How will corona-virus impact the real estate sector in Uganda?

No body truly knows how the corona-virus may affect Uganda real estate sector, but that doesn’t stop us from trying to figure it out. Here are our thoughts. As corona-virus affects more people every day, corona-virus contingency real estate is of the utmost importance. Explore the pandemic’s potential effects on the real estate market and investors and tenants.

The Ugandan government, several businesses, businessmen and societies are facing up to the reality of Corona-virus.  The short-term effects on economic growth, business activity and individual behavior are undeniable and the exact trajectory is unknowable.

There is no denying effect the corona-virus is having on the global economy is troubling. The world’s largest economies that is USA and China, have the largest outbreak with over 100,000 cases reported and thousands of deaths. The virus has halted production and caused major interruptions to the supply chain and economic volatility, and it could lead to an estimated $2.7 trillion in lost global output, according to Bloomberg Economics.

Foreign buyers and developers will decrease, at least for a while

Considering Uganda’s largest foreign buyers and developers of both residential and commercial are from China, India and Ethiopia, the corona-virus could greatly impact investor activity, in a negative way.

Developers and builders are seeing a large drop in sales now. There is also growing concern about tighter lending conditions for mortgage loans.  Buyers are now having a lot of difficulty getting mortgages.

With all of this going on, developers and builders are saying that their land acquisition and development spending will slow in the near term.

Revenue and growth in commercial real estate will slow

Uganda’s commercial real estate would be the hardest hit. Production and economic activity will slow because people will likely stay indoors, lowering consumer spending. Default rates in Commercial real estate loans would increase, and production and development would decline.

The real estate sectors that have been hit hardest so far are hotels, restaurants, bars and other entertainment  ( especially tourist areas) followed closely by retail and housing (especially furnished and serviced apartments homes like those running Airbnb)

Supplies that the builders and developers need are being interrupted more and more as workers stay home, and due to business shutdowns, quarantines and curfews. Huge numbers of layoffs will lead to further contraction in consumer spending, starting a downward spiral of economic activity. Together, these forces are already pushing the economy into recession.

Office buildings, most office spaces are empty under nation lock down and social distancing, but one could imagine that after the health crisis subsides, offices will be occupied again. The long-term question is whether the work-from-home shift will stick to some degree. Some workers will use the experience of the coronavirus crisis to convince their employers that they can be efficient and productive from their homes. The more crucial determinant of office demand, however, is simply sheer job growth. If the recession extends and deepens more than expected, then the need for new office space will be low for a while, but if it is a deep-but-short recession, then demand for new office space should resume as soon as job generation does.

Industrial sector and warehouses are feeling short-term impacts from interruptions in the shipping supply chain, but the long-term effect on this sector of real estate could be bullish. To the extent that this experience encourages more online shopping in the years that follow, warehouse development could be stimulated.

New Home Construction in Uganda Could Slow Further

Tight Supply: Many of the inputs to Uganda’s Building Industry are sourced from Asian countries including China. As the Corona-virus disrupts these supply chains, the cost of those materials may increase over the short run or become limited, which will increase the cost of construction and potentially reduce the pace of new residential development below its already-lackluster pace in 2020.

Local Buyers May Be Discouraged

For buyers who cannot afford their monthly payments, due to the economic uncertainty a study on housing during previous pandemics and concluded that while home sales dropped dramatically during an outbreak, home prices stayed about the same or suffered a slight decrease. This makes intuitive sense because it’s harder for prices to change when there are few transactions. In short, previous pandemics have simply put the housing market on pause.

If you’re already in the market for a house, all the uncertainty might have you worried about the housing market. Will Corona virus cause housing to collapse, as it did during the financial crisis in 2008?

The rental properties are now preparing to deal with tenants who have lost their income and are unable to make the current month’s rent. A large number of tenants will ask for forbearance in April, and even more will in May. Landlords will seek to emphasize retention, which will mean giving tenants some leniency in the near term. There will be downward pressure on effective rents in the next few months, and property owners will be asking their lenders for forbearance as well.

In conclusion, what lies Ahead For Real Estate?

This a question which we cannot definitively answer yet and all have significant real estate implications. However, we can certainly see that the longer-term consequences of the outbreak will continue to filter through in ways that were far from obvious at the start. Human, economic and business impact are inevitable, but new measures, policies and procedures, and investing in the right infrastructure, will help mitigate risk in the short and longer term. We will continue to monitor the situation and will provide updates on new and emerging trends as this situation evolves