Residential property prices drop in upscale Kampala

The real estate sector suffered a dampening in moods in the second half of 2022 with the uncertainty that was caused by the global geopolitical conflicts, especially the war between Russia and Ukraine.

Many investors in the real estate sector, especially those looking to pick up properties in the upscale neighbourhoods of Kololo and Naguru, are not purchasing that much as they weigh the impact of the global economy. AARON GAD ORENA details these issues in the real estate sector and discussed why a collective approach with more interventions by the government could provide solutions.

Residential land price growth in select prime areas slowed down in the second half of 2022 with the increased supply of redevelopment plots backed by low demand, Knight Frank, a top real estate service company, noted.

The realtor, in its recently released Kampala Market Performance review for the second half of 2022, attributed the decline to the adoption of new tactics by developers in upscale Kampala to cope with the tough economic times.

According to the report, the developers who mostly made up most of the land purchasers in affluent suburbs at that time were negotiating or forming joint ventures to reduce costs associated with redevelopment.

This decision then impacted the sales process, resulting in some vendors considering their decisions to sell. As such, average land prices in affluent neighbourhoods such as Kololo reduced by 10 per cent in the second half of 2022, compared to the same period in 2021.

Market prices, according to Knight Frank, have now started “to correct and adjust” accordingly to match the rental rates being achieved.

Surprisingly, leasing activity proved resilient, according to the report. There was an increase in inquiries on the back of the opening of economies globally and growing economic activities in the oil and gas sector. This enthusiasm didn’t last long, however, as the geopolitical conflicts between Russia and Ukraine later caught up with the sector.

Knight Frank says average prime residential rents remained stable on a year-to-year comparison while occupancies increased by two per cent.

“A trend observed over the half year was landlords developing larger and more expensively serviced units for sale in Kololo at price ranges between $500,000 and $700,000 for apartment sizes ranging from 300 to 500 square meters.”

The realtor noted that it is becoming increasingly evident that the Ugandan market is yet to realize effective demand for residential units at this price range. The sweet range for prime residential units is between $250,000 to $350,000 for an apartment in prime suburbs.

Undeterred by the current economic climate, residential pipeline activity remains high with apartment units in Naguru, Kololo and Nakasero springing up in the next two years, estimated at approximately 500 units.

Most of the new players or first-time developers, according to Knight Frank, are coming into the market to try and capitalize on the oil and gas buzz as speculators.

This has led to some of the new players taking longer to complete projects, an aspect that is influencing potential buyers to negotiate prices and request better long-term payment methods, especially for purchasers who are avoiding loan facilities.

Judy Rugasira Kyanda, the managing director of Knight Frank, attributed the timid nature of the industry to a tough economic climate that is yearning for more government incentives.

“Things are already tough as it is. We know that the economy is going to take a bit of or has already taken a beating.”

She added: “The whole of last year, we know that public indebtedness across the region is at its highest point ever. We know that the cost of borrowing has increased, locally and globally. Interest rates keep going up partly as a way of having inflation rates but also because of the cost of borrowing money from international banks,” Rugasira said.

“We are seeing a lot of headwinds ahead and we feel that there are certain things that government could do to make the lives of investors in the real estate sector a bit easier,” she added.

The trend has also moved to the outskirts of the city where, according to the realtor, there was still a lack of product selling on properties that fall within the $100,000 to $150,000 price range that is typically located in a radius of 10 to 12 kilometres from the city centre.

Areas such as Ntinda, Makindye, Muyenga, Mutungo, Luzira, Mbuya, Kyambogo, Mengo and Lubaga that fall in the prime and semi-prime category of locations continue to stay high in demand even though they might not meet the required quality and availability of what the market standards are currently.