Uganda's housing market gradually improving
Lalaine C. Delmendo | December 06, 2019
During the year to Q3 2019, the nationwide residential property price index rose by a modest 3.25% (1.3% inflation-adjusted), following a y-o-y decline of 6.9% in Q2 2019 and annual rises of 9.4% in Q1 2019, 7.1% in Q4 2018 and 1.7% in Q3 2018, according to the Uganda Bureau of Statistics (UBOS).
The latest quarter was unusually strong. Nationwide house prices rose strongly by 6.2% during the latest quarter, Q3 2019 (5.5% inflation-adjusted).
In Kampala, Central and Makindye, residential property prices surged 18.5% during the year to Q3 2019 (16.3% inflation-adjusted).
In Nakawa, house prices rose by a minuscule 0.6%, but actually fell 1.3% when adjusted for inflation. In contrast, modest house price falls were registered in Wakiso(-3%) and in Kawempe and Rubaga (-2.5%) during the year to Q3 2019.
Demand is rising, amidst improving investor confidence. The total amount of mortgages outstanding rose by 11% y-o-y to UGX1.34 trillion (US$362.33 million) in September 2019, according to the Bank of Uganda. Likewise, credit advanced to the real estate sector as a whole, comprising of building, mortgage and construction, increased 12.8% y-o-y to UGX 3.19 trillion (US$860.9 million) over the same period.
“Business and consumer confidence considerably improved, in line with improved performance of the economy,” said Arthur Mukembo of Re/Max Uganda.
“The increase in enquires for modern standalone houses registered in H1 2019 is expected to push up demand for the limited stock of existing modern standalone houses,” said Knight Frank in its Kampala Market Update H1 2019. “This, in turn, is expected to positively impact house prices in the range of 5%-10%.”
Yet residential construction remains weak. The construction sector price index for residential buildings fell by 0.2% in August 2019 from a year earlier, according to UBOS.
Uganda's economy grew by a robust 6.1% in 2018, up from the prior year's 5% growth and the highest expansion since 2011, according to the International Monetary Fund (IMF). The economy is projected to grow by 6.2% this year.
The 1995 Constitution grants land ownership rights solely to citizens of Uganda. Foreigners cannot own land freehold. They may, however, obtain leases for 49 or 99 years. Foreigners can either rent/lease from citizens or from the Government.
Analysis of Uganda Residential Property Market »
Yields are high in Kampala
The increase in supply and development and the refurbishing of existing supply is exerting downward pressure on rents, but yields are still quite high at around 8.6% to 10%.
Rents are around US$6 to US$8 per square metre (sq. m) per month (around Ugandan Shilling (UGS) 11,635 to UGS14,300). So the rent for a 200 sq. m. property would be around UGS2.5 million (US$1,358) per month.
Selling prices very widely from between UGS1.5 million and UGS10 million (US$815 to US$5,432) per sq. m.
There are no serious issues of security, power or water supply in the established expatriate areas, but it always helps to have a back-up generator.
Rental income tax is moderate in Uganda
Rental Income: Rental income income is taxed separately from other income. Rental income earned by nonresidents is taxed at a flat rate of 15%, withheld by the tenant.
Effective Tax Rate on Rental Income | |||
| Monthly Income | €1,500 | €6,000 | €12,000 |
| Tax Rate | 15% | 15% | 15% |
| Click here to see a worked example | |||
| Source: Shonubi Musoke & Co. | Disclaimer | ||
Capital Gains: Capital gains realized by nonresidents are taxed at the standard progressive income tax rates.
Effective Tax Rate on Capital Gains | ||
| Property Value | US$2,500,000 | US$20,000,000 |
| Tax Rate | 26.7% | 26.8% |
| Click here to see a worked example | ||
| Source: Shonubi Musoke & Co. | Disclaimer | |
Inheritance: No inheritance or gift tax is levied in Uganda.
Residents: Residents of Uganda are taxed on their worldwide income at progressive rates, up to 40%.
Uganda's total transaction costs are moderate
The roundtrip cost, i.e. the total cost of buying and selling property, is around 8% to 14%. The biggest cost is the real estate agent’s commission at 5% to 10%. Most fees are fixed, and paid by the buyer.
Real estate transactions are typically quoted and concluded in Ugandan Shillings.
Large advance rent payments are normal in Uganda
Rental market practice is pro-landlord.
Rent: Rents and rent adjustments can be freely negotiated. Rents are paid three months to one year in advance, with subsequent rents paid quarterly, in advance. However, as the market becomes more of a tenant's market, one year advance payments are becoming less popular.
Tenant Security: There are no specific tenant protection laws, and it is relatively easy to evict tenants.
Three decades of uninterrupted growth
Uganda is a major safari destination with a large primate and bird population and a diverse landscape, dense jungles, and white-water rafting on the Nile. Tourists can also relax on the shores of Lake Victoria - the second largest body of fresh water in the world.In the years following independence in 1962, Uganda experienced dictatorship and military rule. Most notably, Idi Amin rose to power in 1971 and imposed a reign of terror. His incompetence ruined the economy and he expelled about 50,000 Asians. From 1970 to 1980, government-initiated violence killed about half a million people.
Museveni’s enormous achievement has been to put all that behind Uganda. From 1995 to 2013, the average annual GDP growth was 6.9%. Inflation was down to 5% in 2013 from 8.2% in 2005 and from a peak of 240% in 1987.
Uganda’s economy grew by a robust 6.1% in 2018, up from the prior year’s 5% growth and the highest expansion since 2011, according to the International Monetary Fund (IMF). The economy expanded by an average of 7.8% from 2001 to 2011 and 4.1% from 2012 to 2017.
The economy is projected to grow by 6.2% this year.
In October 2019, core inflation was 2.6%, considerably lower than the 3.5% seen the previous year. Inflation averaged 4.9% in 2013-17 and 9.8% in 2005-12.
The Ugandan shillings (UGX) appreciated by 2.2% against the US dollar over the past year, to reach a monthly average exchange rate of USD1= UGX3,696.2 in October 2019. The shillings lost almost 33% of its value against the US dollar from 2013 to 2018.
Museveni’s three-decade rule
Uganda is a democracy with considerable issues over freedom of expression and the abuse of human rights. This is ironic, because after President YoweriMuseveni came to power in a rebellion in 1986 he was widely seen as the best of a new wave of democratic leaders, after the horrendous regimes of former presidents Idi Amin (1971-1979) and Milton Obote (1980-1985).
Museveni stabilized the country, introduced democracy, liberalized the press, and responded effectively to the HIV/AIDS crisis, and cooperated with IMF stabilization programs despite an early Marxist background.
However things have deteriorated in recent years. In 2005 Museveni had the constitution changed to allow him to run for an unlimited number of terms. In February 2016, Museveni was elected for his fifth term in office. Then in December 2017, a law was enacted to remove the presidential age limit caps, clearing the way for Museveni to run for another term.
Despite three decades of uninterrupted economic growth, Uganda remains one of the poorest countries in the world, with GDP per capita of only US$724 in 2018. Corruption remains prevalent.
Museveni has also repeatedly involved the Ugandan armed forces in external conflicts. Restrictions on press freedom have greatly increased, and the introduction of the death penalty for homosexuality caused international concern. Internally he is suspected of planning to hand over power to his son when he retires. Despite these concerns, no one suggests that the abuses have reached the extreme levels of the previous Amin and Obote regimes.