The government has offered the area to developers planning a satellite city on the more than 150 acres of prime land. It is claimed that there are currently 100,000 residents of the area.
Related to this issue is the often bundied around number that there is at least a 50,000 house deficit in Kampala alone – to put this in perspective this is the equivalent of about 60 housing estates the size of Bugolobi flats.
It is no secret how we fell behind in keeping up with the country’s accommodation needs. Housing is a long term investment that can not be encouraged by the social and political unrest of the 70s and 80s.
With such pent up demand it would be interesting to find out why the private sector has not jumped in more aggressively to bridge the deficit.
National Housing Construction Corporation (NHCC) has only recently got some private sector interest on board, but shackled by the structural deficiencies of the environment are trudging along as best they can.
"The challenge for many home builders and real estate developers is one that of access to affordable finance. Mortgages rates run in double digits ensuring that, assuming a generous 15 percent interest over 15 years you will end up paying more than one-and-a-half times in interest than the original principal....
The banks in their defence point out that with official interest rates at just under ten percent it’s unrealistic for them to charge any less, seeing as they load their administrative costs, risk and margins above this benchmark rate.
In addition the banks are suffering a shortage of long term funds and by the law of supply and demand mean these funds will come with a built in premium.
Aside from those among us who can out of pocket put down billions of shillings in cash to develop property, many developers have found a way around high lending rates, borrowing in hard currency, which allows interest rates of as little as 5 percent.
The challenge of course, is the exchange risk – the chance that the shilling can lose value against the dollar say, forcing up your finance costs in shilling terms, they mitigate against this charging tenants in dollars.
A temporary measure that has persisted longer than it should.
The day a big time developer finds a way to hedge against exchange risk and charge in shillings, then the market will be irreversibly changed. Who thought for instance 14 years ago that we would be paying for air time in shillings?
The issues dogging real estate development therefore are mainly structural and can be addressed by our planners.
To begin with, credit where it is due. The decision in the 80s not to impose rent controls must be lauded. Were rent controls imposed therefore discouraging new investment in the sector, our housing situation would be far worse than it is right now...
Seeing how NHCC’s most recent projects in Kiwatule and Namugoona were snapped up, it is clear that there is no lack of effective demand for new developments. The challenge then for government is to incentivise developers.
One way is to underwrite the laying out of infrastructure – roads and utilities, in big housing estates. This will not only lower the cost of development but also lower the cost of the individual units.
In addition we need to get pension sector reform out of the way. By allowing other players beyond NSSF to collect workers savings this will boost the pool of long term savings in the financial sector for onlending to developers and for mortgages.
Running concurrently government needs to stream line the land tenure system and its administration, as well as create greater efficiency in our court systems to tackle issues of foreclosures and land generally.
I like Equity Bank’s attitude. The management starts from the principle that everybody has a right to financial services and then work backwards from that premise to tailor products for anybody and everybody. Their success in Kenya – where they control more than half the bank accounts, speaks to the success of this mindset.
Let us commit to the premise that every Ugandan has a right to decent accommodation and work backwards to effect this.
Construction is already one of the main drivers of the economy because of its ripple effect through the economy in job creation, as market for local produced materials and on a more intangible level, improved housing improves the emotional wellbeing of populations reducing the risk of instability.
