The Opposition scoffed when, during the campaign, the PPP declared it would be delivering 50,000 house lots during the next five years, were it to get into office. In its previous iterations, the housing sector was one of its glowing successes, and it was not coincidental that much of that success occurred under the watch of Irfaan Ali who was then the Minister of Housing. With him becoming President on Aug 2, 2020, the promise was almost guaranteed, since he knows exactly what needs to be done.
And now, nine months later, we can see from the trajectory of house lots’ allocation that the goal is well within sight, with 3600 lots allocated between Aug 2 and Dec 31, 2020 – 600 more than had been projected. This compares with the 7089 lots allocated over the five years the APNU/AFC coalition was in office. However, the Government is not stopping at house lots, but has set its sights on their owners becoming home owners. It has done this by encouraging easier access to loans with lower interest rates, increasing the number of institutions granting mortgages with the authorisation of the Bank of Baroda to enter the mortgage market, and reducing taxes on construction and building materials.
The NBS has been persuaded to grant loans of up to $6 million with an interest rate of four per cent; $6-12 million @ 5.9 per cent, and $12-15 million @ 6.25 per cent. This is against a background of Minister of Finance, Dr Ashni Singh, introducing the Income Tax Mortgage Interest Relief back in 2013. Any individual taking out a mortgage of up to $30 million for the purchase of a home would be able to deduct the interest paid on the mortgage from their taxable income. Immediately, homeowners will benefit significantly. Since, in the early mortgage, most of the payments are applied to interest on the mortgage, these payments would now act to raise the “non-taxable” income of the homeowner from the present $720,000 by the total interest paid for the year.
But the benefits from the Government’s overall facilitation of housing for the entire population go far beyond the tax exemption etc. One of these is that a mortgage is a form of long-term forced savings. Many persons have great difficulty in saving directly from their pay checks or wages, which is not just a problem for the individual, but for the nation. Developing countries need savings to make investments, and when individuals take out mortgages, the banks can count on a steady income stream, which can be invested. For the home owners, rather than paying rentals, they accumulate increasing equity in their houses; which, historically, has always tended to go upwards.
Home ownership also has immediate spinoff benefits for the rest of the economy, as owners seek to furnish and constantly upgrade their properties. Businesses that cater to this trade typically employ a large number of unskilled persons as well as give a boost to local manufacturers of furniture and other household goods. The NDCs can now collect rates and taxes to provide various services to the area.
But just as important are the social benefits that give families a sense of stability and security. The moment someone owns a home, the family acquires pride in home ownership, and typically sees itself as having a stake in the community. This leads to the development of social capital in the form of trust between residents. If countries do not have this kind of social capital, it is almost impossible for them to mobilise their citizens for the sacrifices a sustainable developmental thrust demand.
It is this lack of social capital which exists in inner city ghettoes that leads to the multitude of crimes and other degradations committed by residents who typically rent the hovels they live in.
The success of a developing country depends on the development of a growing middle class. And there can be no middle class unless they are facilitated to own their own homes.