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Property developers adapt green building
What you need to know:
As more green buildings enter the market, the overall standard for property development is expected to rise. This will likely lead to increased competition among developers to achieve higher sustainability standards and certifications.
Sustainability is increasingly becoming a focal point in the real estate sector. The industry is a major contributor to greenhouse gas emissions, accounting for up to 40 percent of total emissions from both the construction (embodied carbon) and operational phases of buildings. As awareness of environmental issues grows, there is a rising interest in green building practices among developers and landlords.
One certification that has gained notable traction in the region is the International Finance Corporation's (IFC) EDGE (Excellence in Design for Greater Efficiencies). EDGE is designed to help buildings achieve higher levels of resource efficiency, including energy, water, and materials.
The growing adoption of green building certifications like EDGE is expected to have a significant impact on real estate valuations. Properties with such certifications are often seen as more desirable due to their lower environmental impact and operational cost savings.
The emphasis on sustainability is also reflected in the latest edition of the International Valuation Standards (IVS). This update acknowledges the increasing importance of sustainability factors in real estate valuation.
As green building practices and certifications become more common, they are likely to play a crucial role in shaping the market dynamics, influencing property values, and meeting the growing demand for environmentally responsible investments.upcoming in the residential areas in addition to the owner-occupied dwellings established in the area.
Technological advancement in valuation
The field of real estate valuation is undergoing a significant transformation driven by technological advancements, particularly with the rise of ubiquitous computing and Artificial Intelligence (AI). These technologies are reshaping how property values are assessed and improving the accuracy and efficiency of valuations.
AI is a game-changer in real estate valuation because of its ability to process and analyse vast amounts of data quickly. For example, AI algorithms can evaluate historical property sales data, current market trends, neighbourhood characteristics, and even socio-economic factors to predict property values with high precision.
Machine learning models can identify patterns and correlations that might not be immediately apparent to human valuers. For instance, AI can analyze how nearby amenities, such as new schools or shopping centers, impact property values over time.
International Valuation Standards (IVS) Update
The latest update to the International Valuation Standards (IVS), effective January 31, 2025, introduces a new chapter dedicated to data quality and selection. This update is crucial as it provides valuers with clear guidelines on how to handle and select data for valuations.
For example, the new standards will help valuers determine which data sources are reliable, how to verify data accuracy, and how to incorporate data from emerging sources such as social media trends or real-time market analytics.
The evolution of valuation models is another significant focus of the updated IVS. One key advancement is the enhancement of Automated Valuation Models (AVMs).
AVMs use algorithms to estimate property values based on a range of data inputs, including comparable sales, property characteristics, and market trends. As technology improves, AVMs are becoming more sophisticated. For example, recent developments allow AVMs to incorporate big data from sources like satellite imagery and demographic studies to provide more accurate valuations. Enhanced AVMs can analyse patterns from millions of data points, making them more reliable for assessing property values.
Improved real estatevatabases
Technological advancements are also leading to the creation of more efficient and comprehensive real estate databases. These databases collect and integrate data from various sources, including public records, private listings, and market surveys.
For example, many platforms use extensive real estate databases to provide up-to-date property valuations and market trends. Improved databases enable more precise analysis, allowing valuers to assess property values with greater accuracy.
The integration of advanced technologies in valuation processes is expected to significantly enhance the accuracy and reliability of property valuations.
For instance, AI-driven predictive analytics can help identify emerging market trends and potential investment opportunities before they become widely known. This allows investors and property buyers to make more informed decisions.
Moreover, with improved data analysis capabilities, valuers can better assess the impact of various factors, such as economic shifts or changes in local infrastructure, on property values.
Inflation and interest rates
Inflation in Uganda has been erratic, influenced by both domestic and international economic shocks. As of May 2024, the average headline inflation rate stood at 3.6 percent, as reported by the Uganda Bureau of Statistics (UBOS). This level of inflation is relatively moderate, but it follows a period of considerable volatility.
In response to inflationary pressures and to stabilise the economy, the Central Bank of Uganda took a significant step by increasing the Central Bank Rate (CBR) to 10.25 percent in April 2024. This rate is the highest it has been since May 2017. The CBR is a critical tool used by the Central Bank to influence overall economic conditions, including inflation and currency stability.
By raising the CBR, the Central Bank aims to keep inflation within its medium-term target of around five percent. This move also helps in minimising currency depreciation and supporting overall sustainable economic growth.
With the CBR set at such a high level, commercial banks have correspondingly maintained high lending rates. In April 2024, the average commercial lending rate was 17.74 percent, up from 16.70 percent in December 2023. These high rates are a direct result of the increased CBR, which raises the cost of borrowing for banks and, in turn, for their customers. Despite the elevated lending rates, the mortgage market has remained active.
According to the Bank of Uganda, mortgages extended by commercial banks grew by 2.1 percent in April 2024 compared to December 2023. This indicates that, even with higher borrowing costs, there is continued demand for mortgage financing.
Mortgages
A notable trend in the mortgage market is the shift towards commercial mortgages.
As of April 2024, commercial banks allocated 52.9 percent of their mortgages to commercial property borrowers, compared to 47.1 percent for residential property borrowers.
This shift reflects a strategic preference among banks to focus on commercial properties, which are often seen as less risky compared to residential properties in the current economic environment.
