HOUSING PROVISION HAS STAGNATED THE ECONOMY

HOUSING a responsibility of government has over the last 30years been provided by the citizens of Uganda. This has affected the cash flows in the economy because of the high currency drain from circulation into housing and yet it has low returns on investment(ROI).

Housing being an infrastructure is the government's responsibility and I think it is high time the government took over from the citizens. The government can borrow money for the housing sector as it has always done for other infrastructure sectors and let the citizens use their savings for other social priorities.

When the citizens use their savings for housing the cost of investment is equivalent to the bank loan rate he or she borrows from a commercial bank which is about 23%. Now, this is so high in the housing sector. This applies to whether you are borrowing, personal savings or money stashed under your bed.

What has this done to the national economy? In the process of citizens providing houses, Ugandans have all collected their money and given it to the following few individuals; building materials manufacturers, stockists, builders, property developers, and land dealers. That's why we see many building materials manufacturers and stockists, property brokers, and developers in all towns and suburbs of Uganda.

If the houses you have built are rental units for the middle and high-class tenants the return on investment is 3.2% per annum. If you have business premises like a mall in the Kampala CBD the ROI is at 8% per annum.   

In the last 30years Ugandans have built 2m housing units countrywide with their personal savings. Assuming the average cost of each unit is 35m/= then the total investment in housing is 70t/=. This means we have collected 70t/= and passed it to the above-mentioned persons. If the government was providing the housing units like it is in other countries with say a revolving mortgage facility then the personal savings would be circulating in the economy in trade, manufacturing, services, tourism, agribusiness, etc.

If the 70t/= was left to multiply in the economy through a business that has a higher ROI then Uganda would be a middle-income country as The President has wanted. We cannot develop this country with more residential houses than businesses whose ROI is 3.2% thinking our children will get the returns in their lifetime.

The government should change its strategy and provide housing so citizens can invest in better businesses. These will create jobs, pay taxes and provide goods and services.

WHO IS RESPONSIBLE FOR OUR HOUSING PROVISION?

Housing or Shelter is a basic human need as enshrined in the constitution of the Republic of Uganda in the Social and Economic objectives XIV (b). 

Government has a constitutional responsibility of providing infrastructure like transport, schools, hospitals, clean and safe water, electricity and shelter for its citizens. Government has been able to provide all the other infrastructure apart from housing or shelter. Previously the government used to provide housing for its citizens but with the coming of liberalizing and privatisation all houses that it owned were sold and others given away.
Infrastructure being a massive investment cannot be done by individuals as we are currently carrying the housing load a responsibility government has left to its citizens. When the government found that Ugandans loved to build houses it excused itself of its responsibility and now the citizens are paying a high price to meet their other needs. The citizens wouldn't mind if the government provided affordable mortgage facilities to finance housing development since they are trying to carry out government responsibility.

HOUSING FINANCING

Housing financing like other infrastructure financing is managed by long term low-interest funds. In Uganda, we are using commercial banks to finance housing with high-interest rates and yet return on investment in housing never exceeds 4% per annum. So if you got a mortgage from a commercial bank it is impossible to pay the mortgage from the proceeds of the house.The government always borrows money to develop infrastructure from development partners at about 0.4% per annum for a period of about 50years. It comfortably repays the loan and we also enjoy the facility. The government can borrow money to develop the housing sector and lend it to commercial banks at say 2% and the banks can get us mortgages at 4%. The citizens will then use their savings to pay the mortgage and the balance for the improvement of their livelihoods. This will keep money in circulation and the economy will grow since the money used for the housing is cheap.

CONCLUSION
The housing development is one sector that can stimulate the economy given that its massive with a lot of direct and indirect beneficiaries. The building materials manufacturers, stockists and contractors are some of the direct beneficiaries and also they create jobs and pay government taxes. The loan repayment is by the homeowner's mortgage repayment and so the other citizens not in need of houses are not affected.

RESIDENTIAL HOUSES OUT NUMBER BUSINESSES IN UGANDA

Uganda housing backlog in the low-income bracket is alarming and needs government intervention since the numbers are big and the repayment can become tricky based on the earning of the occupants.
On the other hand, there is a housing surplus demand in the middle and high-income earners bracket and this has caused an investment imbalance in the economy. Many people have invested heavily in the real estate sector with the hope of either selling or renting out the houses and returns have failed to come out. The monthly rent is stagnant and house prices are dropping every year if you compare it on the dollar. One other serious problem we have to solve is the building technology we are using here in Uganda. We are using the permanent construction for residential houses meant to last a maximum of 30years. Wh
y this short a time is your active, adult lifetime and house design. Permanent construction is meant for institutional construction like schools, churches, hospitals, government offices etc which in many times the design is simple without any fancy appearance. So we need to get a construction technology for residential houses that makes house affordable. We shall discuss this in another blog.
But today I want us to discuss the issue of having more luxurious residential houses than businesses yet the houses have very little return on investment.
This morning as I was moving through Ntinda and Naguru I saw a number of magnificent residential houses valued in hundreds of millions but can only earn the owner about 5m/= per month. Am on a number of real estate brokers social media platforms advertising houses for sale. I see a building being sold at about 2bn/= and earning only 17m/= per month and wonder how and when the owner will be able to recover the investment given that he may have to repay the mortgage, maintain the building, pay rental tax etc. These are all costs on the investment before making any net earning. I've come to see why some property owners abandon their properties in banks after getting a loan.

INVESTMENT SUBSTITUTION
Instead of the construction of more luxurious residential houses, I suggest we invest more in businesses and industries. Residential houses will not develop our country without industrialization and business development.
A residential house costing about 400m/= in say, Kira, Naalya, Kiwatule, Ntinda, Kisasi etc will at most earn 2m/= per month. A business valued at 400m/= weather trading or manufacturing will earn not less than 30m/= net after making all deductions. This is why all Indians, Chinese, Kenyans, South Africans are not in the real estate. They don't see how money can come out of the real estate to build their capital.
This real estate development has managed to make some financial improvement to the following;
1. Building materials manufacturers
2. Building materials stockist
3. Land dealers and condominium developers and
4. Building contractors

CONCLUSION
Real estate in Uganda is not regulated and it's not an area for everyone to go in especially development.

It is done by investors with cheap money and low or tax holidays. Let National Housing, Ruparelia Group, Amalgamated Properties, Property Services Ltd etc venture in it not any Tom Dick and Harry. Real estate is an investment and not a business which can multiply your capital.
We need to increase the number of businesses to surpass the luxurious residential houses we are acquiring. This will create more jobs, increase taxes and reduce unemployment in Uganda.

For God and my Country

BUSINESS SELLING VS BUSINESS WINDING UP

Business selling literally is the monitory exchange of the business with a buyer. A business is valued by professional business valuers in many times these are Chartered Accountants who value both the tangibles and intangible items in the business. The business is then put up for sale to a willing buyer.

Business winding up or liquidation is ending the business by selling its physical or tangible assets to pay off creditors, with remaining proceeds distributed to the business owners, and with no compensation received for the value of non-tangible assets such as business goodwill. This is always the worst-case scenario since this only attracts less than 15% of the business value for a goods business and about 10% for a service business.

Market your business at the point of sale to get maximum returns

Your Business can be Sold

The first issue anyone considers at business exit is if your business a good sale prospect.

In other words, will someone pay money to acquire my business or am I better off selling its physical assets and walking away? Too many owners assume they won’t find a buyer. Therefore, they automatically default to ending their businesses through a liquidation. But while liquidating allows you to recapture the value of the physical or tangible assets of your business – often at a giveaway – it gives you nothing for the value of your business as a going concern.

When you sell rather than liquidate your business, a buyer pays to acquire not only the physical assets of your business – the assets listed on your balance sheet, but also to acquire the goodwill of your business, including the worth of such intangible assets as your business name, reputation, clientele, systems, and marketplace advantage.

The only way to harvest the value of business goodwill is through a business sale. So, the decision to sell rather than to liquidate rests on a determination of whether the goodwill of your business – the value of your business beyond its physical assets – is of high enough value to attract the interest and prompt the purchase decision of a buyer.

A handshake is appropriate at the conclusion of a sale

Advantages of Business Selling

When the sale is made there is a win-win situation with the seller having 100% of the business value and the buyer having gotten an asset ready to start earning him returns on the investment and mainly:

1. Buying a going concern business with all physical assets of a business, as reflected on the balance sheet, plus the worth of the business as an ongoing entity, based on its recent past performance attracting and retaining customers and experiencing financial success.
2. Goodwill value of a business, reflecting the amount a buyer is willing to pay for the intangible assets of a business including the business name and reputation, clientele, operations and systems, and marketplace advantage.

CORPORATE MERGER AND ACQUISITION

Grocery and Supermarket Business

In Uganda, corporate takeover or acquisition has not taken root but it is one of the sure avenues for business sustenance and development. Many entrepreneurs start-up businesses and hold onto them for far too long with the hope of passing them over to their offsprings. This never happens and the business start to decline in production, sales and revenues and its then that they think of exiting through liquidation. The best alternative for such a scenario is to either merge if say you want corporate growth or sell if you are looking at exiting.

If a company decides to take over another one, it’s referred to as an acquisition. The acquiring company will do this by buying either the major shares or the entire ownership stake of the company being taken over. An acquisition is a situation where a larger company acquires another one outright. There are two types of acquisition: hostile and friendly.

A merger refers to a situation where two companies join forces. They can do this for a number of reasons, say a construction company in Uganda can merge with another one in Kenya. By so doing, the companies will be at a position to reach more customers.

Salon and Skin Parlour Business

Why Companies do M&A

Companies merge and acquire for a number of reasons but mainly for the following; they buy companies with the goal of acquiring a competitor and this is common with the technology companies, companies do M&A to create synergies if say one company has 20 clients and another has 30 client, this will give a combined volume of clients, workers and suppliers. The reason companies do M&A is to accelerate growth. Facebook realized that it's legacy platform will start seeing reduced growth. To accelerate its growth, it acquired Instagram and WhatsApp. It also sought to acquire Snapchat before it became a public company.

Other reasons for acquisition are for purely trading purpose. A company may be acquired at a premium price and just needs a little fixing in the HR, marketing and finance and then sold for a hefty margin. This is business trading. Like you can buy a property or car, make some repairs and modifications and sell it at a profit.

Start Acquiring Now

Bar and Restaurant Business

I know many of you are saying why do I have to acquire more businesses yet am failing on this one. My suggestion to you is that; you as an entrepreneur you have made yourself so busy running a business that is meant to be run by the professionals. Your job as an entrepreneur is to move your capital around your businesses. Look at Dr Sudhir Rupaleria he has more than 30 businesses in Uganda and he is just moving his capital never in the nitty-gritty of the businesses.

START ACQUIRING BUSINESSES

IS REAL ESTATE COLLAPSING UGANDA’S ECONOMY?

When you decide it's time to put down roots and become a homeowner, you may wonder: Do I borrow from a commercial bank, housing bank or from my personal savings? Either way, there is a cost to the money you use. And the cost is the interest you are charged on borrowing. Even if it's your personal saving the assumed cost is about 22% PA. 

Provision of housing to its citizens is governments constitutional responsibility like it is doing with roads, schools, medical facilities, rail, airports, harbours etc. The government can provide the physical houses like National Housing Corporation used to do in the ’60s and ’70s or provide low-interest mortgages at 3% PA. With such provision, more citizens would be able to invest their money in businesses that can generate high returns on investment and thus pay more taxes to run the economy. In a way the citizens would be government partners: government provides cheap mortgages and citizens generate taxes from their businesses and investments.

But that is not the situation we are in. We are in a situation of citizens generating taxes and also providing the housing infrastructure at a very high mortgage interest rate of 22% PA. At that interest rate, it is practically impossible to repay that mortgage given that return on investment for real estate in Uganda does not exceed 6% PA. That’s why we are having more empty malls and houses in many of Kampala CBD and suburbs and the property owners are trying to pay the mortgages from other sources. The housing bubble has burst and the economy is at standstill.

What is a housing bubble burst?

A housing bubble is a rise in housing prices fueled by demand, speculation and excitement. Speculators enter the market, further driving up demand. At some point, demand decreases or stagnates and at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts. Housing prices peaked in early 2005 during the “Property Masters – Kasulu” era, started to decline in 2011 and reached new lows in 2018. We now have the largest price drop in history with houses costing 3.5bn/= and renting for 6m/= per month.

Government Needed Intervention

The government has always borrowed money for infrastructure development at 2% PA for 50 years, and we have ably paid it back. We think the government should also borrow money for its citizens to build real estate. This will propel the economy since the industrialists will manufacture more building products, the citizens will carry out more businesses and thus more taxes will be paid. The government will also recover the loans from the citizens and pay it back for more loans.

https://tuficbusinessmarket.blogspot.com 

TO START YOUR BUSINESS CAREER: SELECT DAILY CASHFLOW ENTERPRISES

     Starting or acquiring a business requires careful analysis of your personal and business growth needs. We have seen entrepreneurs start good lucrative businesses that have high returns but little daily cashflows and this can be a demotivating aspect for a startup business owner. A good example is a business that sells items that one may need once or twice in a year say a cutlery shop, boutique, furniture shop, construction firm, etc. These businesses when there is a transaction the margins are good but the possibility of getting early sales at startup period is minimal.

So why start with a cash-flow business?

    First and far most what is a cash flow business? A cashflow business is an enterprise that transforms its products or services into cash frequently says a supermarket, salon, fuel station, taxi service, grocery shop, laundry cleaning, repair workshops, pharmacy, forex trading, restaurant, café, medical and education services, etc. These businesses have the potential of multiplying your capital much faster thus the financial freedom than the corporate businesses because of high stock turnover.

    The other point of starting with a cashflow business is to build entrepreneurs confidence and courage. Many have been discouraged at this stage of business development due to a lack of cash at the end of every trading period.


Advantages of Cashflow Business
1. Easy to start and manage
2. Low startup capital risk and easy to learn
3. High stock and capital turn over
4. Easily financed by financial institutions if banking is regularly made.

    Even for cashflow businesses in order for it to succeed all the business norms must be met. Business owners tend to think that since this is just a retail shop there is no need for bookkeeping, advertising, insuring, customer care, etc. and yet these are the basic business norms that will grow the business and its owner.
After the business owner has mastered the business and is ready for growth then he can transform his business from the cashflow business to a corporate one that may have low daily sales but high periodic margins. These are businesses such as construction services, consultancy, real estate, digital apps development and management, manufacturing, brokerage services, and NGO services.

Conclusion
    In order for someone to appreciate and have the courage to develop his business skills, one needs to start with a cashflow business instead of the other forms. We have seen how foreigners who come to start living here begin their business life. They all start with trading commodities or services because that will build their capital and later invest in manufacturing which has a high return on investment. We should follow what foreigners are doing to get to financial freedom.

RICH DAD’S RULE: BUY ASSETS NOT LIABILITIES

In Robert T, Kiyosaki’s best selling book “Rich Dad Poor Dad”, he tried to explain the difference between assets and liability as:

“Rule One. You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is Rule No. 1. It is the only rule. This may sound absurdly simple, but most people have no idea how profound this rule is. Most people struggle financially because they do not know the difference between an asset and a liability.”

Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets.

The definition of an asset is anything that puts money in your pocket, and a liability is anything that takes money out of your pocket.

I will give an example of what our people acquire thinking they are assets yet they are liabilities eating them up. A residential house (emotional asset) you are living in is more of a liability than an asset since it's not earning you any money. You may not be paying rent but the cost on the money you used to put up the house is much higher than the rent you would have paid for the same house. The cost of money in principal is the interest rate of a commercial bank and here it is about 25% per annum. A car taking you to work and dropping your kids to school is another liability you have acquired thinking its an asset.

What is an Asset

A business making a net profit margin is an asset and that one you can acquire and nurture to full development. When you build a house in say Ntinda at about UGX 600m and gets you a rental income of UGX 2.5m per month you will have gross annual revenue UGX 30m which translates to about 5% annual gross return on investment. But remember the cost of money is 25% P.A. so you will be losing 20% of your money per year. This becomes a bad investment.

Yet if you have a small grocery shop, restaurant, salon, pharmacy, etc. in any suburb of Kampala you can net minimum 3% per month giving about 36% P.A. Again, with this you are making about 16% per year and this gives us the actual definition of an Asset.

So am asking Ugandans to acquire more assets, not liabilities as we have done it here.

ACQUIRE ASSETS