The Landlord Tenants Bill will hurt all sectors of the economy

 

By Francis Kamulegeya

It is common in Uganda for a government Ministry to issue a policy statement outlining what the government hopes to achieve in discharging its obligations of governance and leadership and the principles it will use to achieve them.

 

A government policy document is not law, but it will often identify new laws needed to operationalise the policy. It is the role of Parliament to pass the laws to operationalise government policy. 

 

After reading all the many articles written about the new Landlord and Tenant Bill that was passed by Parliament last month, I decided to take a few steps back to do a bit of research to get a good understanding of what government policy this new law is intending to operationalise.  

 

As you would expect I started with the Ministry of Lands, Housing and Urban Development's own. The National Housing Policy 2016, after all this new law is about property and housing in Uganda.

 

In this policy, government acknowledges that Uganda has a housing deficit of 1.6 million units. The objective of the Uganda Housing Policy is to encourage private investors to increase on their current levels of investment and development in real estate to a level of at least 200,000 new houses every year to ensure that our country meets its housing needs by the year 2022.

 

From there I went to the Ministry of Finance's National Strategy for Private Sector Development. This is because government acknowledges that all the housing needs of Uganda are going to be met through creating an attractive and enabling environment for private investors both local and foreign to invest in commercial and residential property. 

 

Government knows that investors want certainty. They also want to be treated justly and fairly, and most importantly they want assurance that their investments in Uganda will be protected by the state. To give investors assurance on this issue, the Ministry of Finance came up with the National Investment Policy, 2018.

 

In this policy, the government commits to treating investors with equity and fairness. Specifically, the government assures investors in this policy that it will improve investment related policies regarding establishment and operations; treatment and protection of investments; investor responsibilities; and investment promotion and facilitation.

 

I then looked at the Bank of Uganda's most recent report on the State of the Banking Sector, to get a full appreciation of the extent to which the banking sector will be exposed if something real bad happened to the property and real estate sector as result of this new Bill.

 

I established that property construction and housing mortgages constitute the highest share of private sector credit in Uganda. This sector makes up 20.1% of the total private sector credit in the banking industry. It is the most secure lending and that is why non-performing loans for the building and construction sector are lowest in the entire banking industry.

 

I concluded my research by reading the Ministry of Finance's Background to the Budget Report and the Uganda Bureau of Statistics (UBOS) National Housing and Population Census Report, 2017. According to these reports, the property development and real estate sector contributes 4.4% of Uganda's total GDP.

 

Over the last three years, this sector has been one of the fastest growing sectors of the economy.

 

In the financial year that has just ended, the sector grew by 6.8%. The property and real estate sector is the fourth biggest source of employment in Uganda. The only other sectors that employ more people in Uganda are agriculture, trade and retail, and the transport sectors.  

 

Having read all these Government policy documents and considered the potential implications of the Landlord and Tenant Bill, I'm now convinced that this Bill, if assented to into law by His Excellency the President, will do so much damage to the economy. It will discourage both local and foreign investors. It will create social conflict and discord between landlords and tenants.

 

It will send the wrong message to the international investor community as it is a reversal of government policy relating to free market economy by re-introducing price controls.

 

This is because, according to Clause 27 of the Bill, " A landlord shall not increase rent at a rate of more than 10% annually or such other percentage as may be prescribed by the Minister". This means a government Minister is now going to be controlling as well as setting the rent private investors charge for their private properties. 

 

The Bill is also re-introducing foreign exchange controls in Uganda, through the back door. Clause 23 states that "All rent obligations or transactions shall be expressed, recorded and settled in Shillings". This will not only apply to rent charged by city landlords for their shopping malls in downtown Kampala, but also to investors leasing or letting out facilities in an industrial park or free zone. 

 

Just last month Parliament amended the VAT and Income Tax laws to give such investors a ten-year tax holiday as long as they invest $10m in case of a local investor, or $50m in case of a foreign investor, to construct facilities in an industrial zone. I'm not sure that there is an investor who will be willing to invest their money now, considering the new price control and foreign exchange control that this new Bill has introduced in the property development and real estate sector.

 

Promoters and supporters of the Bill said it will harmonise relations between landlords and tenants. It will not. Instead, it will cause disharmony and social disorder between landlords and tenants.

 

This Bill will do so much damage to our economy and society. I hope the President will not ascent to it but send it back to Parliament for reconsideration. If this happens, I hope Parliament will reconsider the Bill, objectively and put aside sentiments, anger and populism.