Dollar rate increases by 2.9 %, set to lead to an increase in rent, construction costs and more undeveloped land.
The continued appreciation of the dollar against the shilling will adversely affect the real estate market in the next few months according to experts. The shilling has increased by 2.9% in 2015, making it one of the worst performing currencies on the continent. This is set to have a major impact on the real estate market over the next few months.
It’s estimated at least 65% of construction materials are imported due to the limited supply of production of construction materials in the country to meet demand. This means, construction expenses will go up this year. The effect of this will be that finished properties will become very expensive especially for the average Ugandan whose earnings are fixed in local currency.
The prices of rentals in the country are also bound to become unstable. Many rental prices are set in dollars and when converted into local currency, these prices are unstable. Many tenancies in the country are set in periods ranging from six months to one year meaning and for a tenant who earns in local currency, their rental fees will change every time they have to pay.
On the other hand, if developers do not set the rate in dollars, they will incur losses. Developers are most likely to get less than their cost price and in the long run take longer to see a return on investment.
According to Shakib Nsubuga, Lamudi Uganda Country Manager, “The rise in the dollar rate also means that people will start to look for cheap accommodation far away from the Central Business District, where there are no infrastructure plans yet. We are likely to see development of slums on the outskirts of the city.”
“The dollar rate will also have a major impact on mortgages because in order to be able to develop good properties, property owners will have to charge in dollars. Many developers therefore are likely to wait until the exchange rate is stable,” adds Nsubuga
Many people are now likely to invest in undeveloped land, which hasn’t been the case during the past year where most people sought to develop their land. This is because the value of the land acquired at low rates, will still appreciate over time.
Although buying land and leaving it undeveloped would be best for property developers, it has its downside. This will allow further fragmentation of land in the country.