East African Business Week (Kampala)
Paul Mwijagye
11 January 2009
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Recently Kampala traders under their umbrella organisation KACITA (Kampala City Traders Association) threatened to go on strike if Kampala City Council (KCC) did not look into their grievances. Their major complaint was that KCC was over taxing them and yet they are being charged exorbitant rent; putting their businesses in jeopardy.
By the end of last year (2008) property rates in and around Kampala city were continuing to rise to unprecedented levels despite the increase of new structures in the city. According to some of the players in real estate we talked to, Uganda is now one of the countries with the highest property rates in the world. For instance one room in the central business district is rented at between UShs1.8 million and UShs3 million and a 50x100feet plot of land in a prime location like Nakasero goes for US$2m. This has been due to various factors which have come into play. Some of these include:
The banking sector
The banking sector has played a big part in the increasing property rates. Although nowadays banks no longer attach a lot of importance to collateral as one of the prerequisites to acquiring a loan, if one has just, say, a 50x100feet plot in a prime area like Kololo banks would readily avail that person with a loan. According to a person in the banking sector this reporter talked to, most banks would go an extra mile of even offering more than what an individual asked for because they are sure of recovering the money by selling the property in case the borrower defaulted . "For instance if a person with a plot of land in Kololo applied for a loan of UShs400 million, some banks would be willing to give that person UShs450 million just because of the location," he said. It is therefore easier for a person who owns property within the radius of 15km to get a loan from the bank and as such the value for such property has tremendously increased because of the importance attached to it. This has in a way also increased the rent charged because property owners are always on pressure of servicing the loan and the burden is shifted to the tenants.
Inflation
By the end of last year inflation in Uganda had hit double digits. The shilling has continued to depreciate against the dollar and as such prices of commodities have continued to rise. According to some real estate dealers some people are nowadays avoiding to rent houses rented in dollars because of the current adverse exchange rate.
Corruption
With the ever increasing corruption in most African governments, many people have accumulated a lot of money. Since banking such money on their accounts would expose them to the risk of being investigated, they would rather invest the money in property. Therefore with such easily earned money they have enough disposable income to invest in buying property other than banking it; thus raising the demand and eventually property rates go up. According to some political pundits, most of the government officials in African countries prefer investing their loot in other countries especially by buying property. However some government officials invest in their countries though in other people's names. It is also said that individuals with such money do not bargain when buying land or houses and as such prices for plots and houses have continued to rise in Kampala.
The foreign money factor
In recent years there has been a considerable increase of foreign money in Uganda. Investors from Sudan, India, China, Ethiopia and other countries have started buying property in Uganda and when they set up powerful buildings in some places, the value for land goes up in those very places. Consequently the demand for land and houses increases thus the hike in property rates. Many Ugandans have also opened up trade in countries like China and as a result they have accumulated enough money to enable them buy land in Kampala. One of the dealers in real estate we talked to also said the first investment Ugandans working abroad think about is buying a house or plot of land in Kampala. Given the fact that many Ugandans are now working abroad in countries like the UK, US and Iraq, the demand for land has subsequently remained high; keeping property rates on an upward trend. On the other hand one would wonder how businesses especially in the central businesses district have continued to operate despite the high rent charged. As earlier noted a room in one of the commercial buildings in the central business district goes for between UShs1.5 million to UShs3 million per month. According to some players in business these businesses have continued to survive due to foreigners who can afford to buy their merchandise at high prices.
Take for instance people from Southern Sudan who buy everything ranging from building materials to clothes in Uganda. In places like Arua Park which is a destination for most Sudanese buying building materials one room is rented at UShs3 million per month.
They also buy clothes in the surrounding areas. Also businessmen from other countries like Kenya buy clothes from Uganda since the taxes for imported clothes in Kenya are high. This was done in a bid to promote local textile in Kenya and therefore businessmen find it cheaper to shop in Uganda clothes which they take as personal items.
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