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.