Homes and Property
What DROVE the real estate sector in 2015
Posted Wednesday, December 30 2015 at 02:00
Ugandans have had to make hard choices in the property market in 2015. As Mark Keith Muhumuza describes the real estate sector was hard-hit by a weak Shilling coupled with a rise in mortgage interest rates rose from 21 per cent to about 25 per cent per annum
2015 started on a good note in the property market. But this was short-lived when some landlords started pegging their rent charges against the dollar. This was in an attempt to cusion their debt obligations in dollars. That meant the cost of rent shot up. These concerns were raised by some realtors in various reports.
The real estate sector, which had recovered from at least three years of slowdown took a beating from the depreciation of the Shilling and rising interest rates as the year progressed.
It all started when the Shilling continued to weaken against the Dollar and as a result, landlords begun adjusting rent upwards.
Notably, the Uganda Shilling crossed the Shs3,000 per dollar mark in Q2 2015 and the major contributor to the exchange rate pressure was the weak demand for exports and continued strengthening of the dollar against most currencies globally.
Estimates indicate that rental prices for mostly commercial properties have gone up by between 13 per cent and 15 per cent.
Price of construction materials up
As the Shilling depreciated, prices of almost all commodities started rising. Construction materials such as cement, iron sheets and iron bars, among others, all rose. This upped the cost of building.
However, this also meant inflation was on the rise and Bank of Uganda (BoU) had to act.
In order to curb pressures which arise out of inflation, BoU raised the Central Bank Rate (CBR) to 12 per cent in April 2015 and then again to 13 per cent in June 2015. From then on until December 2015, the rate rose to the current 17 per cent.
The resulting factor was commercial banks raising lending rates from an average of 20 per cent to about 24 per cent.
Fewer people borrowed to build
According to monthly Private Sector Lending statistics by BoU, loans to the building, mortgage, construction and real estate sector have either slowed or stagnated.
As percentage of total loans to the real-estate sector, mortgages were at 12 per cent in January 2015. By October 2015, this had slowed to 11.7 per cent in October 2015.
For property developers, lending was at 6.1 per cent in January 2015 but then slowed to 5.9 per cent in October 2015.
Defaulters likely to rise
People acquiring property are already suffering much more than they were in 2014 because mortgage interest rates rose from 21 per cent to about 25 per cent per annum. The projection is that people will begin to default on their mortgages as a result of the high rates. With defaults, that means banks would foreclose on the properties.
“This will fuel diminishing bank appetite for such deals since banks are naturally prudent about risk management,” Arthur Mukembo, regional director, REMAX, a real estate firm told the Daily Monitor in September 2015, adding: “Consequently, there will be a sharp drop in residential mortgage products, until around the third quarter of 2016.”
At the moment though, the defaults in the mortgage sector have been falling. The latest Monetary Policy Report indicates that non-performing loans ratio for real estate was 3.6 per cent in March 2015. By September 2015, they had shed 0.1 per cent to 3.5 per cent.
All was not doom and gloom for the real estate sector though.
$100M MEGA CITY PROJECT IN MUKONO
In February, President Museveni launched a $100m housing project in Mukono, which was termed as a mega city. It will mostly comprise of high-rise residential apartments of up to 16 floors and 1260 units.
Two Indian Conglomerates, RI Corporation and Apex Global are the major financiers together with a Ugandan company, Habib Kagimu properties.
However, it is always one thing to launch and another to get the project off the ground.
NSSF’S SHS40B OFF-TAKER
National Social Security Fund (NSSF) in July, announced that it would set aside Shs40b for a “pilot scheme” to guarantee purchase of houses from developers who will put more than 100 housing units on the market.
Richard Byarugaba, NSSF managing director, noted that developers could be able to use this guarantee to secure financing for their projects.
“A developer will identify land and secure all land titles. They will then approach NSSF to approve a building and concept plan for the housing plan. In approving the plan, NSSF will enter into an agreement with the developer on the pricing for the units. We shall only buy the units once they are complete,” he said in July 2015. Notably, NSSF is looking at each developer delivering 100 units valued at between Shs100m and Shs150m each.
NAKAWA – NAGURU HOUSING PROJECT TAKES OFF
After nearly five years of stalling, the Nakawa – Naguru housing project took off with the first 100 units of 1,000 expected by first quarter of 2016.
In February 2015, M/S Roko Construction Company started construction on the Naguru-Nakawa Satellite City Development a project by Opecprime Properties Uganda Limited (OPUL), a UK subsidiary firm of Comer Group and the Government of Uganda. The project had nearly stalled after the Comer Group had failed to secure the financing for the project.
The plan by the government was to provide low-cost housing for tenants who will occupy the houses. However, the wait is still on to find out the actual cost of each unit. The estimated projected is Shs4 trillion.