Mixed feelings as real estate sector faces uncertain future

With many years’ experience delivering homes, nobody prepared Mr Rogers Matovu, the managing director at Planet Estates Limited, for the Coronavirus (Covid-19) period.
Like any other sector, effects of the Covid-19 pandemic did not spare the real estate sector. Experts say the sector has been at a standstill for the last eight weeks in response to the full lockdown.
Mr Matovu says no one anticipated that Covid-19 effect on businesses would be fatal, but with lockdowns, social distancing, and curfews among other restrictions, these have been bad times for real estate dealers since customers do not know what will happen next.

“Due to the pandemic, foreign remittances have been hit. People have been laid off and brought back home while those that stayed are on the brink of losing their jobs. This inflicts on any new purchases,” he says.
Mr Matovu who is also a lecturer of real estate and financial management, Makerere University Business School (MUBS) says, some who would have bought property have clutched on to their money.
“Something else that we witnessed is that people were deliberately holding onto their incomes because the future was unclear. As time goes, we hope things will be back to normal again,” he says.
Mr Matovu who is a dealer in buying and selling property is not alone. Developers and real estate managers have not been spared either.

Residential, office occupancy decline
Knight Frank Uganda, a property consultant, recently released a market report indicating that the real estate is one of the most hard hit sectors by Covid-19.
It showed that the average occupancy rate for prime offices in Kampala reduced to 84 per cent in first half of 2020 compared to 93 per cent in first half of 2019.
“The net annual rent collection for prime office properties is expected to reduce approximately by 10 and 20 per cent this year. The loss is partly attributed to tenants, who were unable to meet their rental obligations during the lockdown,” the report read in part.

According to the report, different sectors of the property market have been affected in different ways, with the retail sector being hardest hit as it could not capitalise on the “work from home” option that office occupiers did.
Knight Frank observes that the start of 2020 seemed promising with regards to increased inquiries and interest in office space for rent from local and multi-national corporate organisations headquartered in countries which were affected by the pandemic earlier than most.
“As a result, many of these inquiries have been put on hold as countries emerge from lock down,” the property consultants said.

Residential sector
The residential sector according to Knight Frank already suffered from weak demand found it difficult to launch new projects and or complete the ongoing ones due to construction halts and labour shortages.
“The transactions which were in the process of being concluded were put on hold, but as government is slowly easing up, developers are slowly reviving and putting them to completion,” read the report.

Knight Frank also said there was a mass exodus of more than 1,000 foreign nationals back to their countries at the announcement of lockdown in Uganda which left the fate of many tenancies for private rented accommodation in limbo.
The property consultant in their report also indicated that first half of 2020 recorded an 11 per cent increment in the supply of residential apartment units from 2006 units in first half of 2019 to 2,230 units in first half of 2020.
“The increase in stock versus low demand forced some landlords to discount their rents in order to be more competitive and reduce voids given the slow economic trend,” read part of the report.
However, the average residential occupancy rates declined by 11 per cent, where the occupancy rate stood at 78 per cent in first half of 2019 but declined to 69.9 percent in first half of 2020 according to Knight Frank.

Working from home
Vincent Agaba, the managing director at AVARTS housing Ltd, admits that it is true there has been a slump especially for rental and office space property since people are turning to technology and keeping workers away from office.
“If employees working at home can work, companies are not seeing why they should have extra space and maintain few key staff,” he said.
Knight Frank also found out that the working from home experiment during lock down was proven to be a viable option, with increased use of technology to facilitate work flows and to work remotely unsupervised and still perform efficiently and to a high standard.

Mr Matovu agrees with Knight Frank that, the demand for space is going to reduce especially with people realising they can work from home and due to social distancing, chances of reducing staff is high.
He also observed that residential buildings in upscale Kampala suburbs such as Bugolobi, Kololo and Nakasero which were occupied by expatriates were left immediately Covid-19 broke out and it will take time to get new tenants.

Outlook
Moving on to the second half of 2020, Knight Frank says the office sector will be impacted by Covid-19 due to social distancing requirements in offices which require a minimum distance of 2 metres between occupiers leading to a low density use of buildings down to 40 to 50 per cent of total space maximum. This will in turn affect capital values.
Secondly, Knight Frank said the pandemic will impose challenges on rental and capital growth, as there will be a fall in rents and capital values over the short to mid-term; particularly in sub prime properties where majority of tenants are SMEs and are unable to leverage off the balance sheets.
Also Knight Frank believes, it is probable that the pandemic will have a long-term impact on real estate debt given that the commercial real estate market is heavily debt dependent.

“It is questionable how the impact of non-performing loans will impact on loan to value ratios and pricing of bank lending. It has already been forecast by the financial institutions in Uganda that non-performing loans are going to increase from 4.5 to 10 per cent,” read the survey.
All is not lost
Experts believe that going forward, the real estate sector which has been accused of oversupplying some segments especially affluent and unfulfilled demand for low income earners will have to rethink its strategy to stay afloat.
All is not lost for Mr Matovu who believes that the sector shall not fall in the dungeon but shall slowly pick up.

“We have been open for some two weeks and I have closed four deals. The deals are not frequently as they used to be but for now we don’t have to lose hope. There are people out there who still want to buy property,” he said.
Mr Matovu added, “There are also people who have benefited from the pandemic; I think things are not bad. If someone had kept some money to acquire property, they will still do that.”
Mr Agaba believes there will be an increase in demand for land and residential property because people have become more aware of the importance of having their own homes.

“Now there will be demand for residential property because people believe it is better to be broke in your house than being broke and the landlord is on your case. This is going to be on the agenda and priority list of many people,” he says.
He also said that previously, people gave priority to buying vehicles but now with the lockdown where vehicles were rendered useless, mindsets will change and this is good for the sector.
“A person going for land is a plus for the sector. For us in real estate business, it is time to realise that we owned our offices rather than renting,” he said.
Asked what what the future holds for the empty office space, Mr Agaba says there are high chances that prices will go down.