Uganda’s Parliament has been warned against passing the Landlords and Tenants Bill 2019 in its current form because it will not only distort the sector, but could also crash the country’s economy.
The warning was made by officials from Knight Frank Uganda, a global real estate and property expert firm while appearing before the Committee of Physical Infrastructure to present their views on the bill that seeks to legalise the relationship between tenants and landlords.
While presenting the statement before the Committee, Francis Bossa, the consultant with Knight Frank asked MPs to dollarize the property rent, arguing that most landlords acquire funding to set up property in dollars and the payment in foreign currency will give the borrowers chance to repay their loans without difficulties.
He described the proposal in the bill that bars landlords from charging rent in dollars as a short term solution to a long term problem especially if not tackled holistically as part of a bigger economic challenge.
“…it will worsen the Non Performing Loans issue banks have recently faced because it will mean that overnight, USD borrowers whose financial viability had been based on USD rental streams are unable to meet their DSCR (Debt Service Coverage Ratio), which would lead to defaulting on their loans,” Bossa said.
He added that the proposal if upheld will no doubt affect Uganda’s economy badly.
“We foresee a big and negative impact on the property market especially and the economy in general in the short to medium term as both international and local investors review the impact on the market if this proposal is upheld and effected into law,“ he explained.
Knight Frank argues that institutional investors especially Pension Funds, property development companies and private equity funds prefer a currency which they can benchmark for similar opportunities in other markets.
Should this proposal be adopted, Knight Frank says the Uganda shilling rentals would not provide a benchmark index given the volatility of the shilling which is crucial for a mid-term view of the performance of an underlying asset with rent domiciled in shilling.
The firm further warned that compelling property owners to pay money in shillings will stifle large scale projects being financed with off-shore credit.
He said this financing could come to a halt and gave an example of the syndicated credit project to finance the MTN Uganda infrastructure upgrade.
The Telecom company is said to have secured USD114M from Stanbic, Standard Chartered and Barclays which indicates that the local commercial banks can only be in position to secure such funds in foreign currencies.
Knight Frank further warned that the proposal if upheld by Parliament will escalate the annual rent in Uganda shilling.
“This will definitely reduce investor appetite to invest in real estate projects in Uganda especially if they can earn better returns in other countries like Kenya,” Bossa warned.
The firm called on MPs to throw out the bill, noting that Government was clueless about the sector they were seeking to regulate.
“While it is understandable that the Bill was drafted by the Ministry of Lands in a bid to regulate actions of irrational landlords who arbitrarily increase rent and utility bills, it is also evident and appalling that the draftsman of the landlord-tenant bill is largely misinformed about the property market in Uganda and the dynamics within,” he said.
He added: “Therefore needs to go back to the drawing board and consider the real estate sector holistically taking into consideration and appreciating the variances in operation between the residential and commercial property sector because it definitely cannot be a one shoe fits all Act if the intended goal of fostering advanced development in the property market is to be met.”
However, the Committee members rejected the proposal to pay rent in dollars, with MPs arguing that there is no need of forcing locals to pay rent in foreign currency.
