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Facts about cost of land in city suburbs
Rental business is a good investment, it yields good returns over time. PHOTO/Ismail Kezaala
What you need to know:
Because of the high demand for land near a town or a city premised upon its capacity to yield good returns, the cost will be very competitive. Anyone who tells you different is a fraud
Location remains the most important factor when choosing a home, business and rental units. So it goes without question that most property developers and real estate investors prefer buying properties that are as close to the city or urban centres as possible.
A good number of Ugandans who have stable and reasonable incomes often approach me with a view of buying land around the city to construct homes or set up rental units. What is surprising though is how wrong they get it when it comes to the cost of such investment.
Most of them have a budget of between Shs5m and Shs10m for a plot of land located about 20 kilometres or less from Kampala. It is difficult to disabuse them of this perception, especially if they have dealt with some unscrupulous brokers who tell them that such a deal is possible. The major victims are Ugandans working in the Middle East who end up losing their little savings to these fraudulent characters.
Rental business is a good investment, it yields good returns over time and provides a constant cash flow during both the short and long term. However, there are required circumstances under which rental units can thrive. Your rental business predominantly thrives in an urban setting, feeding on commuters and many workers within the urban centre or within the town.
Because of the high demand for land near a town or a city premised upon its capacity to yield good returns as a result of its commercial viability, the cost will be high and very competitive. To sum this up, the location for your rental units near a town or a city is key to their success, and the best location is the one closest to the urban centre.
When a town grows, its outskirts gain in demand, thus inducing higher cost of land. Renters need access to key amenities which can only be found in a town or urban centre. These among others include food, water, electricity, cheaper transport to work, services such as restaurants, shopping areas, medical facilities, school, parks or playgrounds and other basic needs of life.
The more accessible to economic activities, the more the value of the land. For example, most of the metropolitan cities have the maximum land values at the centre, or at the central business district of the city.
Also consider what you hope to achieve by investing in rentals; are you investing to retire comfortably? Is it to spend more time with family and friends? Is it both of these things? Determining your goals will also help answer the most important question of them all; what type of rental property will I focus on? Residential? Commercial? Multi-family? Figuring these out before is one of the best and most efficient ways to build a business. Consequently, it will guide you on where you choose to buy land to construct your rental property.
Research findings indicate that average prices across 150 cities worldwide have had such a drastic rise in the past 17 years. On average prices increased by 10.6 percent from 2003 to 2021. Therefore, the expectation of cheap land either in or near the city is like attempting to swim through a rock.
Kampala as a city has a housing deficit of about 600,000 units. According to Centre for Affordable Housing Finance in Africa (CAHF), it is estimated that more than 71 percent of households in Kampala rent their homes. This means that most investors want to build rentals in order to meet this available demand. As a result, search and demand for land in Kampala and near Kampala has increased, which has had a positive correlation on price.
Real estate is like any other product on the market that depends heavily on the law of supply and demand.
More demand drives prices high. Investors will know if a rental property is a good investment if their net cash flow remains consistently positive. Seasoned real estate investors know that to have a solid rental plan and business, they must first mind their due diligence and ensure that a rental property is indeed a good investment.
As a result, with reference to growing market trends, prevailing market prices, still in light of the absence of a land price index in Uganda, in order to build a thriving rental business in the current times, one will need a minimum of Shs30m for 50X100ft plot in a growing towns around the country with exception of Kampala City.
With an investment of Shs30m you can build a thriving rental business in Kawempe, Nansana, Matugga, Gayaza, Mukono, Busega, Kyengera or Seeta. Prices will shoot up to more than Shs200m as you get closer to the more upscale and traditional towns such as Kisasi, Kyanja, Makindye, Muyenga, Ntinda, Zaana, Ndeeba, Mengo and Rubaga. If one wants to invest in these areas, they will need an average of Shs100m to Shs300m for a plot suitable for rentals.
If someone tells you differently, just know they are trying to con you. The only possible way one can get a plot in those areas for about Shs70m, is by buying distressed properties from the bank.
Note
Renters need access to key amenities which can only be found in a town or urban centre. These among others include food, water, electricity, cheaper transport to work, services such as restaurants, shopping areas, medical facilities, school, parks or playgrounds and other basic need of life.
Rogers Matovu is a lecturer of finance at Makerere University Business School and a managing director of Planet Estates Limited.
