A few weeks ago I wrote my first viewpoint Blog about the Ugandan real estate sector. in that specific blog, I was raising that coming issue of a possible bust bubble in the housing business. I also tried to point out how unrealistic costs are and how too much Ugandans pay for housing. Things have drastically changed from then. Just like other Economies in the world, ours went to bed in a coma induced by the pandemic. For a great part of 3 months, there was virtually no trading taking place. This set up a chained series of reactions in the real estate sector.
In this writeup, I will try to comment on the outlook of the real estate sector, not as an expert, if you want an entirely analyzed view the guys at nyumbani.co.ug do that every Friday. In Uganda, because of the land tenure system everyone is relatively informed and are active players in the sector through friends and family so that makes my opinion valid. Anyway am presently active especially in the Mukono area in the sector. I will start with the rent aspect since both tenants and landlords are suffering.
For the first time, both landlords and tenants are in the same boat, for starters the commercial landlords. These have not been able to collect their rental income since the facilities they operate and own were closed for the last bit of the first quarter of the year. This has remarkably affected their loan repayment schedules with the banks that are in turn hurting too. The landlords both directly and through property management agents are like wounded dogs trying to recover their compensations for the period the economy was asleep. They are using the toughest means without the option of a proper dialogue which is fine business-wise but may hurt them in the long run.
Ugandans are down in liquidity with the last bits that can only kick start their stock levels which are the core or principle of any business. It’s not rent, so if the landlords are not careful their tenants are going to walk out on them and go start over or start an online business since some clowns are offering to set them up at only 100,000/- hope they hold the traffic capacity. As landlords thirst they have to become flexible, as they have negotiated bank loans they can spread the rent debt to the next maybe 18 months the business community will deliver in that way. Let me move to residential a bit before I come back to commercial.
For so long the residential rental portion has been upside down. The units available are not enough for the demand in the market but no one wants to admit it even if it has created the house pooling culture. Upper-end Ugandans are now having housemates with rental costs shared. This is what is happening to this portion that I have noticed. Tenants have decided to reduce the class and size of houses. It’s a thoughtful move because then one is able to reduce the amount they are paying but it may be futile if it’s distant from your work meaning whatever one is saving is going to fuel the car or transportation expenses.
In the residential portion of the real estate, there is a gap being created at the top for high-end properties which calls for flexibility. In this case, prices have to be lowered for the first time to reflect the realities in the economy. This should be done for the next three years at least otherwise we shall have an increase in white elephants in the sector. If not the landlords will never come close to meeting their return on investment. Landlords have to take on costs for example rubbish collection as an incentive for the tents to stay. Maintenance costs have to continue but the timely manner in which they are done has to increase in length.
Writing off debts is not an option at all, so in the residential sector like the commercial landlords have to spread the debt into smaller amounts, this is the part when a landlord becomes a father in my case a brother to the tenants and dialogue on the way forward. Recently a tenant that had failed to pay for three months honestly presented his case, cleared one and half months, and asked to leave since he had lost his job as a delivery man for one of the big companies in the country and I had to let him go in peace. Instead of having an empty house it better to have some tenants pay slightly lower than the rest as the economy settles provided it’s between the two of you. Like any business, the real estate has to continue functioning because in Uganda being homeless like people are in the United States is not an option.
The fact that buying and selling land is officially on hold doesn’t mean people are not selling. In Mukono here, most traders from Kampala are selling their pieces of land with titles so that they can reinvest in their businesses in the capital. They are doing it cheaper compared to what they bought just because they want to settle their deficits on rent expenses with Kampala landlords. That is what the pandemic and the economy coming out of sleep has done to the real estate sector in Uganda.