Kampala, Uganda | URN | A top property manager and consultant has warned developers about building condominium units without putting the market preference in mind.
A condominium is a building structure divided into several units which can be separately owned, while the separate owners jointly own some attached facilities like the compound, staircase, play areas, or swimming pool.
In Kampala, this has mainly featured flats or storied buildings divided into apartments but is also available in single-storey condominiums.
Supply, however, remains limited in these areas, indicating a gap in the market, while the units being supplied in Kololo, the main lucrative area, are highly priced. According to a study by Knight Frank, there is a growing demand for condominium units in the neighbourhoods of Mbuya, Muyenga and Munyonyo, “as purchasers seek alternative locations on the back of the high land prices in the Kampala Central Business District.”
Knight Frank however adds that most property suppliers are not taking into account the incomes of the target markets and how easily a buyer can resale the property.
“The emerging trend of high sale prices for 3-bed condominium units, ranging from $380,000 to $500,000 (about Shs 1.38 to Shs 1.8 billion) persists in the recent developments in Kololo,” the report says.
Knight Frank describes this trend as speculative and unsustainable, as developers engage in a competitive race, each to build unique properties offering more space and to a higher specification which they hope that the market pays a premium for.
“Developers are setting an unrealistic precedent assuming that buyers are both capable and willing to pay a premium for condominium properties, and ignores the effect on income yields and resale values,” says the company in its 2023 half-year market report.
There is a growing demand for apartment units for sale priced between $100,000 and $250,000 (Shs 358 million to Shs 900 million) in areas located within a 10-kilometre radius of the Central Business District, CBD. The report says the market is under-supplied within this price range, creating a substantial gap that presents an opportunity to be seriously considered.
The report also notes the declining supply of detached houses which are usually suitable for rent by the expatriate and other up-market communities, as landowners rush to build flats for rentals.
“The trend of landowners in the prime residential suburbs engaging in joint venture strategies with developers to build apartment blocks has resulted in a growing supply deficit of detached housing rental options, and gated communities as many opt to construct apartments,” it says.
Generally, the slow activity level in the economy over the last two years has the various real estate sectors within the Kampala property market similarly struggle to exhibit marked resilience and improvement. The prime residential and office markets recorded steady growth in occupancy, while the retail sector exhibited improvements in new clients, turnover, and occupancy on a year-on-year comparison.
There was an 8 per cent rise in average prime monthly rents for the 2-and 3-bedroom apartment units in the review period as compared to the first half of 2022, bringing the average rents to a level 3 per cent below pre-COVID figures.
The study also shows an increase of 6 per cent in average prime occupancies compared to the same period last year, indicating a positive shift in occupier activity and overall market improvement.
Read Also: Increase in number of residential apartments in Uganda amid decline in occupancy – Knight Frank
“The rise in prices can be attributed to the recent completion of newer more spacious and luxuriously furnished apartments, particularly in Kololo, that are commanding slightly higher rents compared to the prevailing market rates,” the report says but notes that occupiers are still actively negotiating for discounts because of the high supply.
The decline in the oil and gas sector has however slightly affected demand. Nevertheless, demand for rented dwellings in the prime areas persists, driven by expatriates from multinational companies and diplomatic missions.
Prime locations such as Kololo, Naguru, Nakasero, Bugolobi, and Mbuya remain the most preferred, although a growing interest was observed in other semi-prime suburbs such as Muyenga, Munyonyo and Lubowa.
Experts say that the pace and sustainability of the global economic recovery have had a significant impact on the property market. According to the May 2023 Performance of the Economy report, there was a 0.33 per cent increase in the stock of outstanding private sector credit in April 2023.
This was primarily driven by heightened optimism within the business community, amidst expectations of a sustained pick-up in economic activity. The largest share of approved credit went to the building, construction, and real estate sector, at 26.2 per cent, followed by personal and household loans followed at 24.6 per cent, and trade at 18.5 per cent.