AVOIDING TIME DELAYS IN UGANDA’S COMMERCIAL REAL ESTATE INVESTMENTS

A common concern I get whenever I talk to real estate investors is the time it takes to build the structure before it becomes rent-ready. Many investors consider the one or two years spent in land purchase, design, plan approvals, and construction as time lost. They would not earn anything from their investment during this period. Compared to other investment assets like bonds and money markets, real estate can have a long time delay, especially if you decide to develop the properties yourself.

What are the implications of this delay?

If you are an investment manager making decisions on behalf of investors, the expectation is that every year should yield earnings from the money invested. If you are investing in real estate, you may be tempted to build the properties yourself. However, you often do not have two years to wait until the asset starts fetching returns. Your investors have the option of putting their money in the other assets that yield returns right away. This discourages many from pursuing real estate in Uganda as a potential investment opportunity.

There is also the fact that even when projections are made, and you can convince your investors to agree to the timeline, the risk of failing to beat the deadlines exists. In Uganda, projects are rarely completed within the originally stipulated timelines. This is a result of several factors that may be outside the developer’s control. Such occurrences can severely damage your reputation as an investment manager, resulting in a loss of investor confidence.   

How can real estate investors in Uganda avoid time delays?

The real estate market in Uganda is growing, and this comes with new products being introduced to the market. Some developers have taken the route of build to sell, even for investment properties. Previously, people only constructed commercial buildings for the sole purpose of owning and collecting rent. Nowadays, in Uganda, you will often see newly constructed apartment buildings, office blocks, and retail centers that are up for sale. These structures are constructed for this purpose, and they are a good option to consider for the investor who wishes to reduce the time risk. On some occasions, you will even find the buildings already filled with tenants.

What should investors consider before they purchase commercial real estate properties?

1.      Consider the reputation of the developer.

To avoid purchasing defective buildings, research the developer’s track record to find out if they emphasize quality in the structures they build. The bigger their reputation in the market, the more they will care about the quality of their products. Developers who have long-term goals in the market know that reputation is what will guarantee them future business, and therefore are less likely to compromise on the integrity of the buildings.

2.       Make market research.

Just because someone built it doesn’t mean it will bring attractive returns on investment. It is up to you the investor to find out if there is a demand for such a property in the area. Do not be easily swayed by the marketing gimmicks employed by salespeople to convince you to invest in an unprofitable property. Because developers may not always consider the long-term profitability of the property since their business is about selling off the property, they may overlook important factors that could affect your investment returns in the future. It is up to you the investor to do this research and choose the best option available that is in line with your investment criteria.

3.      Do a thorough property integrity check.

Even with a good reputation, a developer could make mistakes during construction that can be very costly to fix. Examples could be how the constant changes in seasons affect the usability of the building. Extreme heat, risk of flooding, and sound insulation are examples of elements that may not be obvious at first glance but could come up later during building use. You need to protect yourself in case such risks manifest later on. If possible, sign agreements that keep the developer liable in case some risk factors happen.

A diligent integrity test can also help uncover some of these potential risks, which you can use during negotiation to either reduce the cost of acquisition or include some protective clauses. Such an approach will save you from future frustration.

As the market embraces quicker options in real estate investment, investors need to get sophisticated in how they assess the viability of the many alternatives to make sure that they make the best choices. This requires a level of skill that few investors may possess. It is important to work with professionals like Baros Group Limited as you engage in Uganda’s commercial real estate investments. Their technical knowledge, experience, and on-ground presence in the industry will be essential to your success as an investor.

To learn more about investing in Uganda’s Real Estate industry, visit https://www.barosgroupltd.com/

About the author;

Benard Sonko is a real estate investment manager and founder of Baros Group Limited. For comments and inquiries, you can reach him on +256742140251 or info@barosgroupltd.com