Do you need market analysis before investing in real estate?

Two budding investors set out on their real estate journey in Uganda's bustling real estate market. They had contrasting approaches to market analysis. One was based purely on hearsay, emotion, and unresearched optimism, while the other was more measured and backed by thorough research. Their results after five years signified the importance of market analysis before investing in real estate.

The first Investor (Sarah (not real name)), who had purchased a two-bedroom unit in one of Kampala's popular suburbs, only realized a modest appreciation in property value. Due to high competition, she also had challenges with tenant occupancy, resulting in lower-than-expected rental returns.

The other investor, (David (again, not real name)), who had taken the time to conduct a thorough market analysis, had completely different results. His investment in a fast-growing town had more than doubled in value; he was charging above-market prices for his rental units and was looking to buy another plot in the same area.

Some of the considerations David had when conducting the market analysis that you can borrow from him include the following.

Key considerations for real estate market analysis

1.      Population growth trends in the neighborhood.

It is essential to find out how the area you intend to invest in is progressing in population. Are people fast moving into that area? Is there a steady presence of potential tenants? What are the population demographics? Is it young people who have just entered the job market? Or are they family people looking for stability? All these factors will influence the type of investment you put up and whether it eventually yields the expected returns.

2.      Ongoing and planned infrastructure developments

Sometimes, an area experiences significant change due to new infrastructure projects. These could be new roads being constructed, a new industrial park in the vicinity, an extension of public utilities, etc. People have benefited from spotting these changes early and moving in. But even if you are not one of those early investors, you can develop a property that leverages the transformation.

3.      Average rental prices across different areas

When investing, comparing average rental prices in various areas is vital. It will help you identify places that give a higher return on investment. This is because some of your investment costs will remain the same irrespective of your choice of location. For example, the cost of building a five-storey structure is likely to be the same, regardless of the rental yield of the area.

4.      Historical price appreciation

It is essential to consider the changes that have already happened in your chosen area. Is it one that has already gone through the stage of astronomical growth, or is it up and coming? Timing the valuation trend is crucial to your return on investment in the long run. If you invest in land in an already developed area, you cannot expect exponential returns on just the value of the land because there is little change expected to happen in that area. However, if you identify an area where prices are just beginning to spike, you might have landed on a jackpot.

5.      Macroeconomic business indicators

 These factors may not be directly visible to the uncritical investor but can be spotted if you look hard enough. Macroeconomic business indicators include unemployment rates, general housing prices, and the government's industrialization strategy. If you follow closely, these can give you a good picture of where you should direct your capital.

Key lessons for real estate investors

1.      Data-driven decision making.

Utilize resources like the Uganda Bureau of Statistics and other industry publications to collect data to aid your decision-making.

2.      Long-term perspectives

Consider future development plans and demographic shifts when evaluating potential investments.

3.      Diversification.

Uganda’s real estate market offers various opportunities, from residential to commercial properties. A well-analyzed, diverse portfolio can mitigate risks.

4.      Professional Guidance.

Consider consulting with local real estate professionals like Baros Group Limited, who can provide insights into specific markets and neighborhoods.

The contrasting experiences of Sarah and David underscore the critical role of market analysis in Uganda's real estate investment landscape. While Sarah's intuitive approach led to moderate success, David's data-driven strategy yielded superior returns. For those looking to invest in Uganda's promising real estate market, the message is clear: thorough market analysis is not just beneficial—it's essential

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 at +256742140251 or info@barosgroupltd.com