RESEARCH KAMPALA MARKET UPDATE H1 2018 RESEARCH KAMPALA MARKET UPDATE H1 20182018 Cover Image: Marigold Heights, Plot 92D, Old Kira Road, Kampala, Uganda ECONOMIC UPDATE SECTOR BY SECTOR 2018 OUTLOOK ANALYSIS HIGHLIGHTS KAMPALA MARKET UPDATE H1 2018 Headline Inflation declined to 1.7% in May 2018. The improved performance was GDP mainly attributed to a 3.5% Loans to private sector increase in food production as According to the latest quarterly increased by 7.8% year on year a result of favourable weather GDP report released by Uganda in April 2018. patterns, a 7.3% increase in Bureau of Statistics (UBOS), crude oil exploration activities and Uganda’s economy saw a strong Bank of Uganda reduced the production of drinks and tobacco run of growth during Q2 of financial central bank rate (CBR) by in the manufacturing sector, as well year (FY) 2017/18 with this 0.5% to 9.0% in February 2018. as an 8.9% growth in performance expansion gaining momentum to of financial and insurance activities reach a 6.6% year on year growth Uganda shilling depreciated in the services sector. compared to the 2.8% recorded year on year by 2.8% against This positive start to the 2017/18 during the same period last FY. All the USD in May 2018. FY puts Uganda’s economy sectors of the economy recorded firmly on track to grow by 5.8%1 better performances in Q2 2017/18 Uganda’s economy projected to in the current financial, the best compared to Q2 2016/17. grow by 5.8% for FY 2017/18. performance in six years. [Figure 1] 5% increase in occupancy rates Figure 1: in prime residential suburbs of QGDP at constant 2009/10 prices (Billion UGX) Kampala. Demand for Grade A commercial office space increased by 2% in H1 2018. Shoprite opened at Acacia and Victoria Malls in April and June respectively. Source: UBOS Consumer Price Index (CPI) 2018 was the decline in the volatile food prices to -0.2% compared According to the latest data to 23.1% registered for the year released by Uganda Bureau of ended May 2017. This drop was Statistics (UBOS), annual inflation attributed to lower fruit prices that declined for the eighth month in was registered at -7.4% compared May, easing to 1.7% compared to to 37.2% recorded for the year 1.80% recorded for the year ended ended May 2017. April 2018. Inflation remained Core inflation, which strips out below the central bank target of energy and food costs registered a 5% since October 2017. The main 0.3% rise in the month of May for reason for the reduction in headline an annual rise of 1.1%. Cover Image: inflation for the year ended May Photo by Sharon Kamayangi The period “H1” refers to the calendar period 1st January to 30th June | Q1 refers to 1st January – 31st March and Q2 refers to 1st April – 30th June. 1 Bank of Uganda Monetary Policy Statement June 2018 2 KAMPALA MARKET UPDATE H1 2018 RESEARCH Figure 2: MONEY MARKETS Annual inflation rates for the 3 major components May-2017 to May-2018 Bank of Uganda reduced the Central Bank Rate (CBR) by 0.5% to 9.0% in February 2018. According to the monetary policy statement for June 2018, Bank of Uganda maintained its benchmark CBR at 9.0%, and forecast that inflation would rise gradually over the course of FY 2018/19 due to the impact of rising import prices as well as the anticipated increase in indirect taxes. This is particularly the case with fuel prices and financial services during FY 2018/19. [Figure 2] Source: UBOS *=Electricity, Fuel & Utilities According to data from Bank of Uganda, the banking sector’s Figure 3: weighted average interest rates Money market trends as of May 2018. were 20.03% and 7.76% on lending in UGX and USD respectively as of April 2018. Month on month, interest rates on treasury bills rose to 8.83% and 9.15% in May, up from 8.67% and 8.87% registered in April for the 182 and 364 day tenors respectively. [Figure 3] CURRENCY The Uganda shilling (UGX) declined by 2.4% against the United States dollar to a monthly average UGX Source: Bank of Uganda 3,726.8 per USD, from UGX 3,640.1 per USD in May 2018. This is due Figure 4: to the huge dollar appetite from Average exchange rates for the period May 2017- May 2018 corporate companies especially in the energy and manufacturing sectors, the global strengthening of the US Dollar, as well as the increased demand for imports in the final quarter of FY 2017/18. The UGX closed trading on Tuesday, June 19th, 2018 at 3,850 per USD dollar. Overall, the UGX depreciated year on year compared to the same period last year as illustrated in [Figure 4] Source: Bank of Uganda 3 Figure 5: PRIVATE SECTOR Credit extended to the Private Sector by Commercial Banks GROWTH Private sector credit growth stood at 7.8% year on year in April 2018, which is higher than 6.34% registered for the same period in 2017. As a result of the rise in credit growth, the stock of private sector credit expanded to approximately UGX 12.24 trillion in April 2018 from UGX 11.44 trillion in April 2017. Overall, monetary expansion during H1 2018 has been higher than was recorded during the same period in the preceding year, indicating an increase in economic activity as well as a benign operating environment for commercial banks. [Figure 5] Source: Bank of Uganda RESIDENTIAL Table 1: Average residential rents and sales prices in prime residential areas There has been a 5% year on year Monthly Rent Monthly Rent Average Sales increase in occupancy rates for prime Description Unfurnished Furnished Prices residential suburbs of Nakasero, Kololo, Naguru and Bugolobi. Knight Frank 2 bed Apartment $1,250 - $1,500 $1,750 - $2,000 $200,000 - $250,000 also recorded a 9% increase in demand 3 bed Apartment $2,000 $2,500 - $3,500 $300,000 - $350,000 for residential property for rent in the 4 - 5 Bed Bungalows secondary residential suburbs of greater $3,500 - $4,000 N/A $600,000 - $1,200,000 (0.2 - 0.5 acre plot) Kampala particularly Kira, Najjera, 4 - 5 Bed Bungalows Kyanja, Namugongo and Naalya. $4,000 - $5,000 N/A $1,200,000 - $2,000,000 (0.6 -1.0 acre plot) This is on the back of an increase in stock of newly constructed residential Source: Knight Frank Research properties, (apartment blocks in particular) in the middle income Table 2: segment, ranging between UGX 100m - Average residential rents and sale prices in the outskirts of Kampala Suburbs UGX 200 million and UGX 400,000 - UGX 800,000 per month for selling and renting Monthly Rents Average Sales Prices Description respectively. Unfurnished (UGX) (UGX) It is also interesting to note that 2 - 3 bed Apartments 600,000 - 1,500,000 150Million - 300Million approximately 80% of the new stock of apartment blocks available on the market 2 - 3 Bed Houses (0.2-0.5 acre plot) 1Million - 3Million 350Million - 500Million in Naalya, Kira, Najjera and Kyanja were Source: Knight Frank Research sold during H1 2018. With regards to existing stock, we have registered a 10% increase in the supply of residential units Table 3: during H1 2018 compared to the same Average land prices per sq. m for specified suburbs period last year. This is mainly attributed to the completion of pipeline projects Location US $ per sqm in H2 2017 with specific reference to Tier 1 (Kololo, Nakasero, Naguru, Bugolobi & Mbuya) $198 - $618 the prime residential suburbs of Kololo, Nakasero, Bugolobi and Naguru. Tier 2* (Ntinda, Luzira, Mutungo, Munyonyo & Muyenga) $47- $68 Tier 3* (Namugongo, Najjera, Naalya, Kira & Kyanja) $27- $58 We anticipate the supply of residential Source: Knight Frank Research apartments in the prime residential suburbs of Nakasero, Kololo, Naguru *prices usually quoted in UGX and thus susceptible to foreign exchange volatility and Bugolobi to exceed demand over the next 24 months, if the existing and NB: These figures vary depending on the exact location, accessibility and newly completed developments are not land tenure system. absorbed by the market over the next 6 months. [Table 1, Table 2, Table 3] The period “H1” refers to the calendar period 1st January to 30th June | Q1 refers to 1st January – 31st March and Q2 refers to 1st April – 30th June. 4 KAMPALA MARKET UPDATE H1 2018 RESEARCH average passing rates. This is mainly OFFICES This has in turn increased the available the case for the less prime properties stock of Grade B space by approximately (Grade AB & B) which have been poorly Knight Frank has registered an increase 2%. The increase in voids of older Grade built but in relatively good locations. This in demand for Grade A office space over B stock coupled with the relatively low may appear to be a seemingly good and the last 12 months with occupancy rates demand for the same has put further practical short term solution but is in turn currently at 92% compared to Grade B down ward pressure on rental rates with distorting the market, and clawing back space at 78%. This is a 2% year on year Grade B gross rents (excl. taxes) now these rents to market rates when the growth in Grade A occupancy compared 2 ranging between $10 and $12 per m sector’s performance does improve, will to the 90% recorded in H1 2017.