NSSF wise to invest in Mbabazi’s land

By Andrew Mwenda

I wish to respond to Peter Walubiri’s article titled, “Legal and economic issues in NSSF land” which was published in The New Vision of September 5. Walubiri was responding to my article in The Independent, in which I argued that the National Social Security Fund (NSSF) made a good investment decision to buy security minister Amama Mbabazi’s land in Temangalo — 13 kilometres from Kampala — at sh24m an acre. Walubiri held that the price was inflated.

There are many ways of determining the relative price of land. You can ask land brokers and they tell you how much land is going for in an area.

Alternatively, you rely on market intelligence by looking at similar recent transactions in the same area, that is, who bought land recently and at what price. Or you can hire professional valuers. Finally, you can call in a government valuer.

I have not talked to brokers in Temangalo. However, a friend sold land in the same area (market intelligence) at sh28m an acre in 2006. Akright said they had offered Mbabazi sh28m an acre. One of NSSF’s valuers told me recently that they valued Temangalo as agricultural land. These considerations guide a buyer. However, the definitive issue on purchase of an asset is the expected rate of return on the investment. It is this consideration that distinguishes Walubiri’s argument from mine: he is concerned with price and I am concerned about value.

Employees of Monitor Publications own a savings cooperative. In May 2008, it bought 30 acres of land over 20 kilometres from Kampala off Entebbe road. The price per acre was sh40m.

The cooperative sub-divided the land into 202 plots. It has been selling each to its members at sh10m. Only three months later, the cooperative has sold 140 plots, raking in a profit of sh200m. When the last 62 plots are sold by this year’s end, the gross profit will be sh800m.

If we subtract the costs of sub-dividing the land, building access roads and taxes, the cooperative will make over sh500m profit. This is evidence of profitability of real estate market in Kampala. Interestingly, Monitor reporters and editors think NSSF paid an inflated price for Temangalo land that is only 13 kilometres from Kampala and they call it a bad investment.

What is good for the Monitor employees’ cooperative is also good for NSSF members. I have personally been trading on the Kampala land market for four years and each time I have made a handsome return. This has not been because I am smart. It has simply been because the market in Kampala makes any investment in land a good investment.

Because undeveloped land prices double every year, sellers tend to withhold land in expectation of higher prices later. Every buyer knows the cost of delay can be doubled price a few months later.

Because NSSF that was looking for a big chunk of land that is consolidated, their alternatives were limited. I believe that Mbabazi and Amos Nzeeyi sold at sh24m because they were desperate. Any other seller would not have accepted anything less than sh50m an acre. NSSF could delay at the price of a much higher price a few months later. That is the state of Kampala’s land market.

Therefore, from a purely business point of view, NSSF got an excellent deal. The argument against the Fund can only be on the procedural rules.

I do hold strongly that if public officials violate rules, they should be punished regardless of whether the investment makes a good return or not. Not doing so promotes impunity. If Mbabazi and others committed wrongs, criminal or ethical, they should be punished. However, procedural defects should not blind us to the strategic value of NSSF’s investment in Temangalo.

Since my article was published in The Independent and since I appeared on WBS television to defend it, many friends and readers have telephoned or written to me asking why I am defending Mbabazi, which I have not done. The confusion is because the debate is not about the economic or business merits of NSSF buying Mbabazi’s land. It is about the political life of Mbabazi.

Mbabazi has many opponents and enemies in his party. They have been waiting for an opportunity to strike at him. In selling his land to NSSF in a process fraught with innumerable tendering question marks, he handed them a rope with which they can hang him. And hang him they may. But the internal wars in the NRM should be distinguished from NSSF’s investment plan to develop a modern housing estate in Temangalo.

It is easy to build a business case for Temangalo using Monitor’s model in Garuga. Out of Monitor’s 30 acres, 20 % (6 acres) was reserved for roads. This means that each of the 24 acres will accommodate 8.4 houses. Let us assume that each acre in Temangalo accommodates eight houses. It means that each plot cost NSSF sh3m. If NSSF builds a house that costs sh57m to construct, and sells it at sh80, it will be making sh20m profit per house.

Using international standards, 40% of land in a housing estate goes into infrastructure (roads and drainage) and common/green areas. Of the 460 acres NSSF bought, only 276 acres are available for building houses. If NSSF builds 8 houses per acre, it will make sh44.2b gross profit. Even if the total cost of infrastructure and taxes were to be 14.2b, NSSF would walk to bank with sh30b net profit.

Houses in Kensington Homes and Royal Palm are selling houses at between $100,000 and $250,000 (sh165m and sh420m) and most of them are sold before they are completed. Yet this price is far beyond the reach of most people. If NSSF offered houses at sh80m in the morning, they would be finished before dusk.

But NSSF’s Temangalo project may even be more profitable since they plan to build 5,000 houses there .This is made possible by the construction of more houses on an acre than Monitor employee cooperative did. They will build high raised apartments. If they seek to make sh20 per house sold, it will give them sh100b profit. It requires a high level of dishonesty or ignorance to call this a bad investment.

The writer is the Managing Director of The Independent Publications Ltd