Is real estate still worth investing in?

The Daily Monitor published an article I authored questioning the logic behind developed real estate investments, especially during the unprecedented times that we find ourselves in today. While the article sparked off the intended debate, many avid readers reached out via email and social media posts citing the much expected, little checked and certainly assumed inherent capital gains that reside in a real estate investment. I will attempt to discuss that today and hope I can torch out some blind-spots.
Without a doubt, there was a day in my lifetime when real estate prices pointed in one direction – it was a no brainer to place all your savings into this asset class and sit on your hands until a desperate buyer showed up willing to pay your unjustified offer. Are we still in that time of our lives? That is debatable; so I will stick to what we know.
According to Knight Frank’s Kampala Market Update H2 2019 report, residential rent continues to wane while buyers and sellers also continue to take a ‘wait and see’ strategy dependant on macro-economic conditions. We do not need a crystal ball to know how that will play out in the near-term post-Covid-19.
Of interest remains the value of capital gains on developed real estate, do these ever get crystallised? The real estate market runs on a typical willing-buyer-willing seller mechanism of price determination, but what happens if the willing buyers run out?
Real estate by its own nature is extremely unique; unwavering demand for housing in Nakawa Division cannot be met with housing supply in Rubaga Division. What this points to is that one size cannot fit all!
Any private investment expert will tell you that when planning your investment portfolio, diversify and remember to strike a balance between risk and return. Yes, real estate will give you massive capital gains on a horizon of five to 10 years or more, but given your unique circumstances, income requirements and goals, is it the asset class to hold 60 per cent to 80 per cent of your portfolio?
Undeveloped real estate (land) does seem to tick off a number of these checks – its low cost or can be bought in small portions to ensure it keeps within a manageable balance of one’s asset allocation. The issue remains around the innate risk in this asset class - we live in an era where even a government ministry finds itself in possession of a fake land title! For that reason, with this investment option, comes the unending cost of due diligence one has to carryout to pick a portion of this asset class.
I will now delve into the divisibility of this asset class. Any investment should give an investor the option to easily cash in a portion of their stake, notably this is not a perk that comes with this asset class. Remember I am not against investment in real estate, and certainly not against investment in undeveloped real estate, but rather a radical campaigner for informed investment decisions as opposed to debatable rules of thumb.
Uganda’s housing deficit today is 2.1million units and it grows by 200,000 annually, according to UBOS. However, this demand is for low cost rental housing, which we know may not offer a good enough return on capital. Furthermore, the Centre for Affordable Housing Finance in Africa(CAHF) points out that the high cost of land is a barrier to the supply of affordable housing - which makes me wonder who will blink first in this Mexican stand-off, the land owners (dropping land prices) or those that seek housing (paying more in rent). Far be it of us to think that government lacks the ace card to step in and acquire undeveloped land compulsorily to provide affordable housing out of national interest. To conclude, real estate capital gains are both a fact and a fallacy. As an investor your work is to know which side of this question.

Mr Christopher Segawa Nantagya, CFA, is a financial markets and investment professional. 
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