Can oil and gas unlock Uganda’s real estate fortunes?

It is no longer speculative, but only a matter of time for Uganda’s oil and gas sector to unlock the flow of petro-dollars into the real estate sector.

Major cities such as Kampala and Hoima -the oil city- are expected to have a rebound in economic activity for both office, retail, residential and industrial sub sectors.  

The Petroleum Authority forecasts oil activities will have the potential to attract an influx of about one million people into the Albertine region, and 100,000 workers on site during the development and production phase.

The opportunities are clearly visible for real estate investors, as a number of oil contracts worth Shs10 trillion will be signed this year, leading to the development of oil facilities.

Oil contracts are expected to unlock huge capital for investors, and cause an uptick in real estate activities.

This also means fresh demand for both commercial and residential real estate, to serve as office space and residence for oil workers, and other oil affiliated services.  

Currently, the immediate investment in real estate are the direct housing needs of international oil companies.

For onsite development, most international oil companies intend to house their staff in temporary and permanent camps.

The Tilenga project needs standard temporary camps for drilling, road works and Industrial Area preparation; part of these construction deals are ongoing  with others at the bidding phase. These projects can house close to 10,000 workers combined.

The camp facilities are planned to offer full life support with accommodation area, kitchen, offices, and recreation.

However, the housing needs for the expected indirect and induced workers of these projects remain  unplanned for.

It is evident that the current and existing housing infrastructure especially in the oil districts of Hoima, Kikuube, Masindi, Nwoya, Buliisa will not adequately absorb such housing demand.

This is based on a preliminary field study undertaken by a housing sector taskforce consisting of the Petroleum Authority and the Lands ministry.

It therefore presents an opportunity for real estate developers to tap into such a market to reap potential gains of early investment and avoid a housing crisis in the area.

Oil and gas activities have already made inroads in attracting a vast number of businesses directly and or indirectly offering services or goods.

Based on a preliminary field study, these businesses require regional offices to handle their operations in the Albertine area thus, presenting an opportunity to set up offices on a rental, lease or sale basis for such companies.

A recent visit to Hoima city offers a clue that real estate investors are setting up infrastructure for a long haul.

Once a dusty town with poorly designed houses, the outlook of Hoima has since been uplifted with increased oil activities, and the town’s upgrade into a city.  

Paved roads, storied commercial buildings, service companies, traders, finance institutions are slowly pushing seasoned retailers out to the fringes of the town.  

Fred Byenkya, a real estate broker, says the impact of oil is already being felt around the city with land appreciating by 50 percent each year.

Take for instance, the affluent Kijungu surburb in Hoima has registered an astronomical rise in cost of land.

For a 50X 100 plot of land which sold for 3 to 5 million a few years ago has risen to between Shs20million  and Shs50 million.

Hoima has also experienced an upsurge in housing with over 400 housing units in the last three years in anticipation of oil developments. 

The leading investment in Hoima is hospitality, presenting a huge gap for other facilities needed.

The rapid development of these oil towns forced the Lands ministry to develop the Albertine Region Physical Development Plan (PDP), a framework meant to promote and offer guidance to the development process in the Albertine Graben in a sustainable manner for the next 25 years.

The Albertine’s urban centers currently host 15 percent of the Albertine’s total population and this is expected to expand to 50 percent by 2040 across 25 districts.

This therefore presents potential investors an opportunity to align their investment strategies with the land use planning and economic development strategies of the Albertine Graben.    

Kampala’s outlook

As the economy gets back on track, it is already noticeable the oil and gas sector has started to influence demand and pricing on Kampala’s real estate.

Based on a newly released report by Knight Frank, prime office leasing and investment activity has continued to show an improvement in the last half of 2021 following the signing of key oil agreements in April last year.

Knight Frank commercial agency notes that increased demand for office space is being driven largely by oil affiliated companies, financial institutions, audit and accounting firms, consultancies, medical organizations, insurance companies, government bodies and NGO’s.

This positive trend in office uptake has pushed rental levels by 3.6 percent from $12 (Shs 42,126) to $14.5 (Shs 50,902) per square metre of space per month.

The increasing demand for space is steadily causing shortage in availability of prime space for immediate occupancy.  

The oil and gas sector is also playing a speculative role in location with most of the developments being around; Nakasero, Kololo and Bugolobi areas for prime occupants.   

The last 10 years has been a revolution in creating sanity for Uganda’s real estate with housing estates, state of the art apartments, and prime offices springing up in major surburb of Kampala.   

Catherine Natenza, a publicity secretary at the Association of Real Estate Agents, in Uganda estimates the oil sector will attract close to 10,000 expatriates in the country.

Most of these expatriates are increasingly particular about carefully choosing their workplace with reference to quality of office space, proximity to the city, facilities and amenities on offer, quality of property management, and health and safety protocols.

Currently, a stroll around Kampala city presents a picture that suits mixed use buildings consisting of office, apartments for residence, and perhaps some retail and entertainment.

Knight Frank Uganda has also registered increasing demand for occupancy of prime residential accommodation for the suburbs of Kololo, Nakasero, Bukoto, Bugolobi and Naguru.  

 Key among the drivers for this increase, is the return of expatriates to the country after travel restrictions due to Covid-19 were lifted, amidst increased demand from individuals in the oil and gas affiliated fields after the signing of key oil agreements. This growth has resulted in a gradual increase in the rent for two and three-bedroom apartments within the prime locations in Kampala and a general improvement in occupancies.  

Average rents for two- and three-bedroom apartments have increased by 4 percent at about $2,500 (Shs8.8 million) per month as compared to $2,000 (Shs7 million) per month in the last half of 2020.

A noticeable increase in demand for one and two-bedroom units has been observed, indicating that fewer expatriate families of three – five members were coming into the country than was the case previously.

There has also been an increase in inquiries from Ugandans in the diaspora looking to buy property.

The residential market premised on oil prospects has also registered more constructed units with approximately 400 apartment units in the pipeline, and 150 units expected in Kampala’s prime residential suburbs in the next 12 months, translating into a 9 percent increase in stock and over 75 percent of this stock are three-bed apartment units.

However, investors may need to remain cautious about projections before investing in the sector.

“With demand for the oil and gas sector, we have been very cautious about putting numbers to this demand because projections upon projections have not quite come to pass over time, but have been extended, postponed, and rescheduled into the future,” Judy Rugasira, the Knight Frank managing director says.

For now, at least there has been office expansion for Total, the lead investor in Uganda’s oil resources. Total has expanded by about 2,050 square metres in office space, and last had a demand of over 40 apartments signaling that investors may need to ‘up their game’.  

Ms Rugasira admits that most oil affiliated companies are expanding incrementally, as changes occur within the oil and gas sector.   

Judy Kyanda Rugasira, managing director at Knight Frank says developers are showing more interest in joint venture options, whereby the landowner cedes the land as their equity contribution to the project. This is in return for an equivalent number of apartments correlated to the value of the land as a way of entering the development and investment market and mitigating risk from no debt.   

It remains to be seen what impact oil and gas will have on the real estate sector, but in the immediate term, the prospects remain high.