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Real estate industry facing multiple threats

By Vision Reporter

Added 4th May 2013 07:57 PM

THE real estate industry has, for years been one of the highest paying ventures in Uganda, but in the last few months, the sector has come under threat

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THE real estate industry has, for years been one of the highest paying ventures in Uganda, but in the last few months, the sector has come under threat

By Joshua Kato and Joel Ogwang

THE real estate industry has, for years been one of the highest paying ventures in Uganda, but in the last few months, the sector has come under threat.

There are fears among real estate dealers that the industry may collapse.

“The sector is being attacked from so many angles,” a director at one of the leading real estate fi rms in Uganda says. 

For example, while the average growth of the real estate sector stood at about 7.8% a few years ago, it dropped to 1.7% last year, according to statistics.

State intervention

When state minister for lands Aidah Nantaba was appointed, she was seen as a person who would solve many of the land wrangles across the country amicably.

Less than a year into her tenure, expectations of real estate dealers have been dashed.

The minister has forcefully returned huge pieces of land that had been legally acquired back to the tenants who earlier occupied them.

Nantaba, however, says she is only acting in circumstances were it is clear rules were breached.

“When I receive a complaint, I ask the interested parties to bring all the documents. I only intervene if the documents are not clear,” she says.

But land dealers differ. 

“This is irrespective of the fact that they (tenants) were paid off or not,” Edward Ddungu, a land dealer, says.

One of the companies to suffer the minister’s wrath is Zion Construction Company that lost land in Wakiso.

According to an offi cial from Jomayi Real Estate Company, by the nature of their operations, they acquire huge tracts of land from landlords irrespective of whether the land has tenants or not.

They then work out modalities of compensating the tenants, giving them enough time to transfer before the development of the land starts.

“But some people are turning around to claim that we never compensated them, even when we have documents indicating that we gave them their dues,” he says.

Because of this, many dealers are now scared of buying huge pieces of land that have tenants. This has slowed the development of the sector.

“The Nantaba problem is a serious one,” says Nicholas Arinaitwe, the president of the Association of Real Estate Agents in Uganda.

“Compensation is now more problematic than before. You buy land and compensate squatters, but they ‘eat’ the money and cry out to Nantaba for protection.”

Another problem presents itself through the management of lands registration.

“We (association) have so far failed to harmonise our relationship with the lands ministry, as well as buyers and sellers. We also don’t have a regulatory framework governing the operation of real estate industry,” says Arinaitwe.

New taxes by URA

At the height of inflation a year ago, Bank of Uganda introduced an inflation targeting tool on land transactions.

The directive was that land transaction above sh40m should be taxed. And now the Uganda Revenue Authority (URA) has imposed VAT on all land transactions, including estates that were bought before the tax came into force.

This means that estate companies will have to look for funds to pay the taxes from current transactions. 

“One wonders who will bear the burden of this tax,” says a land dealer. 

Will land prices go up? And when they do, will Ugandans be able to buy land? Some estate companies have been in operation for many years, with some having acquired many estates and sold them off.

Closure of the land office

For the last six months, the Kampala land office has been closed because of various factors.

At first the office was closed after a legality conflict with the office of the City Executive Director. 

Then late last year, land offices across the country were closed to enable the computerisation of land titles run smoothly.

But while other offices around the country were opened about one month ago, the Kampala office remains closed. 

The Kampala and Wakiso offices handle most of the large estates. Because of this, transactions have stalled.

According to estates dealers, many buyers who bought land late last year are yet to receive their titles.

“This has been our biggest challenge of recent,” says Wilberforce Muhangi, the Byaboneka & Partners General Enterprises operations manager. 

“Buyers cannot check the validity of land titles. The sooner it is resolved, the better.” 

Also, the dealers cannot access bank loans to finance other projects because banks cannot release the money without duly transferred land titles.

“There is also the problem of fake land titles in the market,” says Arinaitwe. “It is a big problem that needs to be sorted out soon.”

High lending rates

Before the above factors manifested themselves, estates dealers were already grappling with high bank lending rates.

Less than a year ago, the rate stood at about 36%, and yet most of the dealers had taken the loans at a much lower rate. Many small estate dealers lost their properties because of the high lending rates.

“The high interest rates are killing many businesses, including the real estate industry,” says Naboth Barahire, the director of Asset City.

“Many buyers use commercial loans, which are expensive yet it is difficult for people to buy property using cash.” Because of this, there is less liquidity.

“People are failing to finance mortgages,” says Arinaitwe.

Although the rates have been reducing slowly, many estates dealers have already had their properties taken over by banks.

“When I acquire a piece of land and process the title, I use the title to get more money from the bank to either develop the land or buy another estate, but the rates at the moment are so high that they are no longer manageable,” says Erias Kizito of Global Property dealers.

Poor infrastructure

The inability to establish a vibrant road network and reliable electricity supply has also hit hard the real estate industry.

In other countries, governments provide roads, water and electricity for massive investments of between 100 to 500 houses, says Barahire.

“But the Government has not been helpful in this, which has killed largescale real estate investments,” he notes.

“We need incentives from the Government for the industry to stay vibrant.” 

Also, remittances from Ugandans working abroad have shrunk due to the Euro Zone crisis, says Arinaitwe.

Real estate industry facing multiple threats

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