Uganda's property market remains depressed
January 06, 2015
Property prices dropped significantly. More people preferred to rent instead of buying property. Mortgage defaults rose.
The property market continued to struggle in 2014, despite robust economic growth. Many new developers offered discounted prices to prospective buyers. Construction activity was down.
"Some of these developers are quoting rates as low as US$9 per square metre compared with similar space offered by bigger facilities like UAP Business Park located in Nakawa, which charges US$14 per square metre", said real estate analyst Moses Lutalo of UAP Properties Uganda. "This trend has also led to loss of clients by highly priced residential apartments located in the Kololo area."
Residential construction activity has been falling, with the price of construction materials falling. The construction sector price index for residential buildings fell by 9.9% in October 2014 from the same period last year, according to Uganda Bureau of Statistics (UBOS). The index measures the cost of given baskets of construction goods and services for residential buildings, relative to their cost in the base period (Q1 2006=100).
The 1996 Constitution grants land ownership rights solely to citizens of Uganda. Foreign nationals and corporations may, however, obtain leases for 49 or 99 years.
Uganda's economy was estimated to have expanded by a robust 5.9% in 2014, from real GDP growth rates of 5.8% in 2013, 2.8% in 2012, and 6.2% both in 2011 and 2010, according to the International Monetary Fund (IMF). The economy is projected to grow by 6.3% this year.
Uganda is a democracy with considerable issues with freedom of expression and human rights abuse. This is ironic, because after President Yoweri Museveni 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). He 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.
Recently things have deteriorated. In 2005 Museveni had the constitution changed to allow him to stand for a 3rd and then 4th term (2011- ). He 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 (2014) 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.
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 is taxed separately from other income. Rental income earned by nonresidents exceeding UGS2,820,000 (US$762) is taxed at a flat rate of 20%, withheld by the tenant.
Effective Tax Rate on Rental Income
|Click here to see a worked example|
Shonubi Musoke & Co.
Capital Gains: Capital gains realized by nonresidents are taxed at the standard progressive income tax rates.
Effective Tax Rate on Capital Gains
|Click here to see a worked example|
Shonubi Musoke & Co.
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.
Unparalleled 20 years of growthUganda 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 was estimated to have expanded by a robust 5.9% in 2014, from real GDP growth rates of 5.8% in 2013, 2.8% in 2012, and 6.2% both in 2011 and 2010, according to the International Monetary Fund (IMF).
The economy is projected to grow by 6.3% this year.
Inflation in Uganda dropped sharply in 2014. The headline inflation rate in the country stood at 1.8% in December 2014, down from 2.1% in November 2014 and 6.7% from a year earlier, according to Bank of Uganda. On the other hand, core inflation stood at 2.7% in December 2014, up from 2.3% in November 2014 but considerably lower than the 5.7% seen in the previous year.
However, Ugandan shillings (UGX) continue to weaken against the US dollar. In November 2014, the monthly average exchange rate stood at USD1= NAD2,734.22.
Crime levels are low, but it is advisable to avoid the northern region, where there is fighting between the Lord's Resistance Army (LRA) and government troops.
Though GDP per capita rose 76% in real terms between 1986 and 1995, poverty remains a serious problem, and 72% of the population live below the poverty line.