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.

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