Low cost housing beyond reach of Uganda’s poor

A proposal by the Kampala City management to eliminate slums in favour of high density housing units has raised hopes of significant growth in low-income housing alongside renewed investor interest in upmarket real estate projects.

The removal of slums would spur growth in neighbouring areas such as Wakiso and Mukono districts to absorb displaced people seeking alternative shelter. But industry experts say opportunities for low-cost houses appear scarce.

While Kampala’s slum population is estimated at 2.8 million people, future housing needs attributed to this segment are projected between 300,000 and 400,000 new homes, according to real estate company Lamudi.

Existing designs for low-cost homes suitable for this segment contain three bedrooms with sleeping space for up to six people — a layout driven by high birth rates among low-income families.

Real estate experts estimate the minimum value of a low cost home at roughly Ush100 million ($33,005) with about 30 per cent of this figure allocated to infrastructure based requirements, which effectively locks out the relatively low income earners among slum residents.

Whereas the government remains unclear on the role of subsidies increasing access to decent housing among poor families, the ability of local banks to develop innovative mortgage products targeted at poor people appears limited by structural inefficiencies, evidenced in the land registry and courts of law.

Real estate developers see increased government investment in infrastructure as key to boosting access to decent accommodation for poor people.

“There is a need to achieve improved human settlement conditions in the city. But the government ought to invest more in infrastructural facilities so as to spur growth in low-cost housing and raise access levels among low income people instead of allocating subsidies for the purpose,” argued Richard Byarugaba, managing director at Uganda’s National Social Security Fund.

The Fund plans to construct 4,000 to 5,000 low cost houses under its Temangalo project valued at $300 million despite several legal and political hurdles encountered since 2008. Housing units will be priced in the range of Ush50 million ($16,299) to Ush80 million ($26,079), Mr Byarugaba revealed.

Besides the Temangalo housing project, other low-cost housing investments include Shelter Afrique’s 2,000 units, according to industry sources.

“Many investors have complained about infrastructure gaps in virgin areas outside Kampala City that are fit for large-scale housing projects. The best remedy for this challenge lies in additional investments to be executed by government and local authorities so as to reduce overall costs of housing in Uganda. An average low income person earns between Ush200,000 ($66) and Ush250,000 ($83) per month, according to government data and this requires adoption of innovative mortgage products offered by banks with durations of 30 years and single digit interest rates in order to satisfy the needs of poor people,” argued Joseph Lutwama, research and policy analysis manager at Uganda’s Capital Markets Authority (CMA).

In comparison, fresh interest among foreign investors in the middle and high end housing market has yielded huge commercial ventures since late 2014 amidst rising optimism over demand patterns in this segment.

In spite of previous setbacks suffered by prominent developers, investors appear eager to tap into strong growth demand patterns anticipated after commencement of commercial oil production and completion of major highways connecting the city to prominent districts, industry sources say.

The high-end housing investments include the $100 million Mega City project financed by Apex Global and R1 Corporation of India.

This project will see 1,200 apartments constructed on 12 acres of land on the outskirts of Mukono 24 kilometres from Kampala City. Each apartment will be priced at $40,000-$50,000, according to the property developers.

The multimillion dollar Naguru-Satellite Housing project is expected to deliver about 600 apartments in its first phase which commenced construction works last month.