UGANDA, Kampala | Real Muloodi News | Not everyone is a seasoned developer like Real Muloodi Sudhir Ruparelia, but we all need to start somewhere.
Judy Rugasira Kyanda is a Chartered Surveyor and managing director of Knight Frank Uganda, one of Uganda’s leading property consultancy firms.
Judy has over 25 years of experience in all sectors of the property market in East Africa and the UK and is a thought leader in all matters relating to the property. Her contributions continue to play a critical role in the growth and development of the property sector in Uganda.
On Friday, Judy appeared at the e-Bomba Ya Business Summit, organised by Uganda Revenue Authority (URA), to talk about what new developers need to consider before buying land in Uganda to get into the real estate business.
Here is Judy’s advice for someone who is just starting in residential property development.
What is Property Development?
Judy defines property development as adding value to land or buildings. For example, you can increase the value of land by developing it. Or you can increase the value of a building by renovating it or converting it.
When considering a development project, Judy says you should make sure you can create that value, make that development profitable, and eventually sell it without making a loss.
According to Judy, a lot of developers out there might have to borrow money. But even if you are building with your own cash and equity, you don’t want to lose that money. Therefore, you want to do something that will be profitable, which will give you a good return, she says.
The Approach to Adopt
Judy advises new developers to take the time to study and understand what you are getting involved in. She says you don’t have to be an expert from the outset like seasoned developer Dr Ruparelia, but you do need a basic level of understanding and knowledge about what you want to do.
For example, do you want to build townhouses or single-unit family dwellings? Or, do you want to build apartments? You should consider where your land is, how big it is, and how many units can fit on it. She says you should also consult an architect about what you can build there, given the size of the land.
Judy advises look at the target market you are building for to determine if there is demand for that type of property in that location. If you are building something the market doesn’t want or need, it will cost you, especially if you borrow from the bank. Therefore, before you decide to acquire land as an investment or residential property development, be prudent and do your due diligence.
Judy says there are people out there who can help you. For example, you can get information from your real estate agent, who can also help you find suitable land. Therefore, talk to your property advisor or agent about what you want to do, where to buy the property, and how much to pay for it. Local councils (LCs) can also help you identify where suitable plots of land are for your target project.
The Pre-Purchase Stage
Once you identify the land that you want, you then embark on the due diligence process. You need to understand where it is, how much it is, and who owns the land. You also need to do your due diligence to understand what you can build on that plot of land.
To begin with, says Judy, you should be aware of the land’s tenure system. In Uganda, there are four types of land tenure systems; customary, mailo, freehold and leasehold. If it is a leasehold, for example, how many years are left on the lease?.
You should also investigate what restrictions may apply to the land. For example, there may be height restrictions or other restrictions may apply if it is a wetland.
Judy says you should find our if there are any easements on the land, meaning the legal right of a second party to cross or make limited use of the land. Also, you may need to fulfill specific planning requirements before you build on it.
All of this is critical, and some of this may differ with the different land tenure systems. Therefore Judy recommends to go to your town planning office, go to your district or city council and local planner to find out what you are permissible for you to build there and the requirements.
Judy further says that you should talk to your lawyers about due diligence on your land title through the lands registry. It is essential to do a search on that property to make sure the ownership is regular; for example, it doesn’t have 2 or 3 owners on the same title.
How Developers Should Approach Financing
Judy says you first need to ascertain how much it will cost you to take the development from beginning to end. Because you may wish to have eight apartments, but you can only afford four.
Then, you should consider how much money is at your disposal and how much you can borrow.
You can choose to develop it incrementally if you want to, but still, you will need to make sure you have enough money to meet the different milestones, says Judy.
For example, if you say you are going to build from foundation to wall plate and leave it at that because you want to use the money you have, then make sure you have enough money to do precisely that.
Judy says you don’t have to have all the money you need to develop the property at once; you can go and get financing. But there are certain things to remember about financing also.
For example, banks will not lend you all of the money you need to build. They will only lend you 70% of the project cost (not of the final value of the development).
Judy adds that even then, you must have a certain amount of money before you start. Firstly, you need the down payment to get that loan. Secondly, you need to do some preliminaries, such as do your land searches, carry out your due diligence, pay your architect and your planners for the drawings they are going to do for you, etc.
If you have strong financial cashflows and revenue streams, that will help to de-risk your project, meaning it makes it less risky and therefore more attractive to the bank to lend you the money.
And you also need to understand the relationship between the purchase price, the income stream you are going to get from when you rent it, or the sale price or you can get at the end.
Judy says to ensure success, those interested in residential real estate development select the right development option depending on the location of the property, your target market, finances, local planning regulations, restrictions, and marketability of the property.
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