The Long Road From Rent to Ownership

A household can pay for a home for years without getting any closer to owning one. Each month’s rent secures another month in the flat. The deposit needed to buy a place must be found somewhere else in the same income, after food, electricity, transport and the rest of ordinary life have been paid for.

This is often described as a problem for young people starting out. Yet there is no reason the arithmetic should resolve itself with age. A salary can rise while a family’s commitments grow. Children arrive, more space becomes necessary, and the money that might have become a deposit has another immediate purpose. Without enough income to save, or help from assets already held within the family, a temporary arrangement can become a way of life.

In Greater Malé, the difficulty of moving from rent to ownership has long been a structural problem. The World Bank’s 2022 housing assessment, drawing on the 2019/20 Household Income and Expenditure Survey, reported that 74 per cent of Malé households rented their homes. Its affordability model estimated that buying a MVR 1.8 million two-bedroom flat required monthly household income of about MVR 46,000. Those are historical figures, rather than a measure of today’s market, but they show how far the ownership problem already extended beyond people seeking their first job.

The Government’s latest housing measures address one part of this difficulty. Help to Build and Help to Buy offer assistance towards the upfront contribution required for housing finance. Agreements signed on 18 October brought together Bank of Maldives, Maldives Islamic Bank, Housing Development Finance Corporation and Maldives Finance and Leasing Company. The announced grants reach up to MVR 200,000 for eligible construction applicants and MVR 250,000 for eligible first-time purchases. 

For a household with enough income to repay a loan but little money accumulated, that assistance could change its prospects considerably.

Minister of Infrastructure, Housing and Urban Development Dr Abdulla Muththalib has cited findings from the Maldives Affordable Housing Reform Study indicating that more than half of surveyed households had no savings, while fewer than one in ten could save above MVR 3,000 a month. The figures, presented through the minister’s account of the research, describe the weakness in a housing system that expects families to assemble a large sum before they can begin financing a home. 

Consider a hypothetical MVR 2 million apartment. A 20 per cent contribution would require MVR 400,000. At MVR 3,000 saved each month, accumulating that amount takes a little over eleven years, assuming no interruptions, no returns on savings and no change in the purchase price. The household must still live somewhere throughout those years.

There have already been changes to that calculation. BML advertises home-purchase financing with minimum equity of 5 per cent, a lease rate of up to 9 per cent and a term of up to 25 years. MIB’s Ujaalaa Hiyaa product specifies minimum equity of 10 per cent. A 20 per cent deposit is therefore no longer a universal requirement. 

But reducing the upfront contribution leaves more of the price to finance. On the hypothetical MVR 2 million purchase, a 5 per cent contribution would be MVR 100,000, leaving MVR 1.9 million outstanding. Using a standard monthly declining-balance calculation at a fixed annual rate of 9 per cent over 25 years, the payment would be approximately MVR 15,945 a month. With 20 per cent paid upfront, the same calculation produces approximately MVR 13,427.

These are illustrations, rather than bank quotations, and exclude fees, insurance, maintenance and service charges. They nevertheless explain the trade-off. The smaller deposit makes the purchase easier to begin. The larger financing balance must then be supported by the household’s income for years afterwards.

A grant can work differently. In the MVR 1.5 million affordable-home example outlined for Help to Buy, a MVR 250,000 grant could reduce the buyer’s own contribution towards a 20 per cent deposit from MVR 300,000 to MVR 50,000. The remaining MVR 1.2 million would be financed. Assistance of that kind replaces savings the buyer would otherwise have to produce, without increasing the amount borrowed. Applications have been announced for November, with detailed guidelines to follow. The precise interaction between grants, different lenders’ products and eligible properties will matter.

There is another threshold after the deposit: the lender’s assessment of the income available to repay the financing.

MIB’s published conditions, for example, require total monthly financial commitments, including the proposed housing finance, to remain within 50 per cent of confirmed gross income. Existing borrowing counts too. A prospective buyer facing MVR 12,000 in housing payments and MVR 3,000 in other debt payments would need at least MVR 30,000 in recognised monthly income under that ceiling, before other conditions are considered.

This helps explain why a rent payment cannot simply be exchanged for a mortgage instalment. The rent may be shared among several earners. Some income may be variable or difficult to document. Other loans may already absorb part of the family’s earnings. A household’s ability to get through the present month and its ability to qualify for a commitment lasting decades are different assessments.

The difficulty can persist well into working life. For a prospective buyer, waiting means more time to save, but also less time before retirement. For someone whose income remains too low to meet the repayment test, assistance with the deposit leaves the central problem unresolved.

Housing policy has begun to recognise the importance of the financing rate as well. The Maldives Monetary Authority’s Inclusive National Affordable Housing Scheme provides separate routes for lease ending with ownership and end-user financing, with default annual profit rates of 5 and 6 per cent respectively, subject to the Authority’s determination. Access is limited to eligible first-time buyers and designated projects.

That distinction is essential. A lower-rate programme can bring ownership within reach for households unable to sustain ordinary commercial financing. Its practical value depends on which homes become available, where they are, their price, and how many eligible households can obtain them. A financing framework needs a supply of suitable homes before it can change a family’s living arrangements.

The same applies to construction assistance. Help to Build can support eligible people who already have land. A tenant without land faces a different problem: finding a home to purchase at a price their income can support. A housing policy must accommodate both circumstances, alongside households whose earnings cannot safely support substantial debt.

Minister Muththalib has acknowledged that deposit assistance alone will not resolve the overall cost of housing, linking Help to Buy to affordable developments on land provided by the Government. He has also described the grants as a way to help families capable of repaying bank finance, while reserving state-built social housing for more vulnerable households. 

That is a useful distinction on which to build policy. Some households need help crossing the initial savings gap. Others need a lower purchase price, cheaper finance, or housing support that does not depend on qualifying for a large loan. Treating all of them as prospective mortgage borrowers would leave the poorest with the fewest options.

For households that continue to rent, secure and affordable accommodation remains a policy responsibility. Renting can provide flexibility, and taking on an unaffordable mortgage would create its own insecurity. The failure is allowing ownership to remain an aspiration that sustained work cannot realistically bring closer, while leaving those who rent without adequate alternatives.

The new grants deserve to be judged by what they make possible. Applications and approvals will tell only part of the story. The more useful measures will be completed purchases, homes occupied and payments families can maintain without sacrificing the rest of their lives.

For a young person beginning work, and for a family already years into paying rent, the question is much the same: what has to change for the next decade of earnings to leave them with a home of their own?