Developers hold back $220m as they seek clarity over proposed property law

April 16, 2018 in Business, Investment, Policy, Real Estate & Property by Editor

April 16, 2018—Some $220 million in property development funds is on hold until concerns raised about certain aspects of the proposed Landlords Tenant Bill are sorted out, according to a top official of an umbrella real estate organisation based in Kampala. The punitive nature of the Bill is the most worrying factor to many in the real estate sector.

‘Our members have come to us with complaints about the Bill. These include some suggestions like the imprisonment of landlords in case of annoyance to the tenant, putting a  10 pc cap on real estate, and generalising commercial and residential real estate and yet operations and management are different for specific investments,” Catherine Nanteza, the CEO of the Association of Real Estate Agents Uganda (AREA) said during a joint news conference with the Private Sector Foundation Uganda (PSFU) on Monday.

She said some international investors are holding back an estimated $220 million worth of investments due to some unfair rules that are being proposed in the Bill and if passed in its current form, will adversely affect the sector which has been experiencing rapid growth in recent years. Controversy also surrounds payment of rent in United States dollars which a large segment of Kampala’s small business enterprises say is an added cost of doing business when the rate appreciates.

In its first half report for 2017, Knight Frank (Uganda) said the property market is becoming more sensitive to Uganda Shillings based rentals following the amendment of the income tax Act in 2017. The amendment proposes to abolish the charging of dollar denominated rentals which is bound to have a negative effect on the property market.

The report reads in part, ‘Whereas the effect of the same on the wider real estate  market cannot be downplayed, one aspect that cannot be neglected is the impact this legislation, if passed in its current state will have on the real estate sector with regards to the stifling of external Institutional and local investors in the property sector of Uganda. We are of the strong opinion that this amendment is reconsidered with more haste and less speed to avoid the grave consequence which will drive the property sector to its knees in an already stressed market’

Gideon Badagawa, the PSFU executive director said the main aim of the Bill was to create a mutual understanding and a good relationship between the landlords and tenants. The Bill has been a cause of fierce lobbying ever since being first mooted four years ago.

“Most of the things in this Bill were discussed and agreed upon by the landlords and the tenants and we are all in support of this Bill. However we have made proposals that should be considered so that the Bill is favourable to both sides,” Badangawa said

“We are saying that instead of criminalisation, or jail time as punishment, we are proposing compensation or fines. We also want landlords who have legit reasons for charging in dollars to do so, but after consenting with the tenants in a written contract and also making specifications for commercial and residential estates”

Badagawa said the PSFU was interested in having a law that favours all the players without hurting the sector. “The existing laws on real estate are outdated. We needed a new law that will regulate the sector and help in its growth. As it has been, some landlords were harassing tenants by increasing rent without any notice and forcing them to pay in dollars,” Badanawa said.

According to the proposals, before renting any building, a tenant and the landlord will have to sign a written contract that spells out terms and conditions to be followed. Landlords are expected to issue a notice within 120 days to tenants in case they want to increase rent or charge in dollars, of which the tenant is expected to make a response in 90 days.

Other tough conditions on the landlords that is prescribed in the Bill include imprisonment or paying a fine of 15o Currency Points or one year imprisonment in case of annoyance to the tenant. AREA calls this unfair due to the fact that ‘annoyance’ is not defined well.  A Currency Point under the law is equivalent to UGX 20000 (about $5.50).

Shirley Kongai, the President of AREA said not all real estate owners were in support of the Bill and wanted some changes made so that it’s fair to everyone. “As AREA Uganda, we want the real estate sector regulated as a whole in a fair manner, prescribing fair rates to tenants and landlords so that the sector can grow and develop,” she said.