One of the residential properties in Kampala. Though improved roads,
supermarkets, clean water and electricity connections have attracted
property developers and tenants to areas outside Kampala in the past
couple of years, the supply of housing units is yet to match growing
demand. PHOTO | MORGAN MBABAZI | NMG
Increased exit of tenants from Kampala’s upmarket residential
estates to fast-growing suburbs and strong investor focus on three
bedroom apartments slowed down occupancy rates in Uganda’s high-end
residential property market during the second half of 2018,
newly-released data shows.
Knight Frank Uganda, a real
estate manager, says in its latest report that occupancy rates in
upmarket Kololo and Nakasero — traditionally preferred by diplomats,
expatriates, senior government officials and young professionals —
dropped from 86 per cent to 81 per cent between June and December 2018.
Most tenants moved to new and cheaper homes far from the city centre, the Knight Frank survey found.
The
report says changing physical land use in prime Kololo and Nakasero
areas compelled landlords to convert residential units into commercial
office space — a trend that continued in the past five years — leaving
certain tenants with no choice but to relocate to the upcoming and more
affordable suburbs.
Rising demand for office space outside the city centre has also been widely cited for ongoing changes in land use.
Rental
charges for residential units in Nakasero, Kololo and other prime
settlements fell as landlords struggled to attract new tenants, in the
wake of better priced new housing units completed last year.
Rent
Average rents for prime,
furnished two-bedroom apartments dropped from $2,250 per month to $1,850
last year while rental charges for two-bedroom unfurnished apartments
fell from $1,500 to $1,000 per month, according to the Knight Frank
report.
Industry analysts also reckon that shifting
fortunes in Uganda’s oil and gas industry have affected residential
housing occupancy rates in prime locations.
Major oil
and gas exploration firms vacated prime residential houses between 2014
and 2015, citing extensive cost-cutting in their operations.
Many expatriates were consequently recalled to headquarters out of Uganda and a significant proportion of local staff laid off.
More
than 80 vacant high-end residential homes were offloaded into the
market after the restructuring, according to Knight Frank but details of
financial distress that followed, including the takeover by banks of
units whose proprietors had defaulted on loans were not available.
Total
E&P of France, Tullow Oil of Britain and China National Offshore
Oil Corporation are the major oil and gas exploration firms active in
Uganda and industry sources said the restructuring affected more than 70
employees.
Whereas previous cost-cutting was prompted
by government delays in reaching a Final Investment Decision for
Uganda’s commercial oil production plan, there is renewed hope that the
decision will be made before July, and with it rising expectation of
increased residential units uptake.
Occupancy rates
The
Knight Frank survey, however, found that overall occupancy rates in the
fast growing Kiwatule, Najjera, Buwaate, Kira and Namugongo areas rose
from 80 per cent to 82 per cent between December 2017 and December 2018 —
indicating that some of the tenants leaving the upmarket suburbs of
Nakasero and Kololo had settled there.
Though improved
roads, new supermarkets, fresh water and electricity connections have
attracted property developers and tenants to these areas in the past
couple of years, the supply of housing units is yet to match growing
demand.
About 150 residential units are scheduled for
construction in the Najjera, Kiwatule, Buwaate, Kira and Namugongo this
year, about 90 per cent of which are three-bedroom apartments.
This leaves potential tenants, particularly those interested in one and two-bedroom apartments with few choices.
Average
rents for two bedroom apartments in the Najjera, Kiwatule, Buwaate,
Kira and Namugongo stands at Ush700,000 ($189) per month while three
bedroom apartments attract average rents of Ush1 million ($271) per
month.
New units
Judy
Rugasira Kyanda, managing director at Knight Frank Uganda said more
than 100 new prime residential units are expected in the market this
year targeting potential clients in the financial services, oil and gas,
pharmaceutical and agricultural sectors.
“Rental
yields on these properties are projected at 6-7 per cent and the growth
spillover effects on the industry are estimated at five per cent of
national economic output,” said.
Average land prices in
the Kololo, Nakasero, Naguru, Bugolobi and Mbuya are estimated at
$198-$618 per square metre while those in Namugongo, Najjera, Naalya,
Kira and Kyanja are estimated at $27-$58 per square metre.
Industry
sources said one and two-roomed houses attract tenants faster than
three bedroom apartments in places like Kiwatule, Najjera, Buwaate and
Naalya.
“Nevertheless, three-bedroom apartments have
become scarce in those areas. I sought for a three-bedroom apartment two
weeks ago for a friend and couldn’t get any. My friend was eventually
forced to rent a new bungalow deep down in Najjera that had failed to
attract tenants for months at a cost of Ush1.6 million ($432.9) per
month,” said Herbert Rugamba, a resident in the neighbourhood.
Three
bedroom apartments currently ask for between Ush800,000 ($216) and
Ush1.2 million ($324.7) per month in such neighbourhoods.
Mr
Rugamba said some developers are now ignoring investment opportunities
in large bungalows in favour of two-roomed housing units that attract
several tenants in one week, offer quick cashflows and make it easier to
recover one’s capital in the short term.
“Most young
people cannot afford to live in cheaper and distant places like Mukono,
which are choked in traffic gridlock,” he said.
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