Hello

Your subscription is almost coming to an end. Don’t miss out on the great content on Nation.Africa

Ready to continue your informative journey with us?

Hello

Your premium access has ended, but the best of Nation.Africa is still within reach. Renew now to unlock exclusive stories and in-depth features.

Reclaim your full access. Click below to renew.

Uganda’s real estate sector remains resilient despite lockdown shocks

Residential houses being constructed in Wakiso District in central Uganda. Tax exemption on construction materials will boost the property industry. PHOTO | MORGAN MBABAZI | NMG

What you need to know:

  • Whereas some real estate industry players have predicted a slow growth for the rest of this year following the 42-day lockdown period that ended last month, general performance indicators recorded during the first half of 2021 point to a resilient sector ready to benefit from future economic recovery or boom.

Uganda’s real estate industry exhibited some resilience during the first six months of 2021 in spite of painful lockdown measures though with several struggling tenants, depressed landlords and a surge in the number of properties put up for sale by commercial banks seeking to recover money from distressed borrowers.

Whereas some real estate industry players have predicted a slow growth for the rest of this year following the 42-day lockdown period that ended last month, general performance indicators recorded during the first half of 2021 point to a resilient sector ready to benefit from future economic recovery or boom.

“The debate as to whether 2021 would be a year of recovery from the total disruption and destabilisation faced in 2020 has been put to sleep with the current lockdown which has dampened any hope of recovery and stifled the little momentum that had been gained,” reads an industry research note published by Knight Frank Uganda, a real estate management company.

Many of key growth indicators fell by less than five percent in contrast with the leisure and hospitality sector which has seen revenues drop by more than 50 percent since the coronavirus pandemic broke out alongside several job losses and diminished cash flows experienced in many hotels and restaurants.

Six months
The data compiled by Knight Frank Uganda shows average occupancy rates posted by high-end office buildings dropped from 84 percent during the first six months of 2020 to 81 percent during the same period in 2021.

Average rental prices levied in high-end office premises fell by about three percent during the first six months of this year compared to the same period in 2020 in a market segment that usually charges tenants $14 to $16 per square metre.

An extra 6,000 square metres of office space was added to the local property market during the first six months of 2021, the data showed.

Average occupancy rates registered among high end, commercial residential units dropped from 70 percent during the first half of 2020 to 68 percent during the first six months of 2021 — a trend attributed to the peaceful conclusion of the January 2021 general elections and the return of numerous expatriate employees that had left Uganda shortly before the beginning of the first lockdown period that lasted from April to June 2020.

About 1,000 expatriates left the country in March 2020 amid growing fears of being locked out of their native countries.

Under construction

In addition, 161 new residential apartments are currently under construction and are scheduled for completion within 18 months, Knight Frank data indicated.

Notable demand for commercial showroom space was also reported in the agricultural sector, furniture, car trading plus foods and beverages sectors during the first six months of 2021. This is a positive growth signal that raises hard questions about client motives within the real estate industry.

Is short term speculation driving new rental transactions? Are new tenants inspired by long term investment plans?

“The market situation is quite confusing to me. It is not easy to tell why some people are taking up prime commercial retail space at this time. Once in a while, someone walks to us and inquires about renting commercial space but we cannot understand their motives. We allowed our clients to stagger rent arrears payments in July last year for a period of four months on a case by case basis due to severe challenges caused by the first tight lockdown period. But we have offered them a 50 percent discount on their rent arrears incurred during the second tight lockdown period that ended last month. This situation might attract a new client compared with some landlords who may not be giving any incentives to their tenants right now,” explained Humphrey Derrick Sekitoleko, an accountant with Tawakal Ltd, a real estate management firm.

“People tend to appreciate their businesses more when they are locked down for some time and any favour that they receive is quickly appreciated. Some of our tenants are able to pay one month’s rent upfront for a three-month contract period while others pay in several instalments. There are some that you need to fight with all the time in order to recover your money at the end of the month,” Sekitoleko added.

Whereas hundreds of real estate properties have been put for sale by commercial banks seeking to recover outstanding loans from defaulting borrowers since January this year, it is not clear how many of those properties will be disposed of before end of this year under harsh economic conditions that have triggered low consumer spending and poor investment appetite in many sectors.

The Bank of Uganda has told commercial banks to offer credit relief to the borrowers who were hit hard by Covid-19 lockdown and not sell their properties. According to the central bank’s executive director in charge of supervision, Tumubweine Twinemanzi, people and institutions which acquired loans in the last 17 months are eligible to acquire relief and their loans should be rescheduled.

“We have invested around Ush1.2 trillion ($337.6 million) in our real estate portfolio and this accounts for 6-7 percent of our total assets but the Covid-19 pandemic has taught us many lessons. The Pension Towers project has attracted reasonable interest from the local market and is likely to register solid occupancy levels as soon as it is complete. But there is surplus space in the shopping mall segment and lockdown measures have affected customer traffic in those places. That means loss of customers for tenant businesses most of which are located on the ground floors while the upper floors are usually empty,” said Richard Byarugaba, the managing director at Uganda’s National Social Security Fund (NSSF).

Doubts have emerged over the effectiveness of financial incentives offered by landlords to struggling tenants in a less predictable Covid-19 pandemic situation.

“Local landlords have offered distressed tenants some incentives but have already run out of options. The commercial retail segment has been hit hard by lockdown measures such as curfew hours and physical distancing rules applied in public transport vehicles plus the rise of e-commerce platforms. The best way to contain this problem is through ramping up Covid-19 vaccination exercises and offering small businesses both tax and non-tax incentives similar to what Kenya has done. While our corporate tenants like Stanbic Bank are doing well, small tenants like hair salons, restaurants and lawyers’ offices are still struggling a lot,” observed Moses Denis Lutalo, Country Manager at Broll Uganda, a real estate consultancy firm.