The new development likely to stir competition in the country’s real estate industry
Kampala, Uganda | ISAAC KHISA | Kenya’s real estate investment firm, Cytonn, is set to invest Shs360.5bn (US$100million) in commercial and residential housing units in Kampala targeting middle class population, its Managing Partner and Chief Executive Officer, Edwin H. Dande, said.
Dande, who was in the country to unveil the Kampala Real Estate Investment Opportunity Report – 2017, told The Independent in an interview that their market research shows that Kampala is ranked as the most compelling market in terms of returns in the region amidst high construction and financing costs.
“Cytonn has over Shs2.8trillion (Kshs82bn) of projects under mandate, across 10 real estate projects, all of which are in Kenya. It is now time to provide diversification to our investors,” he said.
“We have registered Cytonn Uganda, completed market research and we are now looking for opportunities in this market.”
Dande said the firm plans to partner with local experts and networks to replicate what it has done in the Kenyan market in Kampala – delivering the best returns to its investors, housing the middle class population as well as create jobs and train local entrepreneurs.
The new development is expected to stir competition in the real estate industry, currently dominated by the state-owned National Housing and Construction Company, National Social Security Fund and the small scale private developers.
Cytonn’s latest report for the real estate investment opportunity under the theme ‘A Pearl of Opportunity’ shows that real estate investment in Kampala has an attractive returns with average rental yields of 6.8%, 10.2%, and 10.6% in residential, retail and commercial office, respectively, against average rental yields of 5.6%, 10.0% and 9.3% for similar themes in Nairobi.
The report cites high demand in most areas, ease of access from the Central Business District, and low supply in the market to cater for the high demand as the key drivers for the attractive returns in the Kampala market for the best performing zones.
The report notes that the most attractive typologies and areas for development are Grade A offices (high-end offices) with yields of 11.4%, 2-bedroom apartments in Kololo with a yield of 10.0%, 3-bedroom houses in Naguru with a yield of 8.9% and 3-bedroom houses in Naalya with a yield of 7.2%.
“This is mainly as a result of high demand for real estate residential units in these markets against low supply, and demand for institutional Grade A commercial offices,” the report notes.
The report further states that on average, high end residential zones of Kololo, Naguru and Bugolobi has rental yields of 6.1% and occupancy levels of 83.9% during the market survey , with Upper Middle Income areas consisting of zones such as Naguru, Mbuya, Ntinda, Muyenga and Lubowa having an average rental yields of 7.4% and 84.9% occupancy.
Middle income areas of Naalya, Kiwatule, Namugongo and Kira among others records an average rental yields of 5.9% and 88.8% occupancy, with commercial offices having average rental yields of 10.6% at 86.0% occupancy and retail recording an average rental yields of 10.2% and 71.2% occupancy.
This new development comes at a time the performance of the commercial retail sector has been construed by the high supply in the market as a result of a retail boom over the last five years that saw malls coming up next to each other in the city, according to the Cytonn Investments Head of Private Equity, Shiv Arora.
“We thus expect to witness reduced development in the retail sector with investment development activity being concentrated in the middle income residential sector and in Grade A offices in areas with low supply such as Kololo,” he said.
Going forward, the firm’s executives said they expect increased development in the middle income residential segment especially in the affordable to low income segment in suburbs such as Naalya and in middle income segments such as Naguru and Lubowa currently being opened up by infrastructural developments.
The executives say Kololo and Lubowa presents a huge opportunity for investment in apartments while Naguru, Ntinda and Lubowa areas offer an attractive investment for 3-4 bedroom houses.
Similarly, Namugongo, Kiwatule and Naalya presents huge opportunities for investment in affordable 2-bedroom houses while Ntinda offers the best investment opportunity for standalone housing units due to high yields of more than 6%, relatively low land prices compared to Nakasero Kololo areas and good infrastructure including well tarmacked roads with access to main highways.