PLAYERS in the real estate sector have warned of increases in prices due to an unfavorable exchange rate
By Samuel Sanya
PLAYERS in the real estate sector have warned of increases in prices due to an unfavorable exchange rate. In annual terms, the shilling has shed 38% value against the green buck raising the prices of imports.
Also set to rise is the cost of rent, construction costs and undeveloped land. It is estimated that at least 65% of construction materials are imported due to the limited supply of production of construction materials in the country to meet demand.
The dollar was trading at an average 3,508.39/3,518.39 buying and selling respectively at noon on Thursday. This was significantly weaker than 3,496.39/3,506.39 in the first trading session.
“The shilling weakened on account of elevated demand from interbank players on the back of improved shilling liquidity,
“A break through the 3500 level is likely to cause anxiety and rush for dollars from market players with memories of the recent depreciation episode still fresh in their minds,” Stephen Kaboyo of Alpha Capital Partners explains.
Shakib Nsubuga, country manager of Lamudi Uganda, a real estate agency says that the rise in the dollar rate also means that people will start to look for cheap accommodation far away from the central business district, where there are no infrastructure plans yet.
“We are likely to see development of slums on the outskirts of the city. The dollar rate will also have a major impact on mortgages because in order to be able to develop good properties, property owners will have to charge in dollars. Many developers therefore are likely to wait until the exchange rate is stable,” Nsubuga explains.
He says that many people are now likely to invest in undeveloped land, which hasn’t been the case during the past year where most people sought to develop their land.
Judy Rugasira Kyanda, the Knight Frank Managing Director notes in a quarterly report that a number of investors have deferred borrowing for development or house purchases until after the elections.
“Uganda has not fully recovered from the 2011/2012 property depression, and this has met with an investment market which is being cautious in the run-up to the 2016 general elections,
“This situation has been exacerbated by the depreciation of the local currency against the US dollar prompting upward adjustment of the Central Bank Rate (CBR) by Bank of Uganda and consequently upward adjustment of prime lending rates by commercial banks,” she explains.
Kyanda notes that property investors are cautious over perceived tax implications of the 2015/2016 national budget.
She says that when compared to this time last year, there has been reduced volume of property valuation instructions for mortgages from banks.
Dollar rate, elections slow real estate sector