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

DIFFERENCE BETWEEN A BUSINESS AND AN INVESTMENT

Residential Houses are investments having a low
return on investment

People have tendered to confuse businesses and investments. The two are assumed to mean the same thing.
A business is an entity you create to multiply or grow your capital fast like a retail shop, salon, restaurant, bar, cafe, fuel station, butchery, bakery, etc. These entities because of their daily sales can multiply your capital due to stock turnover.

Apartment units also have a low return on investment

The RICH have known this and are busy establishing many business outlets that are making daily sales. We all need financial freedom to be able to sustain our lifestyles. The advantage with such businesses is that if you're making frequent banking's you will have a nice account portfolio and your bankers will be willing to extend credit to expand your business.
This is how the RICH in Uganda have managed to grow their businesses from a roadside stall to a multinational business and gotten financial freedom.

An investment, on the other hand, is an entity established to secure your money against inflation and as collateral i.e in real estate if the investors want loans and mortgages. The return on investment with investments is low and cannot build your capital.

Businesses have a high return on investment and
can grow your capital much faster

The POOR and MIDDLE Class have started their business career with investments especially real estate. Many people in Uganda after making a saving they rush to build a house with the false hope that he is secure in terms of not paying rent. It's good to live in your own house but you also need to have a good source of income that can cater to your domestic needs. With a business like the RICH have you will be able to cater to your domestic needs and build your capital to eventually invest.
Robert T. Kiyosaki of "Rich Dad Poor Dad" in one of his books Cash Flow Quadrant explains that people on the right side quadrants have people and money working for them. So as a business owner you need to know how to manage people to be able to make money for you. Then the investors must also learn how to make money work for them.

In conclusion, Uganda needs more businesses and operators with a view of building their capital, create jobs and then they can finally invest in real estate, stocks, bonds, and treasury bills.