Why tenants in Uganda are shifting house

Increased exit of tenants from Kampala’s upmarket residential estates to fast-growing suburbs and strong investor focus on three bedroom apartments slowed down occupancy rates in Uganda’s high-end residential property market during the second half of 2018, newly-released data shows.

Knight Frank Uganda, a real estate manager, says in its latest report that occupancy rates in upmarket Kololo and Nakasero — traditionally preferred by diplomats, expatriates, senior government officials and young professionals — dropped from 86 per cent to 81 per cent between June and December 2018.

Most tenants moved to new and cheaper homes far from the city centre, the Knight Frank survey found.

The report says changing physical land use in prime Kololo and Nakasero areas compelled landlords to convert residential units into commercial office space — a trend that continued in the past five years — leaving certain tenants with no choice but to relocate to the upcoming and more affordable suburbs.

Rising demand for office space outside the city centre has also been widely cited for ongoing changes in land use.

Rental charges for residential units in Nakasero, Kololo and other prime settlements fell as landlords struggled to attract new tenants, in the wake of better priced new housing units completed last year.

Rent

Average rents for prime, furnished two-bedroom apartments dropped from $2,250 per month to $1,850 last year while rental charges for two-bedroom unfurnished apartments fell from $1,500 to $1,000 per month, according to the Knight Frank report.

Industry analysts also reckon that shifting fortunes in Uganda’s oil and gas industry have affected residential housing occupancy rates in prime locations.

Major oil and gas exploration firms vacated prime residential houses between 2014 and 2015, citing extensive cost-cutting in their operations.

Many expatriates were consequently recalled to headquarters out of Uganda and a significant proportion of local staff laid off.

More than 80 vacant high-end residential homes were offloaded into the market after the restructuring, according to Knight Frank but details of financial distress that followed, including the takeover by banks of units whose proprietors had defaulted on loans were not available.

Total E&P of France, Tullow Oil of Britain and China National Offshore Oil Corporation are the major oil and gas exploration firms active in Uganda and industry sources said the restructuring affected more than 70 employees.

Whereas previous cost-cutting was prompted by government delays in reaching a Final Investment Decision for Uganda’s commercial oil production plan, there is renewed hope that the decision will be made before July, and with it rising expectation of increased residential units uptake.

Occupancy rates

The Knight Frank survey, however, found that overall occupancy rates in the fast growing Kiwatule, Najjera, Buwaate, Kira and Namugongo areas rose from 80 per cent to 82 per cent between December 2017 and December 2018 — indicating that some of the tenants leaving the upmarket suburbs of Nakasero and Kololo had settled there.

Though improved roads, new supermarkets, fresh water and electricity connections have attracted property developers and tenants to these areas in the past couple of years, the supply of housing units is yet to match growing demand.

About 150 residential units are scheduled for construction in the Najjera, Kiwatule, Buwaate, Kira and Namugongo this year, about 90 per cent of which are three-bedroom apartments.

This leaves potential tenants, particularly those interested in one and two-bedroom apartments with few choices.

Average rents for two bedroom apartments in the Najjera, Kiwatule, Buwaate, Kira and Namugongo stands at Ush700,000 ($189) per month while three bedroom apartments attract average rents of Ush1 million ($271) per month.

New units

Judy Rugasira Kyanda, managing director at Knight Frank Uganda said more than 100 new prime residential units are expected in the market this year targeting potential clients in the financial services, oil and gas, pharmaceutical and agricultural sectors.

“Rental yields on these properties are projected at 6-7 per cent and the growth spillover effects on the industry are estimated at five per cent of national economic output,” said.

Average land prices in the Kololo, Nakasero, Naguru, Bugolobi and Mbuya are estimated at $198-$618 per square metre while those in Namugongo, Najjera, Naalya, Kira and Kyanja are estimated at $27-$58 per square metre.

Industry sources said one and two-roomed houses attract tenants faster than three bedroom apartments in places like Kiwatule, Najjera, Buwaate and Naalya.

“Nevertheless, three-bedroom apartments have become scarce in those areas. I sought for a three-bedroom apartment two weeks ago for a friend and couldn’t get any. My friend was eventually forced to rent a new bungalow deep down in Najjera that had failed to attract tenants for months at a cost of Ush1.6 million ($432.9) per month,” said Herbert Rugamba, a resident in the neighbourhood.

Three bedroom apartments currently ask for between Ush800,000 ($216) and Ush1.2 million ($324.7) per month in such neighbourhoods.

Mr Rugamba said some developers are now ignoring investment opportunities in large bungalows in favour of two-roomed housing units that attract several tenants in one week, offer quick cashflows and make it easier to recover one’s capital in the short term.

“Most young people cannot afford to live in cheaper and distant places like Mukono, which are choked in traffic gridlock,” he said.