Property owners warn against abolishing dollarised rent

Parliament has been cautioned against passing into law a Bill that proposes abolishment of charging rent in US Dollars especially for commercial buildings. 

Appearing before the parliamentary committee on physical infrastructure that is currently scrutinising the Landlord and Tenant Bill 2018, property experts from Knight Frank, a property consultancy company, allayed fears that once the law is passed, it will squeeze landlords out of business due to failure to service loan requirements charged in Dollars.

Section 23 of the Bill stipulates that all rent obligations or transactions shall be expressed, recorded and settled in Uganda Shillings unless otherwise provided under any enactment or is lawfully agreed to between the parties to an agreement under any lawful obligation. 

Francis Bbosa the company's head of research explained to the committee that foreign currency loans require same currency tenancy agreements, therefore, effecting this provision in the proposed law will restrain parties from taking the said foreign currency loans which are cheaper, having an interest rate of 7.83% per annum as opposed to loans in Uganda shillings with an interest rate of 21.15%. 

"The proposal is a short term solution to a long term problem, especially if not tackled holistically as part of a bigger economic challenge. This will not only affect the non-performing loans problem faced with banks, but it will also mean that US Dollar borrowers whose financial viability had been based on dollar rental streams are unable to meet their Debit Service Coverage Ratio (DSCR) which would lead to defaulting on their loan," Bbosa said. 

The experts also cautioned that there will be a big and negative impact on the property market specifically and the economy in general in the short to medium term as both international and local investors review the impact on the market if the proposal is upheld. 

"In most cases, institutional investors seek to supplement their equity with a portion of debt and typically this would be required in dollars and not in Uganda Shillings. Uganda Shillings rentals would make it difficult to get a US Dollar loan," Bbosa said. 

The experts also expressed concern that the Bill is not balanced and unfair to landlords as it leans more on the rights of tenants than the former. 

Nancy Birungi Katsigire the company's legal head noted that the imprisonment penalty proposed in the Bill is "totally unreasonable" calling for its omission as this will deter development proposing that grievances between landlords and tenants can be resolved through a reconciliation process. 

"Taking into consideration the spirit with which this Bill was drafted, this shall foster growth and increased development in the real estate sector. Imposition of a prison sentence due to a misrepresentation leaves a lot to desire especially because such may be a result of an error in computation," Katsigire said. 

The experts also rejected the proposal to have landlord and tenants issues resolved in the courts of law arguing that the slow court processed will only frustrate landlords. 

"There is currently a huge backlog of cases in our courts today, so imagine if landlords have to go to court for every delayed payment, won't this overwhelm the courts," Katsigire said. 

In agreement with the former submission, Mark Dulu Angel (Adjumani East County) said, "With our court setting, this would indeed be hard to achieve; let us be realistic with how our court system works." 

The MPs, however, rejected the experts' proposal of dollarising rent stating that this has cost many Ugandans greatly and it will probably be some kind of relief for many. 

"We know that many tenants in those commercial buildings pay in dollars so don't lie to us because we know what happens there," said Katikamu South MP Abraham Byandala.

This prompted the committee vice chairperson George Kumana Nsaba to remind his members that the team from Frank Knight was only there to give their views since the Bill is under scrutiny. 

"Well we have heard the views but by the time government came in that means there were so many problems," Byandala said. 

"This Bill is going to cause so many problems and we are trying to point out these problems," Katsigire said.