Financing Affordable housing is still a major issue in most of the developing countries, where
the majority of the population falls under the low & middle income bracket.
We put together a bunch of ideas that are can ease the availability of buyer finance in the
- Balloon Mortgage
Many households in developing countries are employed in informal sectors, quite a
few of them seasonal in nature with limited or no monthly fixed income. This results
in them not being eligible or unable to opt for conventional mortgage schemes.
Instead, a balloon mortgage requires the buyer to pay off only the interest amount on
a monthly basis without paying the principal amount which is then paid off at the end
of tenure as a lump sum. This scheme ensures that the monthly instalments are not
huge enough to be burdensome and the money value of the principal is lesser at the
end of the tenure.
- Incremental Housing Finance
This approach is widely practised informally and is best applied when the buyer has
limited funds to build the house.
The incremental housing finance schemes provide for varied loan amounts at
different times as per the convenience, capacity and requirements of the homebuyer
along the time that they build the house as and when the resources become
available and affordable.
For senior citizens with barely enough resources to fulfil fundamental necessities or
who have financial emergencies, but who own a house, Leaseback works just fine.
Here they sell their house to the buyer and contractually lease it back ensuring, apart
from a roof over their head, they also have funds to carry on with their daily life.
- Lease to Buy
This is essentially a similar concept as rent-to-buy. Lease to buy contract requires a
buyer to pay pre-agreed amount of lease at specified time intervals and thus earns a
right to buy the house at the end of the tenure upon a nominal down payment. The
lease amount paid is later applied to the purchase price of the property, thereby
easing the financial burden.
- Hire Purchase
When a collateral or a credit option is not available to a buyer for various reasons, a
hire purchase contract with the seller can be an option. With hire purchase, the buyer
is required to a pay a pre-determined percentage price of the house as deposit at the
onset and equal monthly instalments over a specified period of time that includes the
interest as well.
When the amount paid equals the original price plus interest, the buyer may then
exercise an option to buy the house at a predetermined price (usually a nominal
Most people don’t just invest money while buying a house, but savings of a lifetime
and hence, there is the stakes are high. Imagine a buyer pays for the house but in return, the delivery doesn’t happen on time or doesn’t happen at all. Or what if the buyer is unable to pay the instalments after occupation? Painful, right? Escrow is a paid bond that saves both the party’s interests by being a neutral 3rd party and holding the buyers’ funds and the title deed from the seller till both the parties fulfil their end of the deal.
Amongst the above ideas, which one do you think is the most effective?
Let us know in the comments below if we have missed out on some other useful affordable
housing finance ideas.
Do check out the 2nd Edition Affordable Housing Investment Summit Africa 2020 that will
feature more such interesting topics by industry leaders.