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Uganda’s real estate market still offers plenty of opportunities

Arthur Mukembo, regional director for RE/MAX in East Africa

How is the trend of rental costs for different properties in Kampala currently compared with the same period a year ago?
Let me focus on residential property. The traditional interpretation of Kampala is expanding toward this increasingly popular concept of a Greater Kampala Metropolitan Area that spans portions of Kampala, Wakiso and Mukono districts. We have observed growth in lower to mid-market affordable rental units in sprawling suburbia like Najjera, Kyanja, Mutungo, Namugongo, Nansana, and Buziga. It is not uncommon to find rentals like tenements or “muzigo” units to unfurnished apartments ranging from 200,000 to 1 million shillings in these areas.

We are generally observing increased supply year-on-year as as newer units come to market. Prices however, remain ebbed downwards especially for prime rentals likely in response to increasing supply, and the behavior of the broader macroeconomic environment. We think with increased supply in the emerging residential suburbs, rent is likely to continue to be discounted as landlords compete for any available tenants.

Over the past months, there has been an outcry of the high rental fees in Uganda especially in Kampala. In your opinion, what are the main reasons for high costs of rent in the City besides the issue of charging rent in foreign currencies?
I think “high cost” is relative. Premium buildings, newly built structures and attractive locations typically attract higher rent than their competitors do for instance.

Furthermore, the “outcries” you refer to are predominantly from the downtown retail and trading fraternity and not synonymous with all sectors of the real estate market. Even then, though indeed some landlords downtown have irregular rent pricing tactics, this is the exception not the norm.

Challenges start to arise where for example, a property is constructed using a foreign currency denominated facility yet received income in local currency, whereas the shilling continues to depreciate. It is not unreasonable for a landlord to seek to hedge against this risk by applying a premium to the rent charged to accommodate for forex loss where rent is received in shillings, or to insist on dollar payments to eliminate this risk altogether.

Regardless, with effect from the current financial year, rent agreements are supposed to be denominated in Uganda Shillings. Whilst I can empathize with the spirit of this action by policy makers, I do think it may constrain the commercial viability of certain properties established using foreign currency denominated debt where there is no Government move to create a predictable rate or limit to depreciation of the local currency. I reckon it is more prudent to make a set of comprehensive reforms that boost the sector for all stakeholders instead of castigating landlords.

What plans do you have as RE/MAX in the coming five years?
RE/MAX is committed to making a long-term contribution to enhancing the Real Estate industry in Uganda. We have several plans for Uganda including placing more franchise locations across the country, recruiting more young professionals into the industry, establishing a world-class real estate training academy, and continuing to contribute to the growth of industry bodies like the Association of Real Estate Agents of Uganda, and the Institute of Surveyors of Uganda, among others.

What is the future outlook of property market in Uganda?
Uganda’s real estate market still offers plenty of opportunities. For example, we see new large institutional property developers entering the market attracted by Real Estate Investment Trusts and satellite city opportunities for example; growth in use of alternative construction technologies in a bid to meet the housing deficit and demand for affordable housing growth in alternatives like parking structures, hostels, and managed camps; and innovations in real estate financing beyond loans.

What could be your advice to the prospective property developers in Uganda at the moment?
It is important to invest in a detailed feasibility study before you start a real estate project. A good feasibility study can help one understand for example, changing demand patterns, current and upcoming supply, and the impact various financing scenarios will have on the viability of their projects.

They should also put in place formal structures, and operate with good corporate governance. Formalising their business such as through having credit control policies, proper functional Board of Directors, and so on, positions their business to attract competitive financing and win larger opportunities.

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