UGANDA, Kampala | Real Muloodi News | Most plots around the Greater Kampala Metropolitan Area can cost anywhere between USh500 million to several billions. This well outside of the reach of most everyday Ugandans, who struggle to save up USh100 million.
However, USh100 million seems to have emerged as the magical amount hopeful would-be property owners are aiming for.
Gabriel Buule investigates the value of USh100 million in the Ugandan real estate market. Currently, what drives the property market in Uganda?
Size and Location
Gilbert Mugisha, a property broker from Kampala, explains that in most up-and-coming regions with emerging economic potential, the asking price for properties under commercial jurisdiction is USh100 million.
“USh100 million is the magical figure or the asking price for most commercial properties, but prices can go higher depending on the location, seller’s valuation and condition of the seller,” Mugisha narrates.
He indicates that buyers of residential homes typically have more negotiating power than those who desire commercial properties or choose premium sites.
“The price for land depends on the distance from the central business area and the development of the real estate in terms of water and electricity availability. The common price range is between USh15m to USh20m mainly Gayaza Road, Hoima Road,” he adds.
Building, Labour and Material Costs
The building cost and material used including the labour also determine the property market in an area.
Gilbert Mugisha observes that because construction expenses are frequently so high, homes tend to be more expensive. He says that a bag of cement costs around USh40,000 and adds that the high cost of labour and building materials contributes to the high cost of housing.
Property Valuers at District Level
Denis Lubandi, a property specialist at Archy’s Design and Build Studio says, the USh100 million price tag is affected by government valuers who calculate the money paid during the title transfer.
“Sometimes you buy a 50 by 100 plot of land, say in Kira, at USh5m and end up spending nearly USh5m in unknown taxes. Many sellers have to fix the assumed fees on the value of the land,” Lubandai said.
He says that under the Local Government Act, the ability to determine land fees and other associated charges is vested in the Minister responsible for lands under sections 93(2)(b) and (c), but those who set fees do not comprehend the market.
He observes that, in the end, sellers gamble with high prices to obtain what they value.
According to Lubandi, the typical price range for houses (standard three-bedroom dwellings) is over USh450 million, while the average price for a plot in normal residential neighbourhoods is more than USh100 million.
He says that the average price for a two-bedroom condominium is USh250 million.
Population
According to researcher and economist Jonah Kiberu, in the 2014 National Population and Housing Census, Kampala City alone had a population of about 1.5 million people which has now already more than doubled.
Given the metropolitan region ranging from Kampala to sections of Mpigi, Mukono, and Wakiso districts, population growth, and the city’s status as Uganda’s main commercial centre, property values have risen above optimal levels.
“A 50 by 100ft plot of land ranges between USh30 million to USh400 million depending on its location within Kampala Metropolitan. One of the causes of this, is the proliferation of brokers, the rampant rural-urban migration, and in general the increase in the volumes of commercial businesses in the region,” he narrates.
Inflation
Economist Kiberu claims that the country’s present inflation may be exacerbating prices as landowners and real estate brokers seek to compensate by attaching high prices to property.
Tax Structures
Mr Richard Ssempala, an economist and Makerere University lecturer, observes that USh100 million in the property market is due to the present economic environment and Uganda’s discriminatory tax structure.
“Many people are investing in real estate because it appears to be the safest undertaking and people are failing to find other safe money making ventures. Our money market is not well developed for people to venture into, say buying shares. This means that the only safe investment is land,” he explains.
He observes that individuals are reluctant to invest in other businesses because they doubt their money will be secure.
According to Ssempala, many people have always felt secure with the land, unlike today when a few levies are being put on it.
Ssempala claims that because Uganda’s tax to GDP ratio is still low, the government is dependent on revenues from a limited number of already-existing enterprises, which encourages individuals to put their money into safer investments like real estate.
He contends that although the price is illogical, it is secure since land appreciates, unlike other endeavours that are incompatible with Uganda’s current economic circumstances.
The Property Market
There are a very few homes for sale in the USh100 million category, according to many internet real estate brokers we examined.
A few incomplete homes in the Kungu Buwatte and Namugongo neighbourhoods are listed for USh100 million on the majority of real estate websites.
These homes typically include two bedrooms, a bathroom, a living room, a dining room, a contemporary kitchen, and a garage with a complex enclosed in a fence on 12 decimal private mailo property with a land title.
Two-bedroom apartments in Kampala’s most desirable neighbourhoods often cost around $280,000 USD (USh1 billion), while three-bedroom apartments cost around $325,000 USD (USh1.18 billion).
A four- or five-bedroom home typically costs $1 million (about USh3.6 billion).
So, Which Ugandan Can Afford a USh100 Million Property?
According to data obtained from a leading financial and analytical web portal ‘Take profit’, the average wages for low skilled workers in Uganda is USh412,400 per month, with the maximum being USh649,900 per month.
If a low-skilled worker makes USh649,900 a month, he or she would need to save for nearly 14 years without taking any outlays to buy USh100 million worth of property, which is practically impossible.
What Can Be Done?
According to data from the Uganda Bureau of Statistics (UBOS), the total amount of mortgages still in default increased by USh1.34 trillion in September 2019.
The Bank of Uganda reports that over the same period, credit advances to the real estate industry as a whole, which includes building, mortgages, and construction, grew by USh3.19 trillion.
According to Ssempala, the government should establish secure circumstances for other investments to function so that individuals may choose to engage in other endeavours where enterprises can turn a profit.
“In a situation where people are just looking at the safety of their money, valuation becomes an issue and the economy is threatened. The tax system should enable people to create other businesses to attain aggregate demand,” he adds.
He adds that if USh100 million is put in a company that would employ additional Ugandans, it will affect aggregate demand and benefit the economy.
According to Kiberu, rising land and building costs are to blame for the increasing cost of renting a home.
As a result, it puts pressure on young business owners who have restricted rent affordability, resulting in a small tax base and endangering the nation’s economy and those involved in real estate.
He anticipates that as prices rise, income disparities in Uganda would remain significant. Naturally, Kampala Metropolitan cannot be advantageous for those just starting or with modest incomes.
“It includes exposing Uganda’s expensive property to be mainly purchased by foreigners who pay in dollars without bargaining. This kills economic freedom for the poor and young entrepreneurs,” he adds.
He adds that the tendency also poses a threat to Uganda’s general standard of living since the overvaluation of land directly influences the costs of other assets, products, and services.
He suggests that when new cities in Uganda are gazetted, migration to Kampala and its surrounding suburbs would decline, but only if the new cities also grow. Land costs in the area will go down as migration to Kampala Metropolitan declines.
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