Rental rates in Kampala are rising: Here is why

 There is a reported sharp rise in rent fares across the capital Kampala, writes Gabriel Buule.

 What you should know:

There is a radical increase in rental rates fees for residential houses in Kampala and cases of tenants failing to pay are increasing. That is not withstanding the ramifications of the Covid-19 pandemic. Housing is among the many crises that have been created by the struggles in the Ugandan economy

Asaph Katerega has been a house broker in Makindye Division of Kampala for the past 12- years. He says that he is currently running out of local clients because his target market is choosing to rent outside Kampala.

 Katerega says that there is a radical increase in rental rates fees for residential houses in the city, a situation he attributes to several issues.

 He acknowledges that business is changing face because only a few locals have well-paying jobs to afford the shrinking residential rent space in the city since landlords have opted to turn rentals into other business and, others opting for a different description of clients.

 In the same vein, Emmanuel Wasswa, a broker in Bunga - Makindye Division in Kampala reveals that increase in residential house rent is becoming a serious issue and cases of tenants failing to pay are increasing. That is not withstanding the ramifications of the Covid-19 pandemic.

 Wasswa adds that the trend has been fuelled by new taxes created by the government, new emerging social services and influx of foreign nationals in Kampala, among others.

He further notes that rental fees have increased by 50 per cent or doubled especially in Kampala Central, Nakawa Division, Rubaga and Makindye.

 Another house broker, Esther Mutebi, who has vast knowledge of Rubaga reveals that some landlords are opting for foreigners who pay either in a more lucrative foreign currency or just more money.

 Everyone wants to live in Kampala

Joanitah Muwema Kimera, a real estate dealer attached to Fakhruddin Properties explains that there is a housing deficit in Kampala which creates stiff competition for a few existing houses.

Muwema reveals that while there are many buildings in Kampala, most of them are used for other purposes, say arcades for business, malls, schools, and hospitals creating a demand for rentals.

She notes that the development of infrastructure in the city should factor in the rising demand for residential rentals for the labour force and those who wish to reside in close proximity to such services, say schools.

 “Everyone wants to stay in Kampala yet the available residential housing doesn’t meet the demand, this gives landlords leeway to charge whatever fees they wish,” she adds.

 Economist and Makerere University Research Fellow Richard Ssempala reveals that housing is among the many crises that have been created by the struggles in the Ugandan economy.

“If a landlord realises that commodity prices have increased, he will definitely increase rent to meet his demands,” he explains.

 He also notes that demand has led to increase in prices of building materials which is also a push factor for landlords especially those with new or revamped structures to increase rent.

Ssempala further highlights the crisis has been worsened by the need for people to live near social services that are centered in Kampala. However, he thinks that an improvement in transport services can easily push many people to reside outside the city centre.

 Refugee influx

However, Wasswa explains that there is a slight increase in the number of foreigners in Kampala especially in both Rubaga and Makindye divisions.

People with roots from Ethiopia, DR Congo, Nigeria, Somalia, South Sudan, Kenya, Tanzania and Rwanda are paying landlords more money and sometimes in forex.

“A landlord would prefer a foreigner who is interested in apartments and self-contained houses. And these foreigners are willing to pay more money and sometimes pay for a whole year unlike Ugandans who pay in installments between three to four months,” he adds.

He adds that there is an increase in rent fees for residential houses in Buziga, Kawuku- Ggaba, Munyonyo and Muyenga due to the rising number of Sudanese nationals whose interest is in complete units because they have big families.

“A Sudanese pays US dollars and they pay for a year, a situation that has pushed even some residents to vacate their homes and rent them out to Sudanese.”

Makindye Division Mayor Bbaale Bwanika explains that there are a huge number of immigrants in Kampala who have joined the local community.

With immigrants outcompeting the natives for resources, especially rent, locals are in a very difficult situation.

This matter gets more complex each day and inevitably, there is no available regulation in place for authorities to regulate landlords’ rent fees.

Bwanika further highlights that business people have also contributed to the crisis given the fact that most of them have opted out of the city centre to do business in the suburbs where rent is more affordable.

“Some landlords have turned rentals into stores and shops, a situation created by business people who are moving out of arcades to do business in areas such as Salaama, Kawempe, Ggaba and many others.”

Rental tax and ground rent tax influence

In February 2017, Kampala Capital City Authority (KCCA) released property assessment and payment rates following the local government rating Act of 2005, as amended.

This paved the way for new property taxes levied on property with any physical attachment to land or building that is industrial or non-industrial or structure of any kind excluding vacant sites.

Ssempala explains that initially the taxes didn’t bite due to laxity in enforcement but with the government pushing to recovery following the global pandemic, action had to be taken.

He notes that property rates and ground rent has created an effect on rent fees in Kampala. “Landlords chose to pass on the taxes to tenants which meant that rent has to be determined by tax levies,” he adds.

The taxes levied by KCCA

Official documents from KCCA indicate that tenants on leased land have to pay annual ground rent which is payable by the tenant (lessee) to the landlord (leaser) revisable, according to the terms of the lease agreement, as per the physical planning Act 2010.

It should be understood that ground rent is paid by lease holders of KCCA public land offered by Kampala District Land Board and holders of KCCA land.

The authority’s website shows that the amount of ground rent fees payable, varies according to the market value of the plot or land as determined by the official land valuers.

According to the 2017 KCCA property rates assessment, property rates in respect of properties located within the city are computed at a rate of 6 percent of the rateable value of the property and are payable once a year.

It is also understood that residential owners occupying properties currently are exempted from attracting property rates.

According to a 2019 report on property taxes by International Growth Centre, Kampala has approximately 350,000 properties and 64 per cent of these are eligible for the tax.

Uganda Revenue Authority

Gateway Research Centre-Uganda Managing Director Jonah Kiberu notes that the crisis has been partly stirred by the rental income that is charged by Uganda Revenue Authority (URA).

The economist Kiberu notes that the high taxes that are created by the government are in turn pushed to the people through increments in fares.

Rental income tax is the total amount derived from the lease of immovable property (land or buildings) in Uganda, with the deduction of any expenditure and losses incurred in respect of that property.

“Legally, whoever earns rental income must pay tax to URA. Such situations force landlords to look for remedies and increase in fees is one of them,” says Kiberu.

It is understood that the rental income tax rate is 30 percent of chargeable income. This means that if the annual rental of a residential house owner is Shs100 million, 30 percent of the money is paid to URA after deducting expenses.