REAL ESTATE INVESTMENT - EMPOWERING YOUNG PEOPLE TO CLIMB THE HOUSING LADDER

By Dr. Fred Msemwa

Empowering the people to have access and ultimately own decent homes ought to be a business, not only for those entrusted with developing housing policies, but also prospective home buyers and other key stakeholders including developers, municipals and other parties involved in the housing ecosystems.

Some countries have gone further and have solid plans to help their people to access and ultimately own decent housing. As it is the case for all dreams, individuals and even nations must have goals that will make them perform activities and initiatives that slowly and day by day make them realise their dreams.

Helping the younger generation to have access to decent homes and making them start climbing the housing ladder need to be a business of both the youngsters themselves and relevant property market players. Ideally, the business of providing affordable homes is not and should not be a charitable undertaking.

To simplify this argument, let us start by exploring the rationale for helping the younger generation to enter and start climbing the housing ladder-according to the English dictionary, a housing ladder refers to a series of stages in owning a house, which one starts by buying a smaller house or an apartment and then lives in it for sometime given the income bracket at that time and then buys a bigger or more expensive house when there is enough money and need to do so.

As it is known, the younger generation or younger families have limited disposable incomes to the extent that they may not be able to afford to buy their first homes straight under prevailing market conditions. While the government and market players have their role to play, there are several options that youngsters and young families planning to start climbing the housing ladders can use.

Some of these self-help initiatives include starting to save early, keeping good credit history, starting with smaller houses and even considering joint ownership. Salary levels of majority of the working class are such that most of them may not afford home loans or paying for the house upfront under the prevailing pricing.

Recent initiatives that have seen adjustment of the liquidity stance in the financial market have to some extent made owning homes even more challenging. These developments means, going forward, it is going to be more challenging for millennial and young families to access decent homes hence calling for change of spending and saving culture.

First-time home buyers will need to save longer to be able to buy homes as they will need a bit of a longer time to raise the deposit needed for mortgages. It is advisable to save money in investment vehicles that gives higher returns on your savings.

There are various products offered by banks, insurance companies and collective investment schemes that can accelerate the growth of your deposit over years and therefore shorten the time needed to get the amount needed for mortgage deposit.

Most banks require between ten to twenty per cent of the value of the house to be paid upfront by mortgage applicants. In connection with the above, first-time home buyers need to have a good credit history to increase their chances to secure home loans.

It is important that one lives within the budget and avoids anything that could result into defaulting any financial obligation from any financial institution as that could dent one’s credit history. As discussed earlier, it is pertinent to emphasise that homes are not meant for one to live in for life.

This puts the case for the first-time home buyers to start by buying a smaller home that they can afford to pay. Normally, one’s salary tends to grow over years and a house that one can’t afford to buy today may be affordable after a few years as the buyers monthly or annual income grows.

This suggestion may conflict with the existing culture which is characterised by a trend where even younger and smaller families inordinately prefer big houses say three bedrooms houses to two or one bed roomed.

In reality, to derive more value for money from your asset, one can comfortably start with a two bedroom house and later upgrade to a three bedroom house to match both the income level and full utilisation of the house.

It is not surprising that some developers such as Watumishi Housing may sell smaller houses to younger buyers, allow them to stay in for some years and such buyers have options to return the house to be exchanged for a bigger one. This gives not only value for money to buyers but also flexibility in terms of how people can climb the housing ladder.

While this may be considered to be a new development in the market, initiatives such as these ones not only give flexibility for first-time home owners to own homes, but also are poised to increase the liquidity and activeness of the housing market. Young families may not have all the money and equity needed to start climbing the housing ladder.

Some young families are lucky in as spouses may be either employed or have reliable sources of income. In this case it is advisable that such families can consider joint home ownership by using both incomes to secure home loans. Some lenders and developers have arrangements that accommodate joint servicing of home loan. The government on its part has its own share in fostering home ownership by the youth and young families.

The rationale for the government taking bold steps to ensure people are able to access decent housing that has been well documented particularly if one considers the role of housing in the economy and its multiple linkages with other sectors of the economy.

It is encouraging that several government initiatives such as the establishment of collective investment schemes, a vibrant banking and insurance sectors to mention but a few, are already in place to enable people to save.

The government may go further by encouraging its own workforce to save by putting a coordinated system that enables monthly saving in schemes already in place. Other players such as banks and insurance companies need to continue innovating new financial products to promote the saving culture amongst the youth who are potentially prospective home owners.

There is no shortcut in acquiring important assets in the world and therefore, holistic efforts both from prospective homebuyers, developers as well as national and local government are needed to empower the younger generation and the general population in accessing decent homes.

Dr. Fred Msemwa is the CEO of Watumishi Housing Company Real Estate Investment Trust (WHC-REIT) responsible for management of collective investment schemes and provision of affordable homes in Tanzania.