Rezoning depresses Kampala property market

Saturday February 21 2015

A housing estate in a Kampala suburb. Both

A housing estate in a Kampala suburb. Both Kampala and Nairobi cities are opening up new zones for real estate development. PHOTO | FILE | NATION MEDIA GROUP

By A JOINT REPORT, The East African

New zoning rules in Kampala and Nairobi have had mixed fortunes for developers in the two markets.

The ongoing transformation of Kampala’s high end Nakasero and Kololo suburbs into commercial space is displacing quality residential housing faster than they are being replaced, leading to a spike in rent for residential space in alternative locations such as Naguru and Mbuya.

Supply of high end residential homes is however projected to grow as developers exploit ongoing road construction being implemented in fairly virgin areas neighbouring the city.

The Nairobi market on the other hand, has seen a spike in the construction of high-rise apartment units in previously exclusive single housing unit zones like Kilimani, Westlands, Kileleshwa and Lavington which were re-zoned in 2004.

Real estate firm Hass Consult says in its annual report that in the rental market for 3-4 bedroom town houses, the demand was fiercest in Kilimani, where rents rose by 21.2 per cent last year, topping the town house rental chart for the city with rents of up to $2,447 a month.

The report also said that Riverside in Kileleshwa drove sales prices, emerging alongside Westlands as the suburbs with the most expensive apartments at an average Ksh19 million.

“In apartment rentals, Westlands and Riverside likewise held top spot, at average rentals of $1,261-$1,293 a month, following on rent rises of 17 to 21 per cent,” said Sakina Hassanali, the head of marketing and research at Hass Consult.

The zoning rules in Kampala affecting Nakasero and Kololo have in effect depressed supply of quality residential space preferred by diplomats and expatriates, however, the migration of industries from the central business district to the outskirts of the city is creating new hubs of demand for commercial and residential units.

Industry sources however are buoyed by the fact that the improved road access to such areas could stimulate construction of more high class homes in quieter and secure zones suitable for sophisticated clients.

Judy Rugasira Kyanda, the managing director at Knight Frank Uganda said that the change in land use being experienced in the Kololo and Nakasero areas is a common evolution trend faced by many cities worldwide.

“This phenomenon requires opening up of alternative residential areas through infrastructure development in order to absorb demand for sophisticated residential property. For example, redevelopment of the Nakawa and Naguru housing estates will create some needed supply for high end clients keen on wider residential space and proximity to the city centre,” she said.

Charles Chapman, the managing director at Umeme Ltd and a resident of Kololo said that a number of people have moved out of the posh suburbs in the past few months but there is still reasonable demand for residential space from senior managers employed by non-governmental organisations and the United Nations.

Whereas the Nakasero and Kololo areas traditionally offer expensive homes comprising 3-4 bedrooms, great aerial views of Kampala’s landscape, large compounds suitable for entertaining, with rental prices currently averaging $3,000 per month, alternative homes in the Naguru and Mbuya areas offer similar aerial views with rental prices averaging roughly $2,500 per month, sources say.

The shift to commercial space being experienced by suburbs like Kololo has apparently attracted small and large corporate clients specialising in financial services, medical care and information and communication technology services.

As major industrial firms seek to relocate from the seemingly congested Kampala CBD to the Namanve Industrial Park —located less than five kilometres from the city centre — steady growth has been recorded in the number of properties available for sale according to Knight Frank. Increased relocation of industries to Namanve is also anticipated to raise demand for both commercial and residential space.

While large plots remain available for development in the industrial park coupled with construction of new access roads, scarcity of high quality commercial and residential space evidenced in surrounding areas offers huge opportunities for investors.

Analysts predict an influx of banking, insurance and retail outlets in neighbouring areas as more firms complete new factories. So far, Roofings Group has completed an $81 million steel manufacturing plant located in the park while Sadolin Paints Ltd is undertaking a $10 million production plant.

“The changing land use in Kololo and Nakasero is likely to boost demand for high end residential units built in newly opened areas neighbouring Kampala which are benefiting from new road projects and electricity connections. Other prime areas that offer cheaper accommodation rates such as Naguru and Mbuya might also benefit from this trend. Relocation of industries from the CBD will directly create more demand for low income and middle income housing units around the Namanve area that are convenient for permanent employees hired by these firms,” explained Shakib Nsubuga, the country manager at Lamudi’s Uganda Office.

With the onset of devolution in Kenya in 2013, Nairobi County in its master plan proposed the re-zoning of the capital to allow for higher density developments in previously closed areas, a move that is expected to reduce the value of property in upmarket estates whose prices had been inflated by the ever-rising cost of land.

According to Tom Odongo, the Nairobi County executive for housing, lands and physical planning, the Nairobi County government is keen on land use; the ratio of the number of buildings to land to ensure a compatible development in land use.

“For our current growth vision to be a success, we need to look beyond the zoning. We need to see a shift in our integrated housing plans so that we are able to achieve an integrated physical, social and economic system,” Mr Odongo said.

Plans by the County government of Nairobi to permit high density development in upmarket areas like Karen, Kitusuru and Runda have in the past been met with stiff resistance from resident associations, with some moving to court to challenge the proposals.

These associations argue that the proliferation of highrise apartment blocks in the posh suburbs would erode their property value by doing away with the notion of “exclusive address” for home owners.

By Allan Olingo and Bernard Busuulwa