News Column

Property Market Stabilising - Survey

February 5, 2014

Alon Mwesigwa

For the last two years, the real estate sector has sent mixed signals; a boom in construction coinciding with a slump in demand for property. A study from the real estate giant Knight Frank, however, appears to settle the debate: Uganda's property is on a long road to recovery. House purchases and mortgage loans are up, as property yet again attracts the eye of investors and anyone with money to spend. "The property market, although nowhere near its peak performance, is showing signs of slight recovery," says a report looking at the third and fourth quarters of 2013. "The easing of credit restrictions for mortgage financing and reduced lending rates from 30 per cent to 22 per cent currently [have] led to a revived interest in residential house purchases... " The recovery should come as a relief. For the last ten years, no sector has received as much attention and excitement as the property sector. House prices shot through the roof, and rentals and commercial structures sprouted all over the city and its suburbs. Smelling the money, speculators dashed in and drove prices up, usually on the premise of "buy now or pay more later". That fear drove Ugandans to seek commercial bank loans. The banks obliged, pushing loans beyond their limits. Another factor played into all this: corruption. Over the last ten years, the public has witnessed a spate of thefts of public funds - from the Global Fund to Gavi, Commonwealth summit, Office of the Prime Minister , and within the ministry of Public Service. Add the huge amounts of funds that floated around during the intense general election periods of 2006 and 2011, and you had a city flush with cash. Putting this dubiously-amassed wealth in a bank account would lead to an obvious paper trail, smoking gun evidence if investigators came sniffing. The easy way out was property - and that partly explained why some posh residences were built at breakneck speed. However, a couple of years ago, Uganda started witnessing a slump in property demand. For starters, those who had taken bank loans to either buy land or construct a building finally discovered that they had borrowed expensively, and probably bought land at a premium. A number defaulted on their bank loans. The outcry over the heightened scale of corruption got to the attention of donors; they would later cut aid. But also, those linked to corruption scandals were either rounded up or had their names in the public list of shame. The land registry was hit with all sorts of forgeries and bureaucracy. All these factors turned building unattractive. The market is now at least starting to send a fair price, according to Knight Frank. The report says there has been particularly increased demand for residential areas where infrastructural projects are taking place. But also, those renting are pushing harder bargains. For mall owners and tenants, the report says, conditions are still dim, especially after the Westgate incident in Kenya , which left the public questioning the security lapses in such commercial structures. Very few people, the report points out, are seeking office space, which could also be due to slowed business activity. "Most of the office space take-up and demand is not new but from tenants looking to relocate to new space with more parking, less congested, at equivalent or lower rates," says the report. At least three out of five buildings have their last floors up empty. Early last year, banks cried foul over the many mortgage defaulters piling up in their books. Bank of Uganda's monetary policy report for January 2014 shows that charges on loans for land purchase have increased while those for mortgages remain higher, an indicator that the sector remains risky. The bank noted that the interest rate for loans in construction shot up to 24.5 per cent in November 2013 from 22.6 per cent in October 2013 . "What is happening is that actually in the central business district, business is still as poor as it used to be but outside in the surrounding district, people have opted to buy land and build," says Samuel K Sebowa, a director at Bogere Enterprises and Property Agents company. But Andrew Mukiibi , the president for the Association of Real Estate Agents (AREA) Uganda , thinks otherwise; he says more people have become confident that things are beginning to brighten as others consider taking up loans to invest in property. "While it used to take one a lot of time to sell a house, now it can take between a month and four months to get a buyer," Mukiibi told The Observer. In Kampala , Sebowa says, in places such as Najjeera, Kiwatule, Kololo, and Ntinda, people have cut the prices of the houses by more than 30 per cent. "If someone had a house in Ntinda at Shs 120m, they are now likely to sell it at Shs 90m. That's the situation," Sebowa says. He explains the drop as a market correction, where prices are fair and reflect market demand. The Knight Frank report says that it is now the forces of demand and supply at play, correcting prices to where they are supposed to be. "We have observed 15-25 per cent discount in house prices across the board over the past two years and a prolonged marketing of up to eight months for a transaction to be closed," says the report. There are worries that this correction might not last long. Uganda will, from later this year, start feeling the pressure that comes with general elections, as politicians fight for their lives ahead of the 2016 ballot. With that comes huge amounts of money poured into circulation. The result could be billions of shillings looking for a home, literally - something that could send the real estate market into a new phase of excitement.

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Source: AllAfrica

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