TENANTS ASK LANDLORDS TO STOP CHARGING RENT IN US DOLLARS

The Village Mall in Bugolobi, Kampala. Tenants renting space in Kampala malls want landlords to stop charging rent in US dollars because of an unstable Ugandan Shilling. FILE PHOTO 

By Mark Keith Muhumuza

Kampala- Rent for a cross section of tenants in Kampala shopping malls for three months has jumped from Shs63m to about Shs75m in just one year.
The increase of Shs12m is blamed on landlords who charge rent in dollars.
Following this development, tenants now want landlords to allow them pay rent in Uganda Shillings instead of dollars.
The call is contained in a report released last week by Knight Frank Uganda.
The demand is a result of the Shilling depreciating in 2015, which meant tenants had to spend more on rent pegged to the US dollar. The report detailing the performance of the real estate sector in the first half of 2016 indicates that this demand is a growing trend.
Knight Frank Uganda is a residential and commercial property manager of a number of business properties in the country.
“The retail sector has been rather subdued compared to the same period last year. We have witnessed a number of retail tenants (particularly in secondary locations) requesting to have their rents paid in local currency in order to curb the dollar fluctuations,” the report released last week reads.
Tenants in many shopping malls are requested to pay rent in US dollars yet they derive most of their income in Uganda Shillings.
When the Shilling depreciates, it means tenants have to find more Shillings to pay for the same rate in dollars.
A trader in Kikuubo shopping area pays $21,900 as rent for three months. This means that in February 2015, he needed about Shs63m for three months.
Today, the tenant pays almost Shs75m for the same space and tenure because of the changes in the currency. Currently, the dollar is trading at about 3,380 against the Shilling.
“The challenge for the traders is that income is in Uganda Shillings and yet expenditure – to import and rent – are US dollars. We are seeing more tenants requesting to meet rental obligations in Shillings in order for them to plan better.
Eventually, landlords will have to take a stand on this matter, although it may be beyond their control since their development finance is in US dollars,” said Mr Marc Du Toit, the head of retail at Knight Frank Uganda.
In January 2016, the Ministry of Finance issued a directive warning accounting officers against awarding government contracts in foreign currency, a move aimed at stabilising the Shilling.
High interest rates
According to the report, landlords are also facing challenges related to rising interest rates that have made it tough for them to clear bank debts.
“Interest rates are still a detriment to the property market rates in Uganda. Currently, there are quite a number of repossessions from commercial banks on some properties due to the high-interest rates,” Ms Judy Rugasira Kyanda, the managing director Knight Frank Uganda, said.
According to the report, the impact of Bank of Uganda tightening monetary policy last year is still being felt in the sector and economy as a whole despite the recent reduction.
With the Central Bank Rate at 15 per cent, commercial bank lending rates are still averaging 25 per cent.

CREDIT: MONITOR