CHAPTER ONE

INTRODUCTION
1.1 Introduction
The study shall examine the effects of mortgage financing on real estate growth using the
National Housing and Construction Company Limited (NHCC Ltd) in Kampala District as a case
study. As urban population increases partly due to rural-urban migration, accommodation
becomes scarce and this attracts stakeholders in housing and construction to increase impetus in
constructing houses to accommodate the increasing number. In Kampala District, one of the
housing and construction companies has been NHCC Ltd that normally uses mortgage finance to
construct real estates. Despite of its effort to construction of real estates by using mortgages
financing, UBOS (2010) reveals a crisis of 550,000 housing units of which 160,000 are in urban
areas and 100,000 units in Kampala alone. This study shall therefore establish the effects of
mortgage financing by NHCC Ltd on real estate growth in Kampala District. This chapter will
start with background to the study, statement of the problem, objectives, research questions,
scope and significance.
1.1.1 Historical background

The NHCC is a Ugandan construction and real estate management company that is owned by the
Government of Uganda and the Libyan African Investment Company (LAICO). It is mandated to
increase housing stock in Uganda and Kampala City in particular; to rehabilitate the housing
industry and encourage Ugandans to own homes in an organized environment. The company was
established by the Act of parliament in 1964 as a National Housing and Construction Company.
By then, the Government of Uganda had 100 percent ownership. The Act was later repealed by
the 1974 Decree to form National Housing and Construction Corporation. In July 2002, the
Corporation became a Public Limited Liability Company known as National Housing and
Construction Company Limited. Later, the Government of Uganda divested from NHCC by
selling 49 percent shareholding to Libyan African Investment Company (LAICO); an investment
company owned by the Government of Libya. This means that the Government of Uganda owns
51 percent.
Between 1964 and 1970s, the Company built over 2,384 units of different types in the country
(Kiggundu, 2014). In Kampala, executive flats, maisonettes and bungalows have been
constructed in Bugolobi; 130 units constructed in Bukoto White, 180 units in Bukoto Brown, 80
units in Kololo, 44 units in Nakasero while 136 units in areas of Wandegeya. It has also
constructed houses for middle to low housing estates in Kiwafu and Mulago. In up-country,
NHCC had various housing projects in Arua, Entebbe, Gulu, Hoima, Kabale, Jinja, Lira, Masaka,
Mbale, Mbarara, Moyo, Soroti and Tororo.
Offices and block houses have also been built such as Crested Towers, Uganda Posts and
Telecommunications building, Tororo Town Council and District Administration Headquarters
building. There was also the construction of social and public infrastructure such St. Henrys

College Kitovu, Mengo and Adjumani hosipitals, Nakasongola Airbase and Entebbe
International Airport.
Since 1989, NHCC embarked on increasing housing stock in the country and rehabilitation of
various properties that had collapsed with the 1970 1980 wars. By 2005, the company had
constructed 20 housing units in Mpumude, 110 housing units in Bukoto, 35 bungalows and 25
shell houses in Ntinda, 25 bungalows and 54 shell houses in Lubowa and other areas such as
Nalya have had over 610 housing units. From 2006 to 2011, more houses have been constructed
in Kiwatule, Regina Lubowa, Namungoona, Kyambogo and Bugolobi. In the construction
process, mortgage financing has been used as a road to increase houses in Kampala District but
the crisis still stands (UBOS, 2010). This precipitated the researcher to examine the effect of
mortgage financing on real estate growth in Kampala District on the ground that the company
has had long period of existence since 1964 in Uganda using mortgage financing yet the housing
crisis has never had abating solution. Secondly, there are individual developers and other
companies in real estate growth using mortgage financing. Together with the NHCC, they have
never solved the crisis in Kampala City (UBOS).
1.1.2

Theoretical perspective

The study shall be guided by a Modern Portfolio Theory (MPT) of management of investment
finance developed by Harry Markowitz. After Thirty-eight years, he shared a Nobel Prize with
Merton Miller and William Sharpe for what came to be a broad theory for portfolio selection and
corporate finance. The theory examines how risk averse-investors construct portfolios in order to
enhance market risk against expected returns. It quantifies benefits of diversification.

1.1.3

Conceptual perspective

The literal definition of a mortgage will be that of Tuma (2005) where he defines a mortgage as it
occurs when owners pledge interest as security or collateral for a loan. This means that a
mortgage can apply to any sort of property say a car, land or even a building.
The working definition of a Mortgage will be the instrument that pledges real estate as a security
for an obligation and the process of pledging real estate as security (Hassanein & Barkouky,
2008).
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). This will be taken as the operational definition as it is more relevant to this
study.
The study shall define the term real estate as property consisting land and buildings on it, along
with its natural resources such as crops, minerals or water; immovable property (Oxford English
Dictionary, 2011). Real estate growth is the expansion of the estates
1.1.4

Contextual perspective

The contextual perspective shall whirl on mortgage financing and real estate growth in Uganda.
Housing Finance market contributes significantly to addressing the problem of housing
inadequacy or insufficiency by providing home buyers with long-term mortgage loans with
relatively moderate monthly installments (Addai, 2011).
The availability of Finance is a key issue for any housing development activity. It affects
developers, contractors and the ultimate buyers of the housing units. An efficient and sustainable

housing finance regime is a pre-requisite for sustainable housing delivery for the citizens of a
nation (Addai, 2011).
The Center for Affordable Housing Finance in Africa (2013) records that the 2002 Population
and Housing Census of Uganda presents that 70 percent of houses are built with temporary
building materials. Of these, 27 percent are in urban areas. Onoria (2007) further reveals that
commercial real estate market worldwide is increasing and dominated by institutional investors
yet in Uganda the information about real estate and their management is largely limited.
Banks in the country normally offer mortgages in which Ugandans can beautify or modernize
their houses but majority of Ugandans have not picked interest to apply for mortgages and some
players in housing sector blame it to poor economic performance of the country's economy
which lowers the purchasing powers of the local people especially those in private sector.
Mortgage financing has many challenges in Uganda because inflation rate normally go high and
this leads commercial banks to increase interest rates on mortgage financing; and generally affect
mortgage business. Some Banks such as Centenary Rural Development Bank have subsidized
their mortgages for low income earners but hardly do Ugandans apply for them. Due to intricacy
involved in general process of mortgage financing, many real estate companies try to diversify
businesses to provide land and looking for tenants yet they are unsustainable. The NHCC Ltd has
however insisted in building and construction of real estate using mortgage financing but an
increase in crisis has never been curbed.
Besides that above, there is financial constraint that normally affects effort to mortgages. These
are absolute lack of long-term funds due to absence of private or public contractual savings
products and limited long-term funds that normally exist. Of 5.2 million households, only 0.6

percent can access mortgage loans through commercial banks (World Bank, 2009). Ugandas
mortgage lending is therefore very limited. The country has two financial institutions with
mortgage books of repute: the Housing Finance Company of Uganda (HFCU) and the
Development Finance Company of Uganda (DFCU). The former has had difficulty in managing
its book while the latter is seeking lines of credit so that it can increase its long-term lending. It is
from this contextual perspective that the study will assess the effect of mortgage financing on the
growth of real estate growth using NHCC in Kampala District.

1.2 Statement of the problem

The rapid increase in the size and cost of projects through the years has created a new dimension
to the real estate industry with regards to project financing. Innovative financial instruments such
as Project Finance Initiative and Public Private Initiative are well-known in North American real
estate finance markets. For years, real estate financing in Uganda has been dominated by
traditional mortgage credits with risk minimization being the most important issue. (Iblher and
Lucius, 2003) report that in the Northern American real estate markets, innovative financing
instruments appear to be part of the standard repertoire of specialised institutions. It is important
to note that in Uganda, these instruments play no role or a minor role.
Pittman (2008) is of the view that obtaining a mortgage in todays market is a complicated
process since it involves many procedures like identifying the best service provider with best
interest rates which has stood a challenge to most people as well as developers. Besides,
repayment period has remained a major challenge since it is low.
Agaba et al (2009) confirmed that in the current housing crisis, family and friends have become
imperative in sensitizing developers and consumers about mortgage options and what to expect
at the end. The housing Finance sector is constrained by a lack of sufficient long-term liabilities,
6

owing to an underdeveloped pension industry and a limited life insurance funds (Kalema et al,
2013).
A research study which embraces the current practices and problems of the real estate industry
will have a momentous contribution to literature considering the need of the industry for
competitive and accessible mortgage finance options regarding their investment actions. On the
contrary, some researchers have identified financial gaps in developed countries even though
others are of the view that there were no such gaps (Galizia and Steinberger, 2001)
Microeconomic variables such as interest rate, tax and inflation have an impact on a firms
decision in choosing between debt and equity (Modigliani, 1958 and Narayanan 1988). In the
context of a developing country like Uganda, the use of these variables may not clearly be
applicable considering the visible volatility of these variables. Probably, other factors could
better account for the financial methods and decisions criteria of real estate developers.

According to UBOS (2010) there is still a housing crisis of 100,000 units in Kampala District
and the Ministry of Lands; Housing and Urban Development (2012) asserted that the housing
crisis is likely to hit 160,000 units in Kampala City by 2020. There is therefore a need to increase
accessibility to finance by residential property developers. This calls for participation of
government and lending institutions to provide financial assistance to real estate developers to
increase the rate of construction.
Real estate is a capital intensive investment and developers often face challenges in accessing
finance, to complete the various stages in their development process which they commence with
cash savings and personal loans from family members and in other cases from money lenders.

In Uganda, lack of access to long term capital is a major barrier to real estate delivery. Even
though the government policies recognize the private sectors dominant role in housing
provision, the banks have short term funding and unable to lend on medium or long-term bases,
thus crippling the real estate industry.
Despite this, there is little documented evidence elucidating the effects of mortgage financing on
real estate and growth. This study shall seek to establish the effects of mortgage financing on real
estate growth in Kampala District.
1.3 General objective
The study will examine the effects of mortgage financing on real estate growth in Kampala
District
1.3.1 Objectives of the study
i.

To examine how accessed mortgage finance affects real estate growth in Kampala
District.

ii.

To analyze the effects of mortgage finance default on real estate growth in Kampala
District

iii.

To examine the effects of mortgage repayment period on real estate growth

1.4 Research questions

What are the effects of the accessed mortgage finance on real estate growth in Kampala District?
What are the effects of mortgage finance default on real estate growth in Kampala District?
What are the effects of mortgage repayment period on real estate growth?
1.5 Scope of the study
The study scope will whirl on the content scope, geographical scope and the time scope.
1.5.1 Content scope
8

The content scope will remain mortgage financing and its effect on real estate growth. This has
been thought-of; with the view that real estate growth needs huge amount of money to be
developed and only banks can facilitate developers in due course. To get amounts of money and
develop real estate, banks need collateral securities such as land titles in the due process. While
NHCC receives mortgage finance, the effect of such finance on real estate growth is limited. This
precipitated this study to examine the effect of mortgage financing on real estate growth.
1.5.2 Geographical scope
The geographical scope will be Kampala District on NHCC. Kampala District has been chosen
because of its primacy in holding the Capital City where most of housing and construction
activities of NHCC have been taking place since 1964. Besides, it has most of the houses of
NHCC with yet with a crisis of houses or housing estate.
1.5.3 Time scope
The time scope will be between 2008 and 2013. This is the period when real estate has
experienced considerable growth amidst housing crisis. One would also need to establish if such
growth has been a result from mortgage financing. Besides, what are the effects of mortgage
financing on the real estate growth? Is the housing crisis a result of mortgage defaults or a result
of the usability of the accessed mortgage finance? This study shall address such questions.
1.6 Significance
This study will be significant to academicians by contributing to the body of knowledge and
broadening the scope in the areas of mortgage financing and real estate growth. While it will be a
reference to future academicians, its empirical evidence in the field of mortgage financing and
real estate growth will stimulate further researchers into the field.

Commercial Banks, developers such as NHCC and population at large will find the information
useful. Commercial Banks will realize where they have gone wrong while providing services to
developers in Uganda. Developers will also work to strike a balance and enhancing cordial
business relations with the banks.
To Government of Republic of Uganda and its policy makers, the study will increase knowledge
on challenges relating to mortgage financing and real estate growth in Kampala District. In turn,
the researcher hopes that policy makers and the government will come up with a policy on
subsidizing for the real estate growth.

10

1.7 The conceptual framework

The conceptual framework herewith presents the relationship of independent, dependent and
intervening variables in the process of real estate growth. This is presented on figure 1.1

Fig. 1.1: The Conceptual Framework

Mortgage Financing (IV)

Accessed funds
Repayment period
Default rate

Real estate growth (DV)

Acquiring land by
NHCC
Contracts builders
House purchase price

Government intervention
(MV)
Influencing banks to subsidize
Provision of land to developers
Use a good tenure system and cost
Provision of infrastructure at
moderate cost
Source: Evans and Mendenhall; 2002

The conceptual framework on figure 1.1 presents mortgage financing as an independent variable
to real estate growth (dependent variable). Mortgage financing depends on the nature of the bank
to access mortgage, interest rate, access to mortgage and duration taken to access and repay. This
leads a developer into acquisition of land and contracts builders for the real estate development.
In the process however, the government intervenes as presented in the conceptual framework.

11

1.8 Conclusion
All in all, the background to this study will capture the history of mortgage financing in relation
to real estate growth in Uganda. The objective of this study has been stated as to examine the
relationship between mortgage financing and real estate growth, and this will be expanded while
writing the dissertation.

12

CHAPTER TWO
REVIEW OF LITERATURE
.0 Introduction
This chapter will present review of literature in relation to the topic of the study and specific
objectives. It will start with the theoretical framework and other related literature and presents
the different variables that will be used in the study.
2.1 Theoretical Framework
The study will be guided by the Modern Portfolio Theory (MPT) of managing finance by Harry
Markowitz in 1952.
2.1.1 The Modern Portfolio Theory of Management
The Modern Portfolio Theory (MPT) is a theory of finance that attempts to optimize portfolio
expected return for a given amount of portfolio risk, or equivalently to minimize risks for a given
level of expected return; by carefully choosing the proportions of various assets. The theory
explores how risk averse-investors construct portfolios in order to optimize market risk against
expected returns. It quantifies the benefits of diversification; out of a universe of risky assets, an
efficient of optimal portfolios can be constructed.
According to the theory, each portfolio at the target offers a maximum expected return for a
given level of risk. Developers of real estate therefore take risks by exchanging mortgage with
real cash; they later invest into real estate not knowing what to be accrued. Notably, each
portfolio on the efficient target offers a maximum possible expected return for a given level of
risk. At this stage, developers hold one of the optimal portfolios on the efficient target and adjust
their total market risk by leveraging that portfolio with positions in the risk-free asset. In a highly
13

simplified world, the market portfolio sits on the efficient target, and all investors hold that
portfolio, leveraged or deleveraged with positions in the risk-free asset.
Modern Real Estate Portfolio Theory (MREPT)
Mueller et al (1995) added on what Harry Markowitz (1952) had developed in lieu to real estate
development and management. They explained why institutional developers should continue
considering both private direct real estate investments and public forms of ownership in order to
develop optimal portfolio for appropriate sub-categories of real estate assets. According to the
theory, market depth, liquidity, asset quality, diversification and price fluctuation are inclusive in
a strategic portfolio of management criteria of real estate.
On management, investment styles and return objectives of real estate portfolio management
need to focus on higher return strategies: wealth creation, value added, income enhancement and
incremental risk. The ability of Real Estate Investment Theory (REIT) to achieve these goals
through direct real estate (active) portfolio management is determined by management skills and
experience of the mangers of real estate. Due to real estate illiquidity and asymmetric
information flows, portfolio diversification and optimization strategies are followed over
multiple periods. Where it may take stock mangers weeks to adjust the portfolio to new optimal
weights based on new return and risk information, it may take the real estate portfolio managers
up to three years to adjust the portfolio, depending on size and market conditions. When
developing large institutional real estate portfolios, one of the main objectives is to identify and
target outperforming markets based on high risk-adjusted rates of return.
Factors used in determining target markets are: real estate market opportunities, demographic
attributes and market size. Due to the capital intensity, high transaction and information costs,
14

most direct real estate portfolio managers underwrite properties on a buy and hold basis,
extending the investment horizon. This allows the manger to focus on long-term cyclical labor
market and demographic trends. For example, the emergence of the echo-boomer and retirement
of the baby-boomers are expected to support apartment markets in the future.
There are many factors contributing the supply of apartments: tax policy, capital availability,
estimated demand by developers which need to be included in managerial issues. Statistically,
significant variables determining new apartment supply are: mortgage interest rates, housing
affordability index, employment change, vacancy rates, and taxes.
Real Estate Portfolio Development
Under the management of real estate, the theory has that institutional real estate portfolio
development need to be conducted in an integrated top-down/bottom-up approach. Top-down
approach starts with national market and economic analysis, regional market and economic
analysis, local market and economic analysis, and property level analysis; and then the process
starts back up again.
At the national level risks analyzed include: inflation, industrial production, risk premiums, term
structures, business cycles and taxes. At the regional level, risks analyzed include unsystematic
risks, employment based and growth, demographic trends, income level and growth and vacancy
rates. At the local level, risks analyzed include; employment base and growth, demographic
trends, income levels, vacancy rates, construction levels and costs, space utilization rates and
taxes. At the property level, risks analyzed include physical characteristics, location and site
characteristics, lease characteristics, property management expertise and financing.

15

2.2 Related Literature

This part will present the review of literature in relation to the topic and objectives of the study.
It shall start with how accessed mortgage finance affects real estate growth, effects of mortgage
finance default and ends with the effects of mortgage repayment period on real estate growth. In
lieu to the issues at hand, one needs to recall that despite the use of mortgage finance in Kampala
District, there is still a housing crisis. Although this situation is in Kampala District, the literature
hereunder reveals that the situation is found in other areas of the globe. This study therefore
seeks to establish the effects of mortgage financing on real estate growth with questions such as:
why has the crisis continued amidst of mortgage financing? The literature presents that some
institutional developers normally diverts from real estate growth to land broking by putting aside
the main aim of working towards real estate growth. Has the change been a result of mortgage
financing period or defaults incurred as pressure from the banks increase in the due course? Or it
is due to the excess accumulation of profits that the developers such as the NHCC would wish to
expand the horizons of investments? This study will answer such issues in lieu to the objectives
of the study.
Besides, in developed nations, the period for mortgage servicing or repayment period starts from
25 years and beyond yet it has never been so to developing nations. This study will establish the
repayment period in relation to its effect on real estate growth in Kampala District. it will also
establish knowledge levels among the employees of institutional developers such as the NHCC
about mortgage market.

16

2.2.1 Accessed mortgage finance and real estate growth

Evans and Mendenhall (2002) observed that accessed mortgage finance is vital in solving
housing crisis among developing countries and the challenge with such countries is how to make
people own homes irrespective of their small earnings. They revealed that as a result of housing
deficit, Sub-Saharan Africa is likely to encounter housing crisis if adequate approaches are not
taken to address it. Effective mortgage financing is a key to addressing the housing deficit by
constructing real estates.
In Nigeria, Hoek-Smit (2011) remarks that accessed mortgage finance produce results in mass
housing. In year 2000 for example, the Federal Mortgage Bank of Nigeria gave a sum of 5.8
billion naira (now about 38m USD) to National Housing Fund which was established by Decree
No. 3 of 1992 as a major means of mortgage lending for building of houses. Besides, Real Estate
Developers Association of Nigeria (REDAN) was set to put in place Special Purpose Vehicle
(SPV) to enhance the expansion of mass housing. The President of association, Chief Olabode
Afolayan, disclosed that the SPV is money that would assist developers in massive buying of
building materials and offer them subsidy. Haggai Savings and Loans Limited (Mortgage
Bankers) at Surulere - Lagos provides financial support to its customers while Susu
Microfinance Bank Ltd gives financial support to Nigerians that are in need of it and Guaranty
Nigerian Bank (Microfinance Obodoukwu) offers loans and encourages investment among the
inhabitants of Obodoukwu community in housing estate.
In actual terms, mortgage loans are loans used to finance house purchase that are secured with
property so that in case the borrower fails to make the required repayments, the lender takes
possession of the property under the terms of the loan agreement and has the right to sell it to
17

recover the debt. Loans to finance the purchasing of houses are often long-term loanstypically
25 years in developed countries. The World Bank (2011) puts it clearly that mortgage loans can
only be made when there are clear properties ownership rights. That those in developed countries
are often available at a low margin over the cost of funds due to high security in terms of
property rights. Individuals are more inclined and capable of investing in housing when they
have proper title for their assets.
Compared to other financial arrangements, the World Bank (2012) remarks that mortgage
finance helps in purchasing affordable houses and allows such people to buy at a lower price.
This ultimately stimulates housing market to the benefit of developers as well as existing home
owners. This increases demand for houses and encourages savings. Boleat (2002) noted that as a
consequence, a strong mortgage market leads to widened financial system and an efficient and
well-functioning mortgage market. Jolaoso et al (2008) remarked that any significant real estate
growth requires tax and business planning; and for real estate developers there are not only in
unusual situations and problems but unique opportunities to solve and minimize such matters.
Ibuoye (2009) argues that it is conducted in multiple entities and involves separate partnerships
for each property with unrelated investors or joint venture participants. Thus; accessing long
term credit facility has been a great challenge among developers. Kuroshi and Bala (2005)
remarked that despite the existence of the long term credit facility in the National Housing Trust
Fund (NHTF), it operates on a depository arrangement whereby civil servants and self-employed
persons contribute 2.5% of their monthly income into the Fund through their employers or
directly to the Federal Mortgage Bank of Nigeria (FMBN) in order to access loan. Nonetheless; a
few contributors have benefited from mortgage loan. Ozili (2009) observed that the NHTF is

18

inadequate in meeting the housing needs of real estate developers and contributors. The
conditions for accessing loans are not affordable to everybody. Private financial institutions have
started packaging mortgage loan to prospective property developers but Kuroshi et al (2008)
observed that private financial institutions charge very high interest rates on credit facility with
very short repayment tenor.
Nuhu (2009) remarked that the current global economy presents attractive opportunities to
purchase properties from distressed sellers. Many potential buyers are scared away by the
formidable risks that are presented by a possibly insolvent seller who may be stumbling toward
bankruptcy. Properties owned by distressed sellers usually come with a number of challenges
that are not ordinarily found with better-situated sellers. Efforts to stay afloat are likely to have
resulted in several layers of mortgages. There may be attachments or judgment liens resulting
from lawsuits and tax liens resulting from unpaid taxes. Properties that have had recent
construction may have incurred substantial mechanics liens imposed by contractors,
subcontractors and suppliers. There may be below-market long-term leases or unfavorable
supply or management contracts.
2.2.2 Repayment period and real estate growth
Real estate growth is in most cases influenced by the rate at which developers or households
borrow money for housing and the rate at which they repay outstanding housing loans. The less
repayment period pronounced in housing credit suggests that new loan approvals indicate net
principal repayments relative to outstanding. ECB (2009) presents that since 2004; net monthly
principal repayments have averaged around percent of outstanding credit as compared to 1
percent in previous years among European nations. There have been a number of changes in
19

characteristics of mortgages suggesting that the rate of scheduled principal repayments may be
lower on average than previous case. For traditional variable-interest-rate loans, the rise in
interest rates since 2002 have increased total mortgage payments but lowered the amount of the
current scheduled principal repayment (Caldera and Andrews, 2011).

MC-Donald and Thornton (2008) are of the view that households make extra repayments in
addition to scheduled mortgage repayments. While penalty fees for early repayments of principal
are often charged on fixed-rate loans and during honeymoon or introductory rate periods on
mortgages, variable-rate mortgage typically allow borrowers to make excess repayments of
principal without penalty. Although there are no precise data on the extent of excess principal
repayments, information on households survey by Pittman (2008) suggests that around one-half
borrowers make excess principal repayments and normally place ahead of schedule in their
mortgage repayments. While presenting a report on mortgage, Rugasira (2007) revealed that
banks indicate that roughly one quarter of the borrowers are more than a year ahead on their
mortgage repayments and around one-half are more than one month ahead. This means that
banks in Uganda benefit from the developers a head of building and construction of the real
estates. Despite of this information, UBOS (2010) reveals that there is a crisis in housing in
Kampala District.
Tuma (2006) noted that excess repayments on principle reflect deliberate efforts by developers or
households to pay their mortgages more quickly than the time required. This is likely to increase
the interest rates rise since the higher cost of borrowing encourages borrowers to repay loans
more quickly if they are able. However, it should be noted that higher interest costs also reduce
the capacity of some borrowers to make excess principal repayments. Borrowers decisions to

20

make excess principal repayments are also affected by other factors other than interest rates,
including income growth and expectations of economic security. Expectations of returns on other
assets could also be relevant in such situations since borrowers can be attracted to invest money
in other strongly performing assets rather than making additional loan repayments.
2.2.3 Mortgage default and real estate growth
Research has found that default is current loan-to-market value ratio of each property. As prices
fall, the probability of defaults rises. Unfortunately, the cost to lenders of default also rises as
prices fall. While default probabilities and default losses rise with falling prices, default losses
rise non-linearly and faster than the decline in house prices. Such dynamics means that the
mortgage holder would ideally want a non-linear or dynamic and hedge; Quigley, Robert and
Yongheng (1993) are of the view that there is no shortage of evidence on importance of home
prices and equity on the default decision. In 29 empirical studies done over a thirty year period,
Quigley, Robert and Yongheng (1993) concluded that home equity or the related measure of loan
to value ratio, influence default decision. There is a consensus in most recent default studies that
the correct measure of a borrowers net equity is the contemporaneous market value of property
less the contemporaneous market value of the loan, a measure that also incorporates borrower
expectations. This negatively or positively affects real estate growth depending on the nature of
the borrower or the investment where the money has been invested.
Jackson and Kasserman (1980) reach the same conclusion there exists a significant literature
examining causes of default and their empirical effects on the growth of estates. Empirical
evidence shows that it is the house versus the mortgage value, rather than such personal
characteristics as the homeowners liquidity position or developers that explain default which in

21

short or long run affects the growth of estates. In a study by Jackson and Kasserman (1980) in
which a discrete proportional hazard model was used, it was found that default of mortgage
finance by developers or homeowners do not only affect the banks but equally so the developers.
Results also show that the probability of negative equity ratio is the main time varying covariate
influencing mortgage holders default decision.
The history of the mortgage industry provides dramatic evidence that default risk is related in a
non-linear way to housing prices. Losses from default depend not only on the incidence of
defaults, but on the severity of deficiencies after collateral liquidation. Unfortunately, there are
virtually no data on aggregate claims over time which is available on a non-proprietary basis. But
this is an area where history is well known.

Conclusion
It can be deduced that real estate needs appropriate amount of money to be built or developed
despite challenges therein.

22

CHAPTER THREE
METHODOLOGY
.0 Introduction
This chapter will cover research design, study population, sample size and selection, sampling
techniques, methods of data collection, data management and analysis, reliability and validity,
ethical considerations, assumptions and limitations.
3.1 Research design
A cross sectional survey research design will be used for this study in Kampala District. Cross
sectional survey is a type of observational study that involves the analysis of data collection from
a population or its subset to represent the whole population such that the researcher can use the
results from the subset to reach inferences to the general population. The National Housing and
Construction Company shall be a subset to the population or different developers of the estates
that normally acquire mortgage finance from the banks. A cross sectional survey research design
will be used because it allows the use of qualitative and quantitative methods of research which
the researcher thinks will complement during the study to reach at the inferences. Besides, cross
sectional studies normally take a short period of time (Amin, 2005) and the researcher hopes to
carry out this research within a few months.
3.2 Study area and population
The study will be carried out onto the National Housing and Construction Company Limited in
Kampala District. The District borders with Wakiso District to the South, South and the North
and by Kira Town-Council to the East. It has been chosen because it has different developers
such as NHCC that normally use mortgage finance from different banks to construct houses.
Despite of different developers and banks, the housing crisis still stands and this attracted this
23

study to assess the extent to which mortgage finance affect real estate growth in Kampala
District.
The population of study from where the sample size will be selected is 150 employees of NHCC
and 23 employees of Housing Finance Bank (HFB). This constitutes a total of 173 people. From
NHCC, housing and construction engineers, social workers and administrators will inform this
study. Officials from Housing Finance Bank (HFB) will be part of the population of this study
since NHCC normally gets mortgage finance from it.
3.3 The sample size and selection
A sample size of 80 officials from the NHCC and HFB will be interviewed and this will be
determined using Cochram (1963) formula below;

n=
Whereby
= the standard value from the normal distribution curve
=
=
p=

level of significance and for research purposes

0.05 (95% confidence interval)
the proportion of respondents that will respond and give true information, which is
assumed to be equal to 0.5, q = 1 p

e = the degree of precision/ the risk that was taken by the researcher is 0.11 was used
So, n was determined as;

24

= 1.96 and n =

= 79.372

80

respondents.
3.4 Sampling techniques
The study will embrace random and stratified sampling techniques of research. Random
sampling technique has been used to select NHCC from different developers within Kampala and
the researcher hopes that it will give needed results in reference to the objects. While random
sampling technique will also be used to select officials from the bank, stratified sampling
technique will be used to select officials from the NHCC due to heterogeneous nature (Amin,
2005) of its workers. These shall include engineers, administrators and social workers and thus
N1+ N2 +N3 +N4strata, = N. the distribution of the sampling procedure in lieu to the sample
size is presented in table 3.1 of this proposal
Table 3.1: Illustration of the sample size and distribution
Category
Engineers
Administrators
Social workers
Credit officers
Total

Population Sample size

12
12
4
4
134
49
23
15
173
80

Sampling technique
Stratified sampling
Stratified sampling
Stratified sampling
Random sampling

3.4 Sources of Data Collection

Secondary and primary sources of data collection will be used during the study. Suffice,
secondary sources of data collection have been used while developing this proposal and the
researchers will use it during dissertation writing. They included text-books, Journals and News
Papers among others.

25

Primary sources of data collection will be the information extracted from the field. This will be
done using Observation and Questionnaires.

3.5 Methods of data collection

A survey method will be used with the help of questionnaires and observation.
3.6 Data collection instruments
3.6.1 Self Administered Questionnaires
Data will be collected using Self-Administered Questions and observation. Self-administered
questionnaires are sets of questions usually sent by mail to the respondents albeit they at times
delivered by hands. Normally, they are delivered to various places where respondents live or
work from. The researcher will deliver self-administered questionnaires to the offices of NHCC
and HFB. The self-administered questionnaires will be organized following the Likert (1932) and
Thurstone scales (Thurstone and Clave, 1929).
3.6.2 Observation
Observation helps the researcher to come up with proved firsthand information. This researcher
uses vision as a means of data collection. It is the selection, provocation, recording and encoding
of the set behaviour and concern through empirical ways by the researcher. During the study, the
researcher will use an eye to witness or observe what has been developed and a camera to get
pictures of real estate and the observation checklist include: the completed real estate, real estate
in the construction process, workers of NHCC while at the construction site among others. These
will constitute figures during dissertation writing.
3.7 Data Management and Analysis

26

Although both qualitative and quantitative methods of data analysis will be used, quantitative
analysis will be used much more than qualitative. After coding and entering the data in the
spreadsheet, analyses will be performed using Computer programme Scientific Program for
Social Scientists (SPSS). Analysis will be based on different objectives in reference to different
methods as presented herewith. For the objective one which is meant to examine how accessed
mortgage finance affects real estate growth, analysis will be done using the Pearson correlation
and cross tabulation; the second objective that states to analyze the effects of mortgage default on
real estate growth in Kampala District and the third which states that to examine the effects of
mortgage repayment period on real estate growth; these will be analyzed using the chi-square
analysis.
3.8 Reliability and Validity
Questionnaires do not emerge fully-fledged; they have to be created or adapted, fashioned and
developed to maturity after many abortive tests flights. In fact, every aspect of a survey has to be
tried out beforehand to make sure that it works as intended (Dillman, 1987). The questionnaires
will be pre-tested by two different groups, namely, two researchers and two Real estate
developers to ensure that the questions cover the full range of the issues being studied. A 4-point
scale of relevant, quite relevant, somewhat relevant, and not relevant will be used to assess the
questionnaires hence the questionnaires will be tested for content validity. Face validity will be
established by ensuring that every question or item on the scale has a logical link with the
objectives of the study.
Reliability is defined as the extent to which a questionnaire, test, observation or any
measurement procedure produces the same results on repeated trials. In short, it is the stability or
consistency of scores over time or across raters provided by an instrument. Reliability will be
27

tested using pre-testing data sets and Cronbachs reliability. The reliability of the variables will
be assessed using Cronbachs alpha (1951).

3.9 Ethical Considerations

The Researcher will maintain respect for persons. The researcher will ensure that the participants
receive full disclosure of the nature of the study, benefits and alternatives, with an extended
opportunity to ask questions hence an informed consent. The researcher will guard against
misconduct in research. The researcher will not involve himself in fabrication, falsification or
plagiarism in proposing, performing, reviewing the research or in reporting research results. The
Researcher will give forethought to the maximization of benefits and the reduction of risks that
might occur from the research. The researcher will avoid conflict of interest by not offering
himself as a research subject.

3.10 Limitations
The limitations include lack of available data on the number of people who have taken
mortgages from banks. This information is never published.
The housing statistics provided in books and other documents are estimates as the housing
census has not been done in a long time.
3.11 Conclusion
This section has reviewed the research design; the procedure of carrying out the research has
been captured. The data collection methods of questionnaire and observation have been
proposed. The data analysis will be by SPSS. Face and content validity and reliability of the
questionnaires will be tested. Ethical considerations will be given top priority. The researcher

28

will maintain respect for persons, guard against falsification and offering himself as a subject in
the research.
References
Barker, K. (2008), Planning Policy, Planning Practice, and Housing Supply, Oxford Review of
Economic Policy, Vol. 24 (1)
Bienert, Brunauer, (2006), the mortgage lending value: prospects for development within
Europe, Journal of Property Investment & Finance, Vol. 25 No. 6
Boleat, Mark, (2002), Developing Mortgage Finance in Egypt, paper presented at the
Symposium on the Emergence of the New Mortgage Market in Egypt, Boleat Consulting,
Cairo, Egypt
Caldera, Snchez A and D. Andrews (2011), To Move or Not to Move: What Drives
Residential Mobility in the OECD? OECD Economics Department Working Papers,
forthcoming
Center for Affordable Housing Finance in Africa, (2013), Housing Financing in Africa; A
review of some of Africas Housing Finance Market
ECB, (2009), Housing Finance in the Euro Area, Occasional Paper Series, Vol. 101
Hassanein & Barkouky, (2008), The Egyptian mortgage practice, International Journal of
Managing Projects in Business, Vol. 1, No 2
Hoek-Smit, M.C (2011), Government Policies and their Implication for Housing Finance, in
Khn, D and Von Pischke, J.D. (eds), Housing Finance in Emerging Markets, Springer
Ibuoye, A (2009), Mortgage Finance as a Veritable Tool to Enhance Mass Housing Finance,
Proceedings of the 39th Annual Conference of the Nigerian Institution of Estate
Surveyors and Valuers, Awka, Anambra State, Nigeria
Jackson, J and D. Kasserman (1980), Default Risk on Home Mortgage Loans: A Test of
Competing Hypotheses, Journal of Risk and Insurance, Vol. 3; 678690
Jolaoso, B. A. Odebiyi, M. O. Musa, N. A. (2008), Evaluation of Viability of Self-help
Contribution for Low Income Housing Development in Nigeria; Proceedings of the
XXXVI IAHS World Congress on Housing Science, Kolkata India.
Kau, J. D. Keenan and T. Kim (1991), Default Probabilities for Mortgages, Department of
Insurance, Legal Studies and Real Estate, The University of Georgia: Mimeo
Kiggundu, Edris (2014), "Uganda: Police Cracks Down On NHCC Manager".
29

Kuroshi, P. A and K. Bala (2005), Development of Housing Finance in Nigeria, Nigerian

Journal of Construction Technology and Management 6 (1); 7-14, Department of
Building, University of Jos, Nigeria
Kuroshi, P. A. Mallo, D. M. Mosaku, T. O and Anigbogu, N. A. (2008), Determining Housing
Finance Potentials of Cooperative Societies Using Fuzzy Decision Theory; Proceedings
of the XXXVI IAHS World Congress on Housing Science Kolkata, India.
MC Donald and Thornton, (2008), A Primer on the Mortgage Market and Mortgage Finance,
Federal Reserve Bank of St. Louis Review
Nicholas Addai Boamah, (2011), The regulatory environment and housing finance market in
Ghana, Journal of Property Management, Vol. 29 No. 5; 406-422
Nuhu, M. B (2009), Efficacy or Ineffectiveness of Compensation as Approved for in the Land
Use Act of 1978 in Nigeria, Paper Presented at the 39 Annual Conference of the Nigerian
Institution of Estate Surveyors and Valuers 22nd 24th April, Awka, Nigeria
Olumide, S. Ayodele, Frances N. Obafemi, Akongwale, Sabastine, (2013), Options for
Sustainable Mortgage Finance in Nigeria, British Journal of Economics, Finance and
Management Sciences, Vol. 8(2); 1-26
Onoria H. (2007), Guaranteeing the Right to adequate Housing and Shelter, The Case of
Women and the People with Disabilities (PWDs)
Ozili, P. C. (2009), A Critique of the National Housing Fund Scheme in Nigeria, Proceedings of
the 39th Annual Conference of the Nigerian Institution of Estate Surveyors and
Valuers
Awka, Anambra State, Nigeria
Pittman, (2008), The Use of Social Capital in Borrower Decision-Making, Joint Center for
Housing Studies of Harvard University
Quigley, John M. Robert Van Order and Yongheng Deng (1993), The Competing Risks for
Mortgage Termination by Default and Prepayment in the Residential Housing Market,
paper presented at the NBER Summer Institute, Mimeo.
Rugasira, J. K (2007), market report: Uganda, Knight Franks Report
Tuma, (2006), Mortgage Financing, How it works in Uganda; Journal of capital markets
industry, Uganda, Vol. 10, No 2, April-June, 2006.
The World Bank Financial and Private Sector Development Africa Region, (2009), Making
Finance Work for Uganda
World Bank, (2011), Developing Kenyas Mortgage Market, Report N. 63391-KE, Washington
D.C., May 2011
30

World Bank, (2012), Doing Business 2012; Doing Business in a More Transparent World,
Washington D.C.
Appendices
Appendix A
Self- administered questionnaire to respondents
Dear respondents
This is an academic study and all information collected shall be utilized purely for this purpose.
You have been carefully selected to participate in this study because of your wealth of experience
in this area and your response will be handled with utmost confidentiality. Thank you for taking
time to record your insight on the subject.
(Tick where appropriate)

1. Gender:
2. Age (in
years)

Male

Below 20

SECTION A
Background formation
Female

20-30

31-40

41-50

Over 50

3. Highest level of Education

O/A Level

Diploma &
certificate

Degrees

Post Graduate

Other
(Specify)

Residential
space

Manufacturing
space

Industrial
space

4. Real Estate Sector

Retail
space

Office Space

5. NHCC normally receive mortgage of how many years?

Less than 5
5-10 years 11-15 years 15-25 years
years

31

Over 25 years

SECTION B
6. Mortgage finance affects real estate growth
a)
Yes
b)
No
Explain your answer

7. Use the following to answer the question:

1 = strongly agree, 2 = Agree 3 = Not Sure 4 = Disagree 5
Strongly disagree

8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

Variables
Accessed mortgage finance helps NHCC to get new construction site
Accessed mortgage finance helps NHCC to pay its workers
Accessed mortgage finance increases morale among workers
Accessed mortgage finance leads the companys growth
Accessed mortgage finance helps in increasing NHCC assets
Accessed mortgage finance helps in smooth running of NHCC
Accessed mortgage finance is effectively used than finance from other sources
Accessed mortgage finance attracts NHCC to invest in developmental issues
Accessed mortgage finance leads to growth of estates in Kampala
Accessed mortgage finance influences NHCC to invest with priorities
Accessed mortgage finance gives NHCC morale to multiply investments
Accessed mortgage finance is the only way to increase capital of NHCC
Accessed mortgage finance is the solution to employee turnover
Accessed mortgage finance leads to employers satisfaction
Accessed mortgage finance increases employees satisfaction

1 2 3 4 5

23. Is there other way through which accessed mortgage finance affects real estate growth?
a) Yes
b) No
Explain your answers

32

SECTION C
24. Are there mortgage finance defaults with NHCC?
a)
Yes
b)
No
If so, explain the banks action to recover the money

If no, explain how the NHCC has been able to avoid such

In a situation of mortgage defaults, use the table below to agree or disagree with the
statement
1 = strongly agree, 2 = Agree
Strongly disagree

25
26
27
28
29
30
31
32
33
34
35

3 = Not Sure

4 = Disagree

Variables
Mortgage finance default hinders daily activities of real estate growth
Mortgage finance default crates employee turnover
Mortgage finance default decreases morale of the workers
Mortgage finance default hinders the growth of company estate
Mortgage finance default leads banks to sell off NHCC assets
Mortgage finance default hinders administrative work of NHCC
Mortgage finance default reduces the finance resources of NHCC
Mortgage finance default reduces NHCC investments and development
Mortgage finance defaults negatively affects the growth of estates
Mortgage finance default stresses the companys administrators
NHCC has never had mortgage financial defaults

1 2 3 4 5

36. What are other effects of mortgage defaults with the NHCC?

33

SECTION D
37. State the repayment period that NHCC normally take to finish the mortgage loan

Use the following answers as provided to agree or disagree with the statements in the table
below.
1 = strongly agree, 2 = Agree
Strongly disagree

38
39
40
41
42
43
44
45
46

3 = Not Sure

4 = Disagree

Variables
The repayment period favours the development and growth of estate
The repayment period creates ample time to accumulate profits
The repayment period is shorter than what is expected
The repayment period promotes activities for the growth of real estates
The repayment period allows planning for the growth of estates
The repayment period gives NHCC to plan for other resources to use
The repayment period is essential for the growth of NHCC estates
The repayment period allows consultations with stakeholders
It allows monitoring and evaluation of estates growth

1 2 3 4 5

END
Thank you for your cooperation

34

Appendix B
Interview Schedule

Serial
1
2

Activity
Pre-testing questionnaire
Administering of questionnaires

Beneficiaries
Administering of questionnaires to Real estate and 2 weeks

Property Developers
Interview of Selected banks

to

Duration
2 weeks
Mortgage 2 Weeks

2 weeks

35

Appendix c: Time Frame

Serial
1
2
3
4
5
6

Activity
Pre-testing questionnaire
Administering of questionnaires to NHCC
Interviews with the bank officials
Organizing data
Data analysis
Writing a report and submission

36

Duration
2 weeks
2 Weeks
2 weeks
3 week
4 week
1 week

Appendix D: Budget
Serial

Item

Quantity

Rate

Amount

Reams of paper

16,000

80,000/=

Questionnaire administering

500,000 500,000/=

Data entry and analysis

800,000 800,000/=

Report Book blinding

35,000

Photocopying and internet surfing

300,000 300,000/=

Transport and communication

Traveling

Total

175,000/=

1,000,000/=
2, 855 ,000/=

37