THE LANDLORD & TENANT ACT: DODGING A BULLET? ONLY JUST!

In April President Yoweri Museveni assented to the Landlord & Tenant Act.

The law when it was introduced in 2016 among other things tried to limit rent increments and to restrict landlords to charging rent in shillings, a position this column opposed vehemently.

"No long term good comes from trying to control prices by administrative fiat. It is a tempting option for populists and demagogues but inevitably ends in tears....

This column argued at the time that the decision not to control rent in the 1980s was not only brave at the time, but farsighted and is responsible for the boom in real estate construction over the last three decades.

The housing situation was so bad in the 1980s that for lack of accommodation, whole middle-class families were shacking up in garages, but consoled themselves that at least they were doing so in the “upmarket” parts of Kampala.

By avoiding rent controls investors spread out of the city, introducing us to places like Naalya and beyond, Zaana and beyond and Munyonyo. We argue about the chaos of this urban sprawl, but that’s a discussion for another day. By allowing rent to be determined by the market, investors have found it worthwhile to build estates and apartment blocks, relegating middle class housing shortages to history.

Had government bowed to the populist rhetoric to place rent controls by people, some of whom are now landlords and probably charging in dollars, this real estate boom would not have happened and in fact we would be paying higher rents for the few hovels around.

Thankfully sense prevailed and the MPs adjusted the clauses that insisted on rent controls – putting a cap on annual rent increments and landlords charging dollars to the mutual agreement of landlord and tenant. In my mind they should just have eliminated the clauses all together rather than bite their tongues.

That being said government needs to come up with a strategy, or if its there, execute it, which recognizes the growing housing needs of the low-income earners.

A strategy, which takes into account the lack of affordable credit in shillings, incentives for developers among other things, is important. As it is there is a lot of uncoordinated troop movements as to suggest that there is no strategy for this critical sector to the economy.

For instance, in the recent budget finance minister Mathia Kasaija announced a threshold of sh2.8m in annual rent below which owners will not be liable to tax. That’s monthly rent of just under sh250,000. Landlords who collect more will be charged 12 percent on their revenues. Previously landlords were allowed their expenses including mortgage interest, so this will be a disincentive to real estate owners trying to rent out properties in their own names.

But even if you were a real estate company things were not better. The minister allowed only 50 percent of expenses as tax deductible and maintained a 30 percent tax on the net income.

With this move he discouraged people from taking out mortgages to develop real estate as individuals but must have real estate companies wondering whether its worth the pain. The people who will be left to develop the real estate sector are the few individuals who can develop property using cash alone, and we know who those are!

As mentioned earlier real estate development is a critical aspect of the economy. In our case it is so because most of the inputs are locally available – from the bricks to the wood to the cement and even the iron bars. So, encouraging the real estate sector is a way to create and maintain jobs along the whole value chain. The government should be encouraging developers help it provide housing, which they have failed to do, rather than discouraging them.

While the ideal would be for massive real estate developers, the reality is that the vast majority of our housing is being provided by private individuals so it makes little sense to discourage them when you are not providing incentives for the massive developers to come in.

But that this has become law also throws up another disturbing indicator. It suggests that those making these decisions – in government and our MPs, are either not landlords or that if they are, build their rental properties with cash.