Appendices

Appendix 1: Interest rates Data 2010 to 2018

2010 2011 2012 2013 2014 2015 2016 2017 2018 ID BANK DEC DEC DEC DEC DEC DEC DEC DEC MAR Standard 1 Chartered 23 25.5 23.6 23 24 25 24.2 23 21

2 Centenary Bank 21 22 24 20 22 23 22 21 18

3 Barclays bank 23 24.5 25 22.5 23.5 24.3 24 23.3 22

4 DFCU Bank 22 24 23 22 23 23 23.3 21 21

5 KCB 24 25 25.5 22.5 23 25 24 22.5 21.3

6 Housing Finance 20.5 23.5 23 21 22.5 23.5 22 20 19.5

7 Equity Bank 23 24 24 22.5 23 25 23 22.6 20.5

8 Bank of Africa 23.5 24 24.2 23 24 25.5 24.3 22 21

9 Stanbic Bank 22 23.6 23.2 21 22.5 25 22 20.2 19.5

Total 202 216.1 215.5 197.5 207.5 219.3 208.8 195.6 183.8

Mean 22.4 24.0 23.9 21.9 23.1 24.4 23.2 21.7 20.4

38

Appendix 1I: List of Commercial Banks and their Address

BANK Address Standard Chartered Bank Uganda Ltd Plot 5 Speke Road P.O. Box 7111 Kampala Centenary Rural Development Plot 44/46 Kampala Road & Plot 2 Burton Street Bank Ltd P.O. Box 1892 Kampala Barclays bank Uganda Ltd Barcla ys House Plot 2 Hannington Road P.O. Box 2971 Kampala

DFCU Bank Ltd Plot 26 Kyaddondo Road; at the corner with Kafu Road Hill

KCB Bank Uganda Limited Commercial Plaza, Plot 7 Kampala Road P.O. Box 7399 Kampala Housing Finance Bank Investment House Plot 4 Wampewo Avenue P.O. Box 1539 Limited Kampala Equity Bank Uganda limited Plot 390 Muteesa 1 Road P.O. Box 10184 Kampala Bank of Africa Ltd Head Office. Address: Plot 45, Jinja Road. P.O. Box 2750, Kampala Crested Towers Short Tower Plot 17 Hannington Road P.O. Box Stanbic Bank Uganda Ltd 7131 Kampala

39

Appendix I1I: A Gant chart showing the schedule of activities

YEAR 2017/2018 Months SEP OCT NOV DEC JAN FEB MAR APR MAY Proposal writing proposal presentation Literature review Preparing data collection tools Data collection Data analysis Median term presentation Data compilation Final presentation Report submission

40

Appendix IV. Budget estimates

No. Item Quantity Rate(UGX) Amount (UGX) 1 Ream of papers 2 15,000 30,000 2 Pens 2 1,000 2,000 3 Note book 2 2,500 5,000 4 Photocopying 60 Pages 100 6,000 5 Scanning 10 Pages 500 5,000 6 Printing 200 Pages 300 60,000 7 Binding 10 2,000 20,000 8 Transport 3days @week for 6month 2,500 288,000 9 Airtime and data 50 days 2,000 100,000 10 Refreshments 2,000 100,000 11 Miscellaneous 80,000 Total 696,000

41

Appendix V. Request letter for data collection

MAKERERE UNIVERSITY

P.O. Box 7062 Kampala Uganda Tel +256-41-4545029 COLLEGE OF ENGINEERING, DESIGN, ART AND TECHNOLOGY

SCHOOL OF BUILT ENVIRONMENT

DEPARTMENT OF CONSTRUCTION ECONOMICS AND MANAGEMENT

LETTER OF INTRODUCTION

Dear sir/Madam,

RE: ACADEMIC RESEARCH

I am a student of Makerere University pursuing a Bachelor’s Degree of Science in Land Economics. I am conducting an academic research on the effect of interest rates on the supply of real estate finance in Kampala. You have been identified as a key source of information required in this study. Please kindly provide objective, truthful and complete information by answering or filling in the blank spaces provided. Kindly, note that the information that you provide will be treated with confidentiality and anonymity and will be used for the purpose of this study only. Thank you very much for your co- operation Truly yours,

Atukwase Polly

0782569432/ 0753298389

42

Appendix VI. Questionnaire

QUESTIONNAIRE TO PROPERTY DEVELOPERS. Please tick or fill in 1. Position of the respondent

a) Employer Employee

2. How long have you worked with this company?

a) Below 5 years

b) 5-10 years

c) Above 10 years 3. Have you been involved in any process of borrowing money for real estate development?

a) Yes b) No 4. If yes where was it being borrowed from?

a) Bank b) Credit Union c) Real Estate Investment Trusts(REITs)

d) Life Insurance companies

5. Real estate developers also use these forms of funding in development. (tick and answer) a) Owners’ Equity b) Securitization c) Leasing d) Others (specify) …………………………….. e) ………………………………………………

43

6. From the above forms of funding, which ones do developers usually use?

a) Owners’ Equity b) Securitization c) Leasing

d) Bank e) Others, specify ………………………………………… 7. Why do you think there are few people taking loans?

f) High Interest rate g) Documentation h) High taxes

i) Procedures j) Others, specify …………………………………………

8. To what extent do you think the interest rates affect the demand for the mortgage loans in Kampala.

Very high High Medium Low Less Tick

44

Appendix VII. Interview guide INTERVIEW GUIDE 1. How long have you been working in the Loans sector? ...... 2. What type of loans do people usually come for? ……………………………………………………………………………………………… 3. How often do people come for mortgage loans? …………………………………. 4. What really causes fluctuations in interest rates? ……………………………………………………………………………………………… ………………………………………………………………………………………………

5. What are the other sources of real estate finance one can use other that taking a loan from the bank? Give the providers also.

……………………………………………………………………………………………… ……………………………………………………………………………………………… ………………………………………………………... 6. How much is your lending interest rate on average specifically on Mortgage? ……………………………………………………………………………………………… 7. I would also love to know the average annual lending rates for mortgage from 2011 to 2018. ……………………………………………………………………………………………… 8. What major complaints do people usually give when borrowing or paying for the loans? ………………………………………………………….. 9. What was the annual average mortgage intake from the year 2011 to 2018?. Figures preferred. ……………………………………………………………………………………………… ……………………………………………………………………………………………… ………………………………………………………...

10. To what extent does interest rates fluctuation affect real estate financing in this bank.

Very high High Medium Low Less Tick

45