How Uganda’s real estate sector fared in 2019

Wednesday January 29 2020

An upper-middle class house in Bwebajja, Wakiso District. Real estate analysts believe most of the houses built are targeting upmarket clients ignoring the 65 per cent of the consumers that need low cost housing. Photo By Tony Mushoborozi

According to Uganda Bureau of Statistics (Ubos), Uganda currently has a deficit of 2.1 million housing units and is expected to reach three million by 2030. The deficit, data shows, will further expand to eight million units, of which 2.5 million will be in urban centres in two decades.

Part of the explanation for this is the country’s fast-growing population. At 3.3 per cent per year, Uganda’s population will stand at 75 million in the next 20 years according to a report (2017) by the United Nations Population Fund. Additionally, more than 70 per cent of the population is under the age of 30. According to the World Bank’s collection of development indicators of 2018, Uganda’s urban population will stand at around 20 million in 2040, from just over 10 million people (24.4 per cent) in 2018.

All of this might present serious challenges and immense pressure on the country’s resources but it also presents immense opportunities. The real estate sector is one of those areas where opportunities to innovate and advance in business are hidden in plain sight. Opportunities for developers, particularly in the affordable urban housing segment are immense.

Stagnating rental market
Having said that, the rental market in 2019 continued being profitable as has been the case for over two decades. And going by the factors pushing the sector (some of which are mentioned above), it would take a catastrophe of Biblical proportions to change the trends.
The country’s rental market is huge. Most people, especially in the urban centres, can neither afford to build a house of their own nor afford to buy property. The only option is to rent, whether it is residential or business spaces.

According to Centre for Affordable House Finance in Africa, more than 70 per cent of households in Kampala rent their dwellings and over one-fifth of all households countrywide live in rented homes.

According to real estate consultants Knight Frank’s Kampala Market Update, occupancy rates in prime residential suburbs of Nakasero, Kololo, Naguru, Mbuya and Bugolobi in Kampala, increased to 78 per cent in the first half of 2019, up from 69 per cent in the same period in 2018. The figures took a downturn in the 2nd half though. Occupancy in the above-named areas dropped to 72 per cent down from 81 per cent in the same period in 2018.


There was a year on year 8.5 per cent increase in supply of apartment units coming onto the market, particularly in the prime residential areas of Kololo, Nakasero and Naguru. The increase in stock has forced some landlords particularly for the newer stock to discount their rents in order to be more competitive. As a result, Knight Frank registered a 9 per cent year on year decline in occupancy.

Low-cost housing shortage
Towards the end of 2019, the Association of Real Estate Agents Uganda (AREA) convened a three-day conference at Speke Resort Munyoyo. One of the main topics that kept coming up in the discussions was the shortage of low-cost housing. Pradip Karia, a real estate developer said: “There is a big gap in the low-cost housing segment. There are so many factors hindering players in the sector to fill the gap, and government is doing nothing about it. The taxes are high, investors in the sector are not given free land by government the same way they give land to manufacturers, and so on.”

He added: “To deliver affordable homes, government must create incentives or subsidise materials in order for the private sector to move and deliver. Also, young professionals must get conducive mortgages so they can buy cheap homes.”

The minister of Lands, Housing and Urban Development, Dr Chris Baryomunsi, who opened the meeting, stressed the need for government to stop leaving the heavy burden of housing in the hands of private players.

“The challenge of shortage of low-cost housing is brought on by the current growth rate of 3.2 per cent per annum. It looks like it will only get worse as it is estimated that every 20 years, our population will double.”

Demand for low-cost housing continues to grow at a much higher rate than high-end housing. It was unanimously agreed that all developers including the National Housing and Construction Company (NHCC), have tended to focus on building houses for the upper-middle class, leaving the poor working class to fend for themselves. The result has been slums all over the Kampala metropolitan area. The developer with the most affordable housing unit (exhibiting at the AREA conference) priced it at Shs48m. In comparison, this was “cheap” because other companies with the same kind of house had priced it at Shs85m, and some at Shs95m. Most two- and three-bedroom houses range between Shs130m and Shs200m.

The high mortgage rates in addition to very high demand for housing and the ever-increasing cost of land are some the reasons the property players gave for the highly priced houses. To even start scratching the surface of this shortage of low-cost housing, mortgage rates must come down and land must be subsidised for investors.

Upsurge in mortgage market
In September 2019, BoU reduced the Central Bank rate to 9 per cent, down from 10 per cent.
The credit advanced to the real estate sector, be it building, mortgage and construction, increased 12.8 per cent year on year to Shs3.19 trillion. According to Bank of Uganda, the total amount of mortgages outstanding rose by 11 per cent to Shs1.34 trillion in September 2019.
Nonetheless, the mortgage market still remained small, a mere 1.2 per cent of the GDP, unchanged in the past three years.

The lending rate for mortgage loans in Uganda shilling was dropped to 21.4 per cent down from 22.6 per cent in 2018, according to the Bank of Uganda. None the less, properties in the country continued to predominantly trade in cash, and only rarely sold by mortgage. Most people continued to choose to build their own houses other than buying as it is believed to be a cheaper and more flexible option.

The mortgage market is dominated by Housing Finance Bank which runs 55per cent of the total mortgage portfolio. It is followed by Stanbic Bank, Standard Chartered Bank, dfcu Bank, KCB Bank and Centenary Bank in descending order.

Landlord-tenant Act
This was a long-awaited legislation that finally got passed. For nearly three years, traders in Kampala had protested the practice of being charged in dollars. Other issues like arbitrary hiking of rent rates by landlords and so on strained the relationships between tenants and landlords.

It became quite clear that a regulation was needed. In some instances, the protests became so intense that the traders closed their shops for days. And so, the Landlords and Tenants Act, 2018, was tabled in Parliament and passed on June 26, 2019, and will take effect if the President assents to it.

In the Act, Parliament overwhelmingly agreed that the currency of transaction between landlord and tenants shall be the Uganda Shilling.
The Act streamlined eviction of bad tenants and made it mandatory for a landlord to issue a legal notice of six months to a tenant to vacate the premises when there is breach of the tenancy agreement. Failure to follow that would amount to unlawful eviction and the landlord faces a custodial sentence of one year or a fine equivalent to three months payable of rent or both.

The new law was designed to regulate collection of utility bill payments from tenants outside the monthly rent. A new clause was introduced to provide that the landlord shall install prepaid electricity and water meters for all tenants to avoid exploitation.

2020 Outlook
According to Bank of Uganda’s monetary policy committee statement issued in December 2019, Uganda’s GDP is projected to grow in the range of 5-6 per cent in 2020 because of the accommodative monetary and fiscal stimulus (lowering of lending rate to 9 per cent).

However, rent rates are expected to drop as the competition for the limited pool of corporate and expatriate tenants is tightened by landlords of new properties, according to Knight Frank. Prime office rents are expected to decline too, owing to an ongoing increasing in supply.

Uncertainty associated with the Landlord Tenant Bill has continued to negatively affect new developments and leasing activity across the entire real estate market.

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