MAKERERE
UNIVERSITY
COLLEGE OF ENGINEERING, DESIGN, ART AND TECHNOLOGY
SCHOOL OF BUILT ENVIRONMENT
DEPARTMENT OF CONSTRUCTION ECONOMICS AND MANAGEMENT
COURSE: BACHELOR OF SCIENCE IN QUANTITY SURVEYING
COURSE UNIT: HOUSING DEVELOPMENT AND MANAGEMENT
BY LECTURER WESONGA RACHEAL
YEAR: YEAR III
GROUP 2
REGISTRATON
STUDENT
NUMBER
NUMBER
SSEKAJJA ABDULSWAMADU BSQS
19/U/0111
1900700111
AKANKUNDA MAXIM
BSQS
19/ U/0580
1900700580
RUTANGYE JOSEPHINE
BSQS
19/U[/8178/PS
1900708178
KEMIGISA MARTHA ALUM V BSQS
19/U/0120
1900700120
TUHAISE BRAIN
BSQS
19/U/8271/PS
1900708271
NABAWENDA JOAN
BSQS
19/U/0561
1900700561
NAKIMULI JULIAN CAROL
BSQS
19/U/0117
1900700117
AHEEBWA GLORIA
BSQS
19/U/0124
1900700124
ANGWEN ANGELLA
BSQS
19/U/0573
1900700573
TUMWESIGYE ALLAN
BSQS
19/U/00554
1900700554
NAME
COURSE
Table of Contents
1
INTRODUCTION ..................................................................................................................................... 4
2
PROPERTY/REAL ESTATE DEVELOPMENT ............................................................................................. 5
3
4
2.1
Real Estate Development in Kampala ........................................................................................... 5
2.2
Real Estate Development Process ................................................................................................ 6
REAL PROPERTY MARKET ...................................................................................................................... 6
3.1
The meaning of real property market........................................................................................... 7
3.2
Characteristics of Real Property market ....................................................................................... 7
SECTOR TRENDS OF REAL ESTATE DEVELOPMENT (CASE STUDY, KAMPALA) ...................................... 8
4.1
RESIDENTIAL SECTOR .................................................................................................................. 10
4.1.1
RENTAL YIELDS IN KAMPALA ............................................................................................... 11
4.1.2
Key drivers in residential market ........................................................................................ 11
4.1.3
Challenges in the Residential Market ................................................................................. 12
4.2
COMMERCIAL SECTOR ................................................................................................................ 13
4.2.1
Drivers of the Commercial Sector in Kampala .................................................................... 13
4.2.2
Challenges Facing the Sector .............................................................................................. 13
5
TRANSPORT SECTOR AND AMMENITIES ............................................................................................. 14
6
REAL ESTATE FINANCING .................................................................................................................... 14
7
8
9
6.1
Mortgage financing ..................................................................................................................... 14
6.2
Mortgage Pricing ......................................................................................................................... 15
6.3
Mortgage Insurance .................................................................................................................... 15
DEVELOPMENT PROCESS OF REAL ESTATE DEVELOPMENT ............................................................... 15
7.1
The Pre-Development Stage ....................................................................................................... 15
7.2
Design and Costing...................................................................................................................... 17
7.3
Tenders and contract award ....................................................................................................... 18
7.4
The Construction Stage ............................................................................................................... 18
7.5
Marketing (let/dispose) .............................................................................................................. 18
ENTERING THE PROCESS ..................................................................................................................... 19
8.1
Capital ......................................................................................................................................... 19
8.2
Land ............................................................................................................................................. 20
8.3
Knowledge................................................................................................................................... 21
8.4
Tenant ......................................................................................................................................... 22
COSTS INVOLVED IN REAL ESTATE DEVELOPMENT ............................................................................ 23
10
PLAYERS IN KAMPALA’S REAL ESTATE MARKET .............................................................................. 25
10.1
Real estate developers ................................................................................................................ 25
10.2
Real Estate Broker ....................................................................................................................... 25
10.3
Private individuals ....................................................................................................................... 25
10.4
Property Manager ....................................................................................................................... 25
10.5
Tenants........................................................................................................................................ 26
10.6
Real estate companies ................................................................................................................ 26
10.7
Construction companies ............................................................................................................. 26
11
REFERENCES .................................................................................................................................... 28
1 INTRODUCTION
Real estate development which may also be referred to as property development is a business
process, encompassing activities that range from the renovation and re-lease of existing buildings
to the purchase of raw land and the sale of developed land to others. Real estate development
involves three major parties, the consumer or the client, the production or development group, and
the public infrastructure group (Graaskamp, 1992).
A real estate developer improves things, in this context our concentration lies in raw undeveloped
land and buildings to create value in the interest of selling it at a handsome price. “The reality is
that a real estate developer cannot make money without first creating value.” (Peca, 2009).
Stephen P. Peca goes on to elucidate that creativity and originality defines the first fundamental
aspect of the real estate development concept, the other is the enterprise or the business aspect. In
a lay man’s language, money i.e., profit hold be realized after the sale of the enhanced property.
Since a business possesses income, expenses, revenue taxes and employees, it requires active and
aggressive management.
Kampala the capital city of Uganda covers a total area of 72.8 square miles and had an estimate
population of 1.6 million in 2019 (Micheal, 2019). The city has five divisions i.e., Central,
Nakawa, Makindye, Rubaga and Kawempe. In Kampala the real Estate Development concept has
been appreciated by a number of business country men and women causing the industry to observe
gradual but steady growth. Knight Frank Uganda Ltd, LUBA Properties, Spectrum Real Estate
Solutions and Property Management Uganda, Sema Properties, Zion Estates, Jomayi Property
Consultants among others are some of the real estate developers in Kampala. Some of the factors
responsible for the observation include the rise in demand for the property, improving investor
confidence in terms of finances mainly and the steady population growth of 3.2% per annum.
Kampala, the capital and largest city of Uganda has the country’s most expensive property.
Specifically examining housing, the average price of two- and three-bedroom apartments in prime
residential areas stood at US$ 280,000 and US$ 325,000 respectively in 2019. Apartments in high
end areas like Kololo, Nakasero and Bugolobi can go as high as US$ 2,000 per square meter. In
the upper middle-income areas of Naguru, Mbuya, Luzira, Muyenga, Lubowa and Ntinda, the
average price of apartments was US$ 1,160 per square meter. The final examination was of the
middle-income suburbs of Bukoto, Kiwatule, Kira, Naalya, Namugongo, Buziga and Bunga whose
apartments sell for an average price of US$ 900 per square meter.
2
PROPERTY/REAL ESTATE DEVELOPMENT
Property involves a system of rights that give people legal control of valuable things, and also
refers to the valuable things themselves. (Powell, Richard R, 2009)
Property development is a process that involves changing or intensifying the use of land to produce
buildings for occupation. It is not buying and selling of land for a profit. Land is only one of the
raw materials used while others can be; infrastructure, building materials, labour, finance and
professional development
Real estate is a form of real property. It is property consisting of land and the buildings on it, along
with its natural resources such as crops, minerals or water. Real estate is the land along with any
permanent improvements attached to the land, whether natural or man-made. (Chen James, 2019)
Real estate differs from personal property, (things that are not permanently attached to the land
such as vehicles, boats, jewelry). Types of real estate: residential real estate, commercial and
industrial real estate.
Real estate development is a business process, encompassing activities that range from the
renovation and re-lease of existing buildings to purchase of raw land and the sale of developed
land or parcels to others. Real estate developers are the people and companies who coordinate all
of these activities, converting ideas from paper to real property. (Peiser & Frej, 2003)
Real estate development does not necessarily begin with a site, it begins with an idea. Real estate
development is a highly creative endeavor. (Peca, Stephen P.)
2.1
Real Estate Development in Kampala
It is a relatively new investment opportunity that has enabled people to purchase plots of land and
construct homes in peri-urban areas of Kampala. Knight Frank data indicated in the East African
Newspaper that 161 new residential apartments are currently under construction and are scheduled
for completion within 18 months. The headlines also defined that Uganda’s real estate industry
was exhibiting some resilience during the first six months of 2021, in spite of the pandemic
lockdown measures. This information was availed on Tuesday August 17th, 2021.
The different real estates in Kampala are; Knight Frank Uganda ltd, Spectrum Real Estate
Solutions and Property Management Uganda, Sema Properties Limited, Property Agent 175,
Honest Estate Developers, Comfort Homes Uganda and many others.
2.2
Real Estate Development Process
This process involves three major groups; consumer group, a production group and a public
infrastructure group. Each group benefits from cooperation and a full understanding of the values,
short and long-term objectives of the real estate. (Graaskamp, James A.) The process also involves
the combination of various inputs in order to achieve an output or product.
According to James, each real estate project is unique and the development process is so much a
creature of industrial production process that society has a new opportunity with each major project
to negotiate, debate and reconsider the basic issues of an enterprise economy that is; who pays,
who benefits, who risks and who has standing to participate in the decision process.
The development is finite and investment returns cannot begin until the process is complete. The
process is complex and often takes a considerable time period. The development of real estate
involves quite a number of professions including: architects, engineers, planners, lawyers, bankers,
public officials and construction traders. Each team member plays an integral part of the real estate
product of delivery process. The real estate developer is the one who oversees this process and
coordinates the information generated by each project participant while the real estate investor is
the one who purchases the already established property after evaluation of the real estate market
in order to choose what property is best for generating money.
Real Estate Development is the process of creating value by making tangible improvements to real
property. The Development ranges from land speculation and new construction to the renovation
of existing building. The process comprises of basic stages which are; Pre-development, Planning
and Design, Construction and Marketing.
3
REAL PROPERTY MARKET
Modern economies are often referred to as ‘’exchange economies’’. Instead of people producing
directly for their own wants, they specialize in production in order to increase total input. Thus,
both factors of production and final products are exchanged. Exchanges take place because both
buyers and sellers benefit from the products. To effect changes, buyers and sellers must be put in
touch with one another and therefore we can define market as any arrangement by which buyers
and sellers are brought together to fix a price at which goods can be exchanged.
3.1
The meaning of real property market
Real property refers to a particular type of good- land or any other resources embodied in land.
They are physically immovable and are also referred to as immovable property.
Although land resources are not movable, property can be owned by some person or institution.
Moreover, exchanges take place. Thus, real property market is simply the arrangement by which
buyers and sellers of virgin land, agricultural estates, industrial buildings, offices, shops and houses
are brought together to determine a price at which the particular property can be exchanged.
Sometimes the market is formal (for example auctions advertised nationally) or informal (for
example introductions by estate agents, deals between principals). Indeed, it is not possible to
distinguish the means by which people are informed from the market. Much real property is
advertised in journals, newspapers, all of which can therefore be said to be part of the market. In
other words, the real property market is an abstract term exaggerating all transactions in real
property throughout the country.
3.2
Characteristics of Real Property market
a) Market forces and players
In property market, market forces are based on the economic environment when there is a high
demand of property in that place it will affect the price. For example, Hermie Homes Kyanja the
prices of the property have been rising yearly because of high demand and all investors take the
opportunity to make more investment in Hermie Homes.
b) Not standardized products
In the property market, not standardized means property has unique characteristics which are
exactly not the same. For example, the design of building for a double terraces house is not exactly
the same because if we do an inspection for that property, we can see some defects or maybe the
owner had upgraded their house. This factor affects the price of the property.
c) Involvement of special requirements
There are so many legal issues that people have to look out for when buying and selling a property
in real estate. Firstly, the Sale and Purchase Agreement (SPA) is a contract which embodies the
relevant terms and conditions of the property transactions. Prior to the execution of the SPA,
parties may execute a pre contract documents such as State/ Association Purchase Agreement,
General Purchase Agreement and others. This greatly affects the transfer of real estate.
d) Estate agent’s services are required in many situations
Real estate agents are licensed to help sellers sell and buyers buy real estate and are generally
licensed to operate, negotiate and arrange sale under the supervision of real estate broker.
Negotiating and arranging sales can mean showing property, listing a property, filling in contracts,
listing agreements and purchase contracts and other duties.
e) Fixed location of products
In property market, the property cannot be moved and it is fixed. Location is the most important
thing that we have to consider for. Land is a finite commodity, areas that are highly developed and
are bound from large amounts of additional growth tend to have higher prices than areas that are
less developed. So, when we choose the best location to make an investment it will tend be a high
profit.
4
SECTOR TRENDS OF REAL ESTATE DEVELOPMENT (CASE STUDY,
KAMPALA)
Kampala, the capital city of Uganda as well as the administrative and economic center is located
in the central part of Uganda approximately 8km from the northern shores of Lake Victoria and
approximately 45km north of the equator.
It is characterized by high standards of living (expensive housings and land), shortage of housings,
and congestion among other associated with the rapid urban population growth that cannot be met
by the existing housing delivery system.
Recent reports show that, Uganda is suffering from an affordable housing crisis. Some real estate
investors may find this hard to believe. Still, there is no question that many are struggling. This
presents some great opportunities for investors to both generate great incomes.
Kampala is divided into 5 divisions namely Central division, Kawempe Division, Nakawa
Division, Rubaga Division and Makindye Division.
a) Central division consists of areas such as Kampala CBD, Nakasero, Kololo and Kisenyi,
these are high income areas of Kampala.
b) Nakawa division which has neighbourhoods such as Nakawa, Bugolobi, Luzira and Ntinda
mostly the upper middle-income areas.
c) Makindye division with areas such as Muyenga, Munyunyu, Kibagalagala and Buziga
which are mid to upper middle-income areas.
d) Kawempe division consisting of Bwaise, Mulago, Kawempe and Kazo among others which
are mid to low-income areas.
e) Rubaga division consisting of Rubaga, Mengo and Kasubi and is the home to the Kabaka
it is a middle to low-income areas.
TRENDS IN THE KAMPALA REAL ESTATE MARKET
a) Conversion of residential building to offices
Due to the low supply of office space, congestion in the CBD and inadequate parking, corporates
are increasingly taking up space in residential zones and in units and using them for office spaces
b) Infrastructural developments
The government has invested in infrastructural developments which has led to development of
new residential areas. The Northern Bypass has for instance led to the development of Naalya and
the Kampala Entebbe Highway is expected to lead to developments of Suburbs in the areas it will
traverse including Lubowa and Munyonyo.
c) Increased off-plan Sales
The market initially a purely cash market is witnessing an increase in off plan sales especially in
the middle-class market which has high demand, is relatively lower priced and has high demand.
d) Fractional sale of offices and sale of semi fitted office spaces
Fractional sale of office spaces in Kampala is in its nascent stages as developers seek to exit
commercial buildings faster.
However, the real estate industry encompasses a number of sectors including the housing sector
(residential, commercial and retail sectors), transport sector (roads, railways among others),
industrial and land sector to some extent.
4.1
RESIDENTIAL SECTOR
In general, the residential sector in Kampala is undergoing development with most of the huge
developments being less than 5years old.
According to the Ministry of Lands, Housing and Urban Development, Uganda’s housing deficit
stands at 2.4 million housing units largely concentrated in the low to mid income segment with
Kampala having the bulk of this deficit, with the city in need of 210,000 houses.
The residential market in Kampala is classified broadly into high income, upper middle income,
middle income and affordable housing.
The upper income market consists of areas closest to Kampala such as Nakasero, Kololo and parts
of Bugolobi. Initially, they were characterized by colonial style marionettes and bungalows which
are being replaced with high end furnished apartments attracting rates of between USD 2000 –
USD 4000 per month. They serve the expatriate population in Kampala and the high-net-worth
individuals.
The upper middle-income areas constitute neighboring zones of high-income areas and have
grown due to improved infrastructure and expansion of the high-income areas characterized by
stand-alone houses in gated compounds with a few apartments being erected. These include areas
of Mbuya, Luzira, Muyenga, Ntinda, Naguru and Nagira serving high net worth individuals,
corporates and military personnel. House prices range from USD 160,000 – USD 450,000.
The middle-income areas include Kampala suburbs of Nalya, Kira, Namugongo and Kintintale
with a high demand for apartments. With this, large quantities of apartments are being developed
boosted by improved infrastructure in the areas including the Northern Bypass.
For Apartments, the ranges from UGX 87.5M to USD 500M (USD 24,360 to USD 138,889).
A one-bedroom affordable housing unit is typically offered for UGX 47 million (US$ 12,700) to
UGX 85 million (US$ 23,000). Two- and three-bedroom units are priced at UGX 150 million
(US$ 40,500) and UGX 200 million (US$ 54,000), respectively as published by the Uganda
Bureau of Statistics in 2019.
4.1.1 RENTAL YIELDS IN KAMPALA
Region
Suburbs
High-end areas
Kololo, Nakasero, Bugolobi
Upper
middle- Naguru, Mbuya, Luzira, Muyenga,
income areas
Lubowa, and Natinda
Middle-income
Bukoto, Kiwatule, Kira, Naalya,
areas
Namugongo, Buziga, and Bunga
Average
Rental
Occupancy
Yields
Rate
6.1%
83.9%
7.4%
84.9%
5.9%
88.8%
6.8%
87.5%
Source: Cytonn Report
Table 1: Showing rental yields in Kampala
4.1.2 Key drivers in residential market
a) High population growth rate and urbanization rate
Uganda has a high population growth rate of 3.2% which is higher in cities at 4.3% and a high
urbanization rate of 5.2% creating demand for housing units especially in urban areas.
b) Increased multinational operations
High demand for high end residential units in the technology and financial services sector
following the discovery of oil.
c) Increasing disposable income
Driven by an increase in GDP which has on average grown by 5.1% per annum in the last five
years hence increasing the population’s capacity to demand for housing.
d) Improved infrastructure
The government has improved trunk infrastructure especially roads in the suburbs which have
opened up the areas for development. They include Naalya, Namugongo area due to the Northern
Bypass.
4.1.3 Challenges in the Residential Market
a) Inadequate funding
There is very little off taker finance in the Kampala Market hence buyers have to finance using
their savings. The problem is compounded by the fact that most sales transactions are cash
payments with clearance periods of between 1-6months hence little time to fundraise. Mortgage
activity is also subdued.
b) High cost of capital
Uganda is currently experiencing a high interest rate environment making it expensive to borrow
to construct or buy houses.
c) Exit of some multinationals
This is brought by the delay of the government in issuing of trading licenses hence reducing the
demand for prime property.
d) High land construction costs
High costs of construction inputs, high costs of transportation from ports and high land costs in
some suburbs such as Nakasero and Kololo raising development costs reducing the attractiveness
and affordability of the housing market.
e) Culture
Ugandans prefer living in large palatial homes which they cannot afford hence affecting the uptake
of apartments which are mainly bought for investment, this culture is however changing as people
seek affordability and convenience.
4.2
COMMERCIAL SECTOR
The commercial sector in Kampala is fairly nascent. The city has few commercial buildings most
of them located in Nakasero, Kololo and few very in the outskirts in places like Bugolobi, Naguru
and Ntinda. Most of the buildings are grade B, with very few Grade A offices.
The city has as shortage of parking spaces and is congested leading to some players taking up
residential blocks in the prime suburbs and converting them to offices with prime rents going to
as high as 18 dollars per square.
Main occupiers of commercial offices are the Government workers and service providers.
Commercial buildings in Kampala are classified into three categories namely Grade A, B and C.
Grade A consists of new office buildings in prime locations not less than 120,000 square feet and
with ample natural lighting, pleasant views, prestigious finishing and on-site undercover parking.
Grade B consists of buildings with a total ranging from 70,000 to 120,000 square feet having good
(but lower than grade A) technical services and ample parking space. Grade C consists of buildings
of any size, usually older and in need of renovation, lacking lobbies and may not have on-site
parking space.
4.2.1 Drivers of the Commercial Sector in Kampala
a) Government bodies and parastatals take up the largest amount of office space in the city.
b) Financial services and technology sectors that has been picking up has been a major
demand driver for offices.
c) The oil industry led to the commencement of operations by several multinationals in
Uganda increasing demand for commercial offices.
d) Multinationals and NGO’s also take up considerable amounts of space in Kampala.
4.2.2 Challenges Facing the Sector
a) Inadequate financing and high costs of borrowing for development.
b) The oil sector’s failure to pick up operations has resulted in the exit of some players and
hence increased vacancies.
c) Competition from residential housing converted to office spaces which have more parking
and are not in congested areas.
5
TRANSPORT SECTOR AND AMMENITIES
Kampala has grown at a faster rate without proportionate growth in infrastructure resulting into
congestion coupled by frequent and long traffic jams.
The city is served by highways including Entebbe Road (linking Kampala to Entebbe International
Airport), Jinja road, Bombo and Ggaba roads, Lugogo and the northern Bypass (linking it to
various towns in Uganda).
Roads within the high-end estates are well tarmacked whereas those in the middle-income areas
most roads are paved with a few tarmacked roads.
Electricity to the city is supplied by the Uganda Electricity Distribution Company who have
subleased to UMEME (private company) with a fairly strong and regular and power outages are
not common. Water is distributed by the Uganda National Water and Sewerage Corporation and
most of the areas in Kampala are connected to the main sewer network.
There are mainly four stages involved in the real estate development and they include the predevelopment stage, planning and design, the actual construction and also marketing stage. (Reed,
2008)
6
REAL ESTATE FINANCING
The commercial real estate sector worldwide is increasingly dominated by institutional investors
which lays a challenge for the private real estate investments.
6.1
Mortgage financing
Unlike developed countries that use stocks and bonds, financing of real estate property in Uganda’s
real estate is predominantly financed through mortgage financing. Mortgage financing is a loan
secured by collateral of some specified real estate property that the borrower is obliged to pay back
with predetermined set of installments. (Bienert & Brunauer, 2007)
The loan is usually for the purchase or construction of housing estates by individuals or companies.
Ugandans have realized that with their ever-increasing rental costs, it would be more beneficial to
acquire a mortgage and acquire property.
The most common types of mortgages are fixed rate mortgages and adjustable-rate mortgages.
Fixed mortgages are those where the creditor or investor assumes the interest risk while there is
typically no repayment penalty for the borrower whereas adjustable-rate mortgages are interest
only mortgages.
Mortgage financing has a number of importance and among include;
a) Improves the operation of the housing market and the economy by directly facilitating
transactions and indirectly improving the environment in which the transactions take place.
b) Mortgage finance makes it possible for people to acquire affordable housing as they have
the option to own the houses and pay for them in affordable installments over time.
c) Creates employment directly and indirectly particularly to the construction industry and
indirectly to other sectors.
6.2
Mortgage Pricing
Important to note that mortgage prices are determined by real interest rates and risk factors specific
to mortgage instruments. They can also be determined basing on inflation rates, nominal rates on
one hand and housing prices on another. Mortgage interest rates usually determine the affordability
alongside the maturity.
6.3
Mortgage Insurance
Mortgage insurance is a specialist form of credit insurance which provides protection to the lender.
In the event of the borrower defaulting on their loan and the property being taken into possession
and sold but not at a price sufficient to cover the outstanding debt and costs, then the insurance
policy pays out the lender.
7
7.1
DEVELOPMENT PROCESS OF REAL ESTATE DEVELOPMENT
The Pre-Development Stage
This entails all activities carried out before the actual construction works are carried out. This stage
is very important because it carries the greatest and most varied risks. Some of the processes
entailed in this stage include the following;
a) Identification of the goals and objectives.
This stage normally depends on the client/developer who may be a public organisation
(government) or a private individual. For a private individual, the motive is the profit that he/she
will realise from the development and for the government, whether the development will not only
recover the costs but also benefit the society.
b) Evaluation
This stage involves advice of the developer’s professional team and also the decision by the
developer to bear all the development risks. It includes market research both in general and specific
terms, establishment the preliminary cost of development and ensuring that it is reasonable, the
estimated profit to be generated in case of a private developer and also the value of the site being
developed.
Planning permission is also obtained where you have to get consent from the planning authority.
The physical planning act stipulates that every person requiring consent shall make application to
the planning authority in such form and such manner as may be prescribed and shall include such
plans and particulars as are necessary to indicate the intention of the applicant. This requires filling
a layout plan showing the proposed development hence requiring the appointment of an architect.
c) Land acquisition or securing rights to purchase land
Development is initiated when a site to develop has been got and is actually suitable for the desired
use. The demand for a particular use leads to a search for a suitable site. (Reed, 2008). The initiator
has to conduct a market survey so as to establish the potential site for the development where the
supply will meet the demand requirements.
The following are done during this stage;
i.
Due diligence
This is done to ascertain the suitability of the land for the intended development taken prior to
ensure that there are no obstacles that may prevent the development from being approved by the
council such as site contamination, easements and registered restrictive covenants on land.
ii.
Legal permissions
All legal issues concerning the site must be assessed including ownership, existing planning
permission and the rights of way, light or support.
iii.
Ground investigations
This is done to assess the capability of the site to accommodate the proposed development. The
following are assessed;
General nature of the soils (soil investigation). This is mainly done to determine whether the
ground is strong enough to bear the structure.
iv.
Accessibility of the site
This is done to see whether there is a route to site, what is its condition if any exists.
v.
A survey of the services through or close to the site.
These services may include electricity lines, sewer lines, water pipes and telephone lines. This is
mainly done to ascertain their capacity to serve the proposed development and if they are absent,
the costs to be incurred to extend them to site must be put into consideration by the developer.
vi.
Finance
This involves obtaining lending pre- approval which will require you to submit your detailed
feasibility study to your lenders.
7.2
Design and Costing
In this stage, the developer must have detailed knowledge of what design is required if the likely
occupier is known or has already been secured. This implies that the developer may need to work
on a number of initial ideas with the agents and the professional team before establishing a design
brief for the project. Design works are always kept to the minimum to keep costs down prior to
the commitment of the developer. However, there should be enough detail to enable the quantity
surveyor to prepare an initial cost estimate. (Reed, 2008). The following are covered in this stage;
a) The developer needs an architect and tells him about his basic requirements
b) The architect then produces preliminary drawings for consideration by the developer.
Estimates of the project costs are generated from these drawings.
c) The developer gives feedback to the architect after reviewing the drawings and proceeds
with the working drawings.
d) Drawings are then taken for approval by local authorities and other certain departments.
One needs on average 3 to 4 copies for; the planning department, land, building department,
health inspectory department and in some cases NEMA.
e) Final Bills of Quantities are created by the quantity surveyor, specifications are also made
and the conditions of contract are generated.
7.3
Tenders and contract award
In this stage, the following process is followed;
a) The development job is advertised
b) The design documents are picked by various interested contractors
c) Contractors submit bids/quotations
d) The quantity surveyor and civil engineer examine tenders and select a competent
contractor.
e) The quantity surveyor and civil engineer submit a report to the developer through an
architect for the successful contractor.
f) The developer and contractor sign an agreement in the presence of the consultants.
7.4
The Construction Stage
In this stage, the contractors prepare a work programme and starts work on site. The aim
throughout this stage is to ensure that development is completed within the time and budget set
out in the evaluation without compromising quality.
This implies that the quantity surveyor must exercise control during construction to ensure that
cost is not exceeded without authority.
7.5
Marketing (let/dispose)
This is always the last phase in the development process but must be at the fore front of the
developer’s thoughts from the initiation of the scheme. In some cases, the occupier may have been
secured at the start or during the development process. The development’s success will depend on
the ability to secure a willing occupier at the estimated rent or price, as well as within the period
originally forecast in the evaluation. (Institute, 2001)
At the start of the process, the developer has to decide whether the investment is to be sold to
realise profit or to be provided for rent. This decision depends on the motive of the developer and
also the prevailing property investment market conditions at the time.
After the occupier has been got, the developer should maintain contact with the occupier, even
though no direct landlord-tenant relationship exists. This is mainly for purposes of making
improvements in the subsequent developments.
8
ENTERING THE PROCESS
Different developers come to the sector of development through different ways. The process of
entering the field of development differs for the different developers may be through;
 Working and operating with a small growing company. This gives a chance to observe and
execute everything ongoing in the company.
 Operating and working as a project manager for bigger companies. This is by offering
responsibility to the developer for one given project under the company. To commence
with the process of entering the development field. The developer is required to control
and manage any of land, knowledge, capital and tenants.
8.1
Capital
Developers face numerous hurdles in acquiring funding for large projects and recent economic
turmoil has made it harder. Capital is one of the most important requirements required. Financial
assistance is usually provided because of the following reasons by developers.
 In order to buy land
 To cater for the labour and material costs on the project
 To cater for the operating costs.
 Development of infrastructure and services on the project
In order for property development projects to commence, the project developer is always required
to have some reasonable amount of money for both bigger and smaller projects. The developer is
not required to start the project if there is no enough money twice as the available one to take the
project to the next time when the funds will be available.
For the developer to get money, there should be cash at equity invested to cover a portion of the
total costs that the project will cost. Cash at equity is referred to as the portion of an asset that can
be easily converted into cash.
Developers acquire financial assistance through the following ways, borrowing from private
companies and banks that aid development funding. In cases of tangible assets such as buildings
and land financial assistance is provided in form of property finance. Securing a loan for these
assets is so easy to arrange since they are so easy to be sold off. This loan is paid inform of
mortgages for a given period of time. This therefore means that future cash flow calculations are
important. Banks are typically willing to at least lend up to a given percent of the construction
costs and the rest is met by the developer.
In Uganda more so Kampala there is no developed mortgage system. This has been overcome by
establishments of partnerships between the banks and development companies to acquire capital.
During the borrowing of money by developers it should be noted that the quality of project to be
developed and the management team employed is key. It helps to have an existing relationship
with the bank. Banks are willing to lend to and having an existing relationship is important.
This is because the people responsible for lending money feel safe and more comfortable with
experienced and established companies and individuals. For example, in the construction of the
Kampala fly over budgeted between US$148 to US$200 million. The government borrowed from
the government of Japan through the Japan Cooperation Agency. The government was taken as a
well-established and trustworthy body. In cases where there are smaller projects to be executed.
Developers can join co-operatives. These find members that can pay monthly fess to finance their
projects.
8.2
Land
Before entering into the process, purchasing of land is one of the main aspects carried out by the
start up developers. While buying the capacity of land should be put into consideration by the
developers because this affects the cost of the land per unit. This can be better achieved by the use
of the different local authorities. For example, Kampala Capital City Authority that plans and
implements for local urban development. These also provide the developer with an overview of
any future planning or zoning changes in the area which could limit development in the future.
Before buying the land the developer always needs to know about the utility access and the zoning
restrictions to be sure of the zoning regulations of the land.
The developer always needs to know which person is to buy the land onto which the development
is to be carried out initially before commencing the process of identifying and purchasing land.
This also helps the developer to know the amount of money to be borrowed for the development.
8.3
Knowledge
Knowledge is very important about the real estate development process stage by stage. A developer
can acquire sufficient knowledge about the land acquisition, market analysis, feasibility, zoning
laws, labour laws, construction and project management and sales which play an important role in
a successful project. The developer has to educate himself about the development process and the
development needs in their community.
Knowledge can be acquired through research. Research can be done using online sources, industry
reports and interactions with others developers. The developer needs correct information in order
to make informed decisions to move the project forward. Information is collected from various
sources to gather enough information so that the real estate developer can identify opportunities
that exist in the market place.
After acquiring an idea, there is need to carry out a feasibility study before starting the actual
process. A real estate feasibility study is an analysis conducted before undertaking development
to find out if its viable. It also uncovers potential problems and also deconstruct complex tasks in
order to execute them in a manageable way.
There are different aspects of feasibility studies carried out; economic, technical, legal,
demographic, competition.
a) The economic focuses on the costs and benefits associated with the development.
b) Technical involves determining whether the site terrain and topography, soil composition,
environmental factors, zoning restrictions and available infrastructure will support a
feasible project.
c) Legal investigates whether any aspect of the project conflicts with the legal requirements
(zoning laws, other permits and public approvals).
Case study;
IMPALA HOUSING ESTATE, NAMUGOONA
This is a project of the National Housing and Construction Company Ltd that was launched on
30th August, 2016. It is located in Namugoona, a Kampala city suburb, 8km from Kampala on
Hoima road. The main objective of developing the Impala Housing Estate in Namugoona was to
reduce the growth of slums and provide houses to the increasing population in Kampala.
It has 131 housing units with 3 bedrooms. A study was carried out and observed that only a few
units were occupied. According to The Infrastructure, August 30, 2017; buyers have always voiced
that the National Housing units are more expensive on average and are generally out of reach for
many small and medium income earners in Uganda.
The National Housing and Construction Company decided and announced to reduce the price of
the apartments by 16.4%. the cost was reduced from Shs. 295 million to Shs. 250 million per unit.
The price reduction was intended to enable Ugandan’s access decent accommodation. (Monitor,
2017)
Figure 1: housing units in Impala estate
8.4
Tenant
A tenant is an entity who is permitted to occupy the property of another person by signing a lease
or rent agreement. During site selection, the site must satisfy tenant requirements.
For example, for rent and resale homes, tenants prefer amenities near the property, particularly
proximity to a shopping mall, good school and a hospital. There should also be access to highway
and public transportation. (Nsubuga, 2021)
Commercial real estate is leased to tenants to conduct income-generating activities for example;
office space, retail, industrial. For office space, the rental price charged to tenants is usually $14
to $16 per square meter. (Busuulwa, 2021)
“There is a surplus space in the shopping mall segment and lockdown measures have affected
customer traffic in these places. That means loss of customers for tenant businesses most of which
are located on the ground floors while the upper floors are usually empty.” Said Richard
Byarugaba, the managing director at Uganda’s National Social Security Fund. (Busuulwa, 2021).
In Kampala, most tenants are obliged to pay monthly rent. Although some tenants are able to pay
rent upfront for the contract period stated, while others pay in instalments and some others the
landlord has to fight with them to recover their money at the end of the month. This is because of
mainly differences in income levels.
9
COSTS INVOLVED IN REAL ESTATE DEVELOPMENT
Development cost is the total of all the costs incurred or to be incurred by the project in acquiring,
constructing, rehabilitating, and financing the project. These costs occur over most of the stages.
Such costs vary depending upon what type of real estate is being consideredthat is to say
commercial, Industrial and residential. These costs include;
a) Land costs-in real estate developments, land is needed if land is not already owned. They
are costs related to:
i.
Purchase of land
ii.
Legal Fees to lawyers to draw the purchase agreement
iii.
Stamp duty paid to Government to transfer ownership Accrues to the commissioner of
lands as Government revenue of land is already a possession. The above costs (i) and (ii)
are considered owner's equity arrived at by valuation
b) Construction costs
Include the building element costs-foundation walling, roof finishes services, etc
External works-access roads, car parking, drainage iii V.AT at 18%
c) Professional fees-15%: Qs, Architects, Engineers (service engineers), interior
Design and project manager. Architects-5%
Professional fees may add up to 15% of the cost. Alternatively, professionals maybe paid hourly
rates Professional fees also attract V.A.T so the professional can deduct input tax e.g., telephone
calls, operational expenses-vehicles, before applying V.A.T on his wages.
d) Interest on construction funds
Interest accrued during period of construction on money borrowed by the client for the project.
The client does not start paying the money until the project is complete in which time the borrowed
funds earn interest.
It has been argued that the interest should be accrued over half the contract period as the funds are
provided in instalments and hence the client may be taken to pay interest on money still in the
bank if interest is calculated on the whole contract sum
e) Project financing cost
For big projects which require financing specialists, he advices and makes finance agreements.
The financial adviser charges 2% of total project cost. In this case, the funds are sourced from
more than one bank.
f) Developer's profit
It is the incentive to investors for their efforts. They can set their own margin e.g. 10% or 20% of
cost. When this is accounted as a cost, the developer can be certain of profitability
g) Agency fees
Agents are required to market the property once it is completed. They charge 2.5% fee
for this service. They can either sell the property rent it, manage the property or do both.
h) Equity
The client's own contribution to the development cost e.g. land, saving. Any project proposal must
have an equity contribution as requirement by financiers. e.g.
Savings and loan
20% owner’s contribution
HFCK
10%
World hank
40% -only deals with governments
ADB
30%
10 PLAYERS IN KAMPALA’S REAL ESTATE MARKET
In the real estate industry, every player has their place. When working together as a team, each
contributes to the big picture. Different professional bodies in the real-estate development project
like valuers, engineers, and other related bodies have contributed to the development of real estate
projects.
10.1 Real estate developers
Developers purchase property with the intent of creating homes, apartments, shopping areas, or
other types of real estate. The developer is working to create plans for the neighbourhood, get
licenses from the city and organize the construction crew to get homes built, roads created. It’s the
developer’s job to ensure that the land is surveyed and each lot is correctly identified for each piece
of property. Examples of real estate developers in Kampala include; Millennium Estate Developers
Limited, Njovu Estate Developers Ltd.
10.2 Real Estate Broker
Real estate brokers are involved in all stages of the real estate process including initial land
acquisition, subdivided lot of sales, and property acquisitions and sales. (Yardi Systems, 2020)
10.3 Private individuals
These play the role of funders, property owners and users. This market is based on exchange value
and is organized at local level.
10.4 Property Manager
A Property manager handles day-to-day property issues and helps the owner reach their short-term
and long-term real estate investment goals.
The service provided must be to the client’s satisfaction, safeguard his interest at all times and,
where possible, give consideration to the needs of the eventual user of the facility. (Yardi Systems,
2020)
Lenders
Real estate lenders can be insurance companies and large private equity firms, traditional banks or
hard money lenders, or mortgage brokers and mortgage bankers. They give approved people loans
to purchase property. (Yardi Systems, 2020)
10.5 Tenants
Tenants are individuals, families, or business that rent a dwelling or commercial space for the
appropriate use. (Schofield, 2003)
10.6 Real estate companies
The real estate companies have two aims: to generate work for their own business and to make
quick profit by selling on the finished properties. There are various reasons as to why they prefer
sales to selling (Thierry Theurillat, Olivier Crevoisier, 2015): the prospect of better returns, the
time and money involved in property management and the risk of properties lying vacant.
Examples of these real estate companies in Kampala today include: Jomayi Property Consultants,
Premier Property Management Ltd, Diamond Trust Properties (U) Ltd, National Housing and
Construction Co. Ltd, P & E Reality Ltd, etc.
10.7 Construction companies
The construction companies are either consultancy firms (Advisors) or general contractors
Advisors
Advisors maybe real estate agents, consultants or anyone who helps and guides a person or group
to buy or rent a property. Consultants provide advice on setting up project, developing and
coordinating the designs, preparing production information and tender documentation, contract
administration and inspection of the work of contractors. Members of the consultant team are
mainly the Architect, Quantity Surveyor, Urban planners and Structural Engineer.
General contractors
General contractors are responsible for overseeing the construction of a project and providing all
of the material, labour, and services needed to bring the project on time and within budget. General
contractors in real estate often work with sub-contractors who specialize in different portions of
the construction project such as electrical and plumbing installation, and heating ventilation and
air conditioning (HVAC) systems.
Examples of construction companies in Kampala today include: ROKO Construction Ltd, Seyani
Brothers & Co. (U) Ltd, Excel Construction Company, Krishna Construction Company Ltd,
Ambitious Construction Co. Ltd, et
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