Kampala’s housing conundrum: High rent, but where are the tenants?

Bird's eye view of Kampala City, Uganda. PHOTO | FILE 

By JOACHIM BUWEMBO

In Summary

• What has been happening is a fall in demand for rentable space both for offices and accommodation. The result of these, which started several years ago, has been offices replacing residences near the city and gradually in the the suburbs.

Kampala is fast becoming a unique city, with many highrise buildings where only the ground floor is occupied.

In the Central Business District, outskirts and suburbs, the trend is the same. Since it is a poorly lit city, a drive through at night could leave a visitor assuming that there is a law against building above one storey.

What has been happening is a fall in demand for rentable space both for offices and accommodation. The result of these, which started several years ago, has been offices replacing residences near the city and gradually in the the suburbs. The trend saw families surrendering suburban bungalows to offices that could pay $1,000 monthly rent and moving out to the poorly organised new satellite cities.

Now more offices are being moved from the city due to the high rent and nobody is occupying the vacated space. This explains the empty floors above the ground floor on many buildings.

READ: Most Ugandans cannot afford decent housing

The general economic problems are not helping matters as many shops are closing and traders can only compete with mobile vendors by trading from the ground floor — nobody seems to want anything above the ground and first floors yet developers want to keep going even higher.

'Hiding stolen money'

But what economic process stimulates the construction of many buildings in a city that residents and businesses cannot afford to rent?

The conventional explanation the man on the street in Kampala will give you is that many buildings were constructed by thieves trying to “hide” money stolen from the government in property driving the prices of plots to astronomical levels as they competed to purchase them with legitimate developers.

But since the stealing opportunities are not permanent and don’t last long, they now cannot recover their “investment” by pricing according to what they spent.

Another explanation has to do with the cost of finance. The commercial lending rates in Uganda averages between 25 and 30 per cent per annum. For a building investment, this is very high and to recover one’s money can take anything up to 10 years. To shorten this period, developers (both the genuine and illegal handshake recipients) must charge high rent to match the bank rates and the tenants vote with their feet and move elsewhere.

A recent stakeholders meeting in Kampala called by the Buganda Kingdom — a major landowner in Kampala — to find ways of unlocking the city’s real estate potential, was informed by experts from Knight Frank agency that offering decent affordable housing is out of question under the current financial setting; until either the cost of finance drops drastically or incomes rise sharply.

Uganda’s per capita income is now $770/year or $64/month. So, an average person does not qualify to enter the mortgage market unless they spend all their salary on servicing the mortgage.

Until incomes at least double, the experts said, the formal mortgage market will remain of minor significance.

The other solution they suggested is a financially powerful player who does not depend on the country’s financial market to come in and make a significant contribution to the property stock. For now, the country of 34 to 37 million people has a housing deficit of over one million units, requiring an additional 200,000 units per year to bridge the gap in five years, assuming there is zero population growth.

However, only 30,000 units were added in the past five years by all the formally registered property developers.

So, Kampala is stuck between a rock and a hard place, with empty expensively constructed buildings whose rent or sale price nobody can afford, all amid an acute shortage of affordable space.

Empty parking slots

Currently, a one-bedroom apartment sells at $20,000; a two-bedroom one for $42,000 while a three bedroom goes for $50,000. But demand is low as someone who earns $64 a month would need at least 26 years to pay off the cheapest $20,000 unit at a fixed zero interest and spending all their income on nothing else but the apartment. And for the first time in many years, sellers are accepting staggered payments in installments stretching over a year, in a direct transaction not involving any financing intermediary.

Kampala motorists have, meanwhile, discovered a convenience in the property crisis; they can now easily get secure parking for the whole day. In a city where parking is difficult to find and expensive when found, many premises that have no tenants have empty parking slots.

For a $0.5 tip, the watchman will let you park in a nice, shaded secure space from morning to afternoon. So even if the upper floor of the buildings is empty, the parking lot is full.

And in an economy where the tough looking watchmen are playing an increasing role, a new category of tenants are returning to the city office space abandoned by legitimate business.

Food vendors are, also for half a dollar tip to the guards, setting up in the upper floor offices to serve their food to customers on makeshift seats. And the city-wise folk know where to find them. You may see all this as a waste, and ask why they developers did not build single storey blocks and take the rest of their capital elsewhere.

But the bylaws prescribe a minimum height of building for some areas. It may take a while before the realignment in the economy allows the tenants to return to the upper floors.