Wednesday July 16 2014

Real estate industry in for another tough six months

The real estate industry has not fared as expected

The real estate industry has not fared as expected by agents in the first half of this year and they believe the situation is going to be worse in the next six months. photos by faiswal kasirye 

By Ivan Okuda

Francis Mutebe is not a happy man. He is frustrated and almost disillusioned. The year is fast moving towards an end and his new year resolution of buying a plot of land and starting construction of a two-bedroom house in Mukono District appears to be just a dream. And yet, there just seems to be no light at the end of the tunnel for the businessman.

The father of three for some reason, failed to meet his dream. He explains, “I have failed to buy land half way into the year. The economy is tougher than I thought it would be this year.” His is only a mirror of the tough year so far for the real estate industry so that key players have now been reduced to guessing what the future holds. Real Estate Company Knight Frank Uganda is set to release its analysis of business for the last six months soon but the picture is not rosy so far.

Anatoli Kamugisha, the chief executive officer Akright Projects Ltd, gives an overview of the first half of the year. “There has been a decline in real estate development because of so many changes like closure of the land office and limited cash flow.”

Poor cash flow
Basic economics in a private sector-led economy such as Uganda, where prices are determined by the forces of supply and demand, dictate that the higher the demand for land and houses, the higher their prices.
The last six months however, players like Kamugisha reveal, “have seen a fall in demand for land as people have no money. Even if the price of land was reduced, still people with no money could not buy.”

Determining factors
Uganda Revenue Authority registered a shortfall of Shs331b in the last ten months. This is up from Shs270b in the eight months to February 2014. The Shs176b deficit, the media reported, “is attributed to the limited profitability of the banking, telecoms and industrial sub sectors and sectors. Banking recorded the largest shortfall of Shs51b whereas telecoms had a deficit of Shs30b”.

The political climate in South Sudan came with its own share of trouble.
In January this year, Dr Gabriel Ajedra Aridru, the Minister of State for Investment said the paralysed trade exchange between Uganda and South Sudan had cost Uganda Shs2.2trillion.
That was six months ago and the losses could have surged by three or more as the political uncertainity still looms.
In this situation, Kamugisha explains, “the banks have been slow to give loans to clients for land and housing investment in the last six months. They want to be sure of returns.”
Hasifah Kaaya, the sales and marketing manager Zion Estates, said their pricing was not much affected by the low demand.

“Land appreciates every second. We could not reduce the price because people were not buying,” Hasifah Kaaya, the sales and marketing manager Zion Estate said, adding, “In our yet to be launched satellite city at Matugga, a 50ft by 100ft plot was Shs2.5m in 2012 but we still sold it at shs4m this year”.
She added, “The period of February to April was tough with low demand but the pace has since picked up from April to June though we remain uncertain of the future.”

Generally, Anatoli Kamugisha the chief executive officer Akright Projects Ltd says, the cash flow among their potential clientele has been low, “you are aware that salaries of civil servants have been delayed for six months. All those things affect us. Now the budget has come with a heavy tax burden and that means another uncertain future.”

Speculation takes its toll
The demand for real estate, Kamugisha asserts, is determined by two things, “the demand for the property as a basic requirement (shelter) and the scramble for it, causing speculation. If there is less speculation, land value goes down and if there is more speculation like a road being constructed and amenities extended, the demand and price rise.” Again, in the last six months, not much positive speculation has fed into the industry, keeping the demand curve at its base.

Kamugisha expounds that about the time people await the Budget and when it is read, the forces of speculation are at play.

Now that the Shs14trillon 2014/15 budget has been read, and taxes are up on most essential commodities and services, with no incentive to support the industry, the prices are likely to go up but whether the demand too rises remains to be seen in the next six months.

From Kololo to Katanga, Masaka to Mukono, the rich and poor, Kaaya says the slow business witnessed in the first half of the year affected all areas and classes of people. “When the economy is doing badly, it affects everybody, even the rich who would ideally afford prime plots in and around the city are affected, it is a chain link and reaction,” she said.

Scandals rocked the sector too
Kaaya, reveals that a good fraction of the potential clientele still have doubts in the real estate companies’ transparency.

“Sometimes we pay for the dishonesty and fraud of those masquerading in the industry. Each scandal that comes up reduces the demand for land and houses from real estate companies but we are lucky the trust is coming back,” she said.

In February, Hosanna Real Estate was thrust in the eye of the storm when clients stormed their offices demanding to have their promised land titles only to realise that they were conned.
The Ministry of Lands was to later break gloomier news, denying possession of the titles as claimed by the company’s directors.

“One of the problems of these real estate companies in Uganda is that they buy big chunks of land and start selling it to clients before it is approved and surveyed by the physical planners. At the end, they use the ministry as a scapegoat,” Harrison Irumba, the principal Policy Analyst at Ministry of Lands, Housing and Urban Development, said.

Such incidents, almost a carryover of 2013 in which another local firm had more than 300 titles cancelled by the same ministry, Daniel Mukisa, a real estate dealer says, “have caused us to act with precaution before buying land from these real estate companies”.

Way forward
Already, the country awaits with what the budget, with its myriad of taxes likely to squeeze the low and middle income earners harder has to offer. Add to that a raging civil war in the world’s youngest nation next door, an East African region walking the slippery and tight rope of terror threats, and a global economy yet to fully recover from the credit crunch.

That, experts assert, will have its own sting on the demand side for land and houses as a man struggling to survive in a tough economy is least likely to spend a chunk of say Shs40m on a house or land.
The real estate industry therefore finds itself in a rather tight corner. This, especially in a country where attention to the housing sector seems to elude the eyes of policy makers as reflected by infinitesimal allocation in the 2014/15 budget.

Kamugisha shares, “We cannot say now if the next six months will be okay or not. But ultimately, the only way government can reverse the situation is by working with us through private-public partnerships and giving incentives to the housing industry.”
No investor, he opines, “can come up with low cost housing unless he is partnering with government and of course banks, too, want a guaranteed demand before giving us loans. At that rate, we shall remain with slums.”

From the public reactions after the reading of the Budget and the delicate geo-politics in the country and region, one thing for sure is that the next six months and beyond are going to be a scorching economic journey for many.

Whether and how the real estate industry maneuvers through these murky waters remains an interesting spectacle only time can deliver.

LAND OFFICE SCANDAL

The row between Kampala Land Board and Kampala Capital City Authority reached its peak early this year, culminating into the closure of the office. In May, the solicitor general argued that after the formation of KCCA, Kampala is not a district under local government, but a city under the authority under central government; therefore, it cannot have a district land board and all public land falling under the jurisdiction of KCCA should be managed by the Uganda Land Commission. The ping pong between the different agencies, to which the real estate players were not party, naturally affected them. To add insult to injury, the ministry of lands and housing, continues to have its share of controversy. All these factors played on the negative for the sector.

editorial@ug.nationmedia.com

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