What Shs100m can offer you in Uganda’s property market

Most plots around Kampala metropolitan area cost between Shs 5m to billions, depending on size and the seller.

Gilbert Mugisha, a property dealer based in Kampala, however, reveals that in most areas, the asking price for properties in commercial jurisdiction is Shs100m, the price tag common in most areas with business potential.

“Shs 100m is the magical figure or the asking price for most commercial properties, but prices can go higher depending on the location, seller’s valuation and condition of the seller,” Mugisha narrates.

He reveals that residential property buyers usually have a higher bargaining power unlike those that want business properties and those who strictly prefer prime locations.

“The price for land depends on the distance from the central business area and the development of the real estate in terms of water and electricity availability. The common price range is between Shs 15m to Shs 20m mainly Gayaza road, Hoima road,” he adds.

But Denis Lubandi, a property expert attached to Archy’s Design and Build Studio reveals that the Shs100m price tag is influenced by government valuers who determined the money that is paid during the title transfer.

“Sometimes you buy a 50 by 100 plot of land, say in Kira, at Shs 5m and end up spending nearly Shs 5m in unknown taxes. Many sellers have to fix the assumed fees on the value of the land,” Lubandai says, adding that the power to set land fees and other related charges under the Local Government Act is vested with the Minister responsible for lands under the section 93(2) (b) and (c) but those who set fees do not understand the market.

He notes that at the end of the day, sellers gamble with high prices to get what they actually value.

Lubandi reveals that common price range for houses (standard-three-bedroom house) is about Shs 450m and the standard price for a plot in average residential areas is over Shs 100m.

He adds that for condominiums, the common price for a two bedroom is Shs 250m.

Researcher and economist Jonah Kiberu notes that a multiplicity of factors explain the overvaluation of real estate business in Kampala Metropolitan area.

He reveals that by 2014, Kampala City alone had a population of over 1.5m as per 2014 National Population and Housing Census.

Kiberu notes that this has more than doubled to date. Considering the metropolitan region stretching from Kampala to some parts of Mpigi, Mukono, and Wakiso districts, population increase coupled with the region’s being the major commercial area for Uganda, property prices exceed their would-be ideal prices.

“A 50 by 100ft plot of land ranges between Shs 30m to Shs 400m depending on its location within Kampala Metropolitan. One of the causes of this, is the proliferation of brokers, the rampant rural-urban migration, and in general the increase in the volumes of commercial businesses in the region,” He narrates.

In addition, he blames the current inflation in the country could also be aggravating the prices as land owners and real estate dealers aim at compensating themselves by attaching high prices on land.

It makes no sense but it is safe

Economist and Makerere University lecturer Mr Richard Ssempala notes that Shs 100m property investment is happening because of the current economic situation and Uganda’s prejudiced tax regime.

“Many people are investing in real estate because it appears to be the safest undertaking and people are failing to find other safe money making ventures.  Our money market is not well developed for people to venture into, say buying shares. This means that the only safe investment is land,” he explains.

He notes that people are shying away from investing into other ventures because they do not feel that their money will be safe.

According to Ssempala, unlike today where a few taxes are being introduced on land, many people have always felt safe with land.

Ssempala says since Uganda’s tax to gross domestic product is still small, government relies on taxes from a few existing businesses which pushes people to invest in safer ventures like real estate.

He argues that the pricing does not make sense but it is safe because land appreciates in value unlike other ventures that does not rhyme well with Uganda’s current economic conditions.

In countries where people have alternatives, land is fairly priced, he says.

Spending Shs 100 million on property

We sampled out a number of online property dealers and we discovered that there are a couple of houses for sale in a range of Shs100m and more.

On most online property websites, a couple of unfinished houses in areas of Kungu Buwatte, Namugongo go for Shs100m.

Such houses are usually on 12decimals private mailo land with a land title with two bedrooms, a bathroom, living room, dining room, a modern kitchen and a garage with a compound in a fence.

In Kampala, the average price of two- and three-bedroom apartments in prime residential areas goes for $280,000 (about Shs100m and Shs120m) and $325,000, respectively, while an average four- to five-bedroom bungalows is $1m (about Shs360m).

Mugisha notes that houses tend to be priced highly due to building costs which are often so high.  He notes that a bag of cement costs nearly Shs 40,000, and also adds that the costs of labour and building commodities makes houses expensive and thus the high prices.

Data obtained from Uganda Bureau of Statistics (UBOS) indicate that the total amount of mortgages outstanding rose by Shs1.34 trillion in September 2019.

According to the Bank of Uganda, credit advanced to the real estate sector as a whole, comprising of building, mortgage and construction, increased by Shs3.19 trillion over the same period.

High prices have an implication to the business and the economy

Ssempala says government should create safe conditions for other investments to operate, so that people can opt for other ventures where business can break even.

“In a situation where people are just looking at safety of their money, valuation becomes an issue and the economy is threatened. The tax system should enable people to create other business so as to attain aggregate demand,” he adds

He adds that if Shs100m is invested in a business that will employ other Ugandans, it will have influence on aggregate demand which positively contributes to the economy.

Kiberu says the hikes in house rental prices have been fuelled by the cost of land and houses, noting that this exerts pressure on young entrepreneurs with limited affordability for rent, leading to a narrow tax base and thus threatening those in real estate and the country’s economy.

He projects that with price hikes, income inequalities in Uganda will remain high. Needless to say, Kampala Metropolitan cannot be favourable for low-income earners and starters.

“It includes exposing Uganda’s expensive property to be mainly purchased by foreigners who pay in dollars without bargaining. This kills economic freedom for the poor and young entrepreneurs,” he adds.

He adds that the trend also threatens that overall value for money within Uganda since the overvaluation of land has a direct impact on the prices of other property, goods, and services.

He advises that with the current newly gazetted cities of Uganda, migration to Kampala and its neighbouring will reduce but only if the new cities also develop. Reduction in migrations to Kampala Metropolitan will lower land prices within the region.

Can a Ugandan afford Shs 100 million property?

Data obtained from a leading financial and analytical web portal Take profit, the average wages for low skilled employees in Uganda stands at Shs 412400 per month and the maximum at Shs 649900 per month.

If a low skilled level employee earns Shs 649900 per month, then that means that an employee will have to save for nearly 14 years without spending, to acquire Shs 100 million property.