Buying property around Kampala could be hurting Uganda’s middle class

Tuesday May 14 2019

Raymond Mugisha

Raymond Mugisha 

By Raymond Mugisha

A quick search on the internet will reveal that it is possible to buy a 0.67 acres lot in Beverly Hills, California, for USD249,000. Also, 0.45 acres of prime land in Kololo, Kampala, can be priced as high as USD750,000. Beverly Hills is home to many Hollywood stars. Kololo is a leafy residential area for some of Kampala’s richest folks.

By early 2018, it was estimated that an average of 200 properties were being auctioned every month for loans relating to borrowers that had completely failed to pay back their obligations to Ugandan banks. The banks were however struggling to get buyers to take the properties.

Although the price of land in Kololo cannot fully represent the state of real estate prices in Kampala and the area is out of reach for the middle class, it is telling of the fact that land prices in Kampala are inflated. There is no other explanation for land in any place in Kampala exceeding that in Beverly Hills on price.

So, on one hand, Ugandan properties especially around Kampala are highly priced while at the same time the properties cannot generate enough income to match their pricing and to repay loans that are accessed to procure them.

While interest rates for mortgage finance average around seventeen percent in some of the most competitive banks in Kampala, experts estimate that in the city centre, gross rental yields average only 1.3% while outside the city centre this can go as high as 10.3%.

Most middle class individuals normally buy property in the city outskirts and are therefore beneficiaries of the higher of the two yields above. However, they still suffer a wide deficit of about 7% of the property value or mortgage amount as the gap between the interest cost they incur and the benefit of rent they receive all through the tenure of the mortgage.

Mortgage arrangements with banks can take any time between five to twenty years for borrowers to clear. During that time, for the salaried, monthly salary deductions to repay such mortgages can range from thirty five to forty percent of their net pay.


For average earners, the effect of the high mortgage rates which is not fully compensated by the rewards of rent can take a toll on their cash flow. For persons who borrow so that they can assign the monies they have been paying in rent to pay their mortgages, normally the mortgage monthly installments can far outstrip the rental expenses they have been incurring before owning their homes due to the gap between mortgage rates and the rental yield.

Whereas there is relief to be attained when the mortgage lapses, the lifespan of the mortgages is so long and therefore the opportunity cost incurred by such borrowers, extremely high.

People who borrow to buy land and houses solely for their residential needs get no other financial benefit from owning such properties apart from the saving they make on the rent they have been paying before owning their own homes.

Even though the properties they buy may appreciate in value over time, this appreciation is commonly irrelevant to their financial position because it can only be realized when properties are sold. Many such properties are never bought to be resold at a later time but rather to be owned as family homes.

As such, there are very huge financial sacrifices made by urban Ugandans especially around Kampala to own homes. The net position is akin to investing expensive capital in non income generating ventures, or ventures generating little revenue while incurring the cost of capital, in very high interest payments.

It is, ultimately, a loss making position to take. On the contrary, the same capital investment can be assigned to business ventures that have the capacity to generate revenue and grow to the level that they can enable individuals to buy land and construct residences or even buy complete properties without borrowing.

They would then even proceed to acquire houses to rent out, still without having to commit to high mortgage costs payable over so many years. They would be guaranteed of ready tenants from the ever growing urban population especially around Kampala. This is likely to result in better financial growth than accumulating landed property against expensive debt which seems to be a common trend currently.

The writer is a Chartered Risk Analyst and risk management consultant.