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OPINION: Banning dollar rents is erroneous; reviewing the Landlord and Tenant Bill is not an option but a necessity

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Knight Frank’s Judy Rugasira says that banning dollar rent without giving due consideration to other factors in the property development cycle and value chain.

At 8.00pm on Wednesday 26th June, News broke that Parliament had passed the Landlord and Tenant Bill 2019 in its original form despite several pleas from landlords, tenants, the financial sector, and more recently some enlightened members of parliament and Cabinet ministers to review the bill and make it fit for purpose. So, what does this mean moving on?

My newspaper article last year (https://www.ceo.co.ug/taxing-landlords-real-estate-should-not-be-treated-like-fast-moving-consumer-goods/), labored to explain the dire consequences of passing the bill as had been originally drafted. For the record, and avoidance of doubt, I will reiterate some of the points I raised in that article. I am a proponent of legislation. Good legislation that will enable a strong and stable property market by encouraging and attracting local and foreign investment, creating employment in this sector, and growing our tax revenue and economy ultimately.

Contrary to what the parliamentarians are claiming, the bill as it is in no way protects the small trader or tenant, actually, it has just made their situation worse, by making them more prone and susceptible to the consequences of a weakening shilling and arbitrary rent increments. On a more macro level, the bill has diminished the comparative advantage of Uganda over other countries as a real estate investment destination for foreign and local investors who invest in hard currencies like the US dollars, for hard currency rental income streams and better yields on investment.  

Inside of Kampala’s Acacia Mall. Judy Rugasira argues that regulating commercial and residential tenancies under the same act is erroneous as the two have different arguments.

It would have been more practical to separate the act regulating commercial and residential tenancies, instead of having them regulated under the same Act. For obvious reasons, these tenancies are different and cannot be regulated the same way. The law regulating an apartment, will not be applicable to that regulating a shopping mall. For example, the capital costs incurred by a residential tenant to fit out their apartment with movable fittings, cannot be compared to those incurred by a retailer in a shopping mall. Some retail anchor tenants incur fit out costs of up to $5m! As such, the latter will require guaranteed tenure for the lifespan of their tenancy whereas residential tenants require the flexibility of notice periods. The bill as passed, has protected small traders from the fixed term of a lease but will impact significantly on commercial tenants as they are not in a position to set up business where they cannot guarantee the full tenure.

The cause of arbitrary rental increments, specific to Kampala City Traders Association (KACITA) tenants, is simply because the relationship between the landlords and tenants is informal. The tenants have no tenancy agreements, and landlords take advantage of this. Treating the symptom of increasing rents is pointless if the root cause has not been addressed. You cannot enforce the terms of a verbal agreement and this should not be an option if they hope to achieve their desired objective.  

Question, why are these challenges of arbitrary and unfair rental increments not seen in the more prime malls where tenants are paying dollar rents? Answer: because the landlord / tenant relationship is formal, contractually bound by a lease agreement which is signed by a willing tenant and willing landlord prior to tenant taking occupation. The terms and conditions of the lease are very clear, both parties know what to expect and there are no surprises. A landlord cannot decide to wake up one morning and shut down an entire mall (which has become a habit downtown) to settle scores with their business partners, leaving tenants totally helpless. Is this also because of dollar rentals? This impunity from landlords is because there is no legal recourse.

All attention and focus have been given to the issue of currency in which rent will be paid, and this seems to be the fulcrum on which the need for a Landlord and Tenant Bill is turning. However, addressing this issue alone is pointless, if other aspects of property management, and financing are ignored. As I have argued before, this issue is bigger than KACITA, and KACITA is not Uganda. Neither do they control the property market of Uganda. In fact, even their contribution to the tax revenue of the country is incomparable to property developers / owners of commercial properties in the country at large. 

How then do you ban dollar rentals, without giving due consideration to other factors in the property development cycle and value chain? It is inconceivable to outlaw dollar rents without bearing in mind the impact of such a regulation on the finance sector, and the economy as a whole. I am hoping that our Honourables are aware that dollar denominated loans are cheaper (8%) than shilling loans (20%), which is why most commercial properties are financed by dollar loans. This being the case, were the banks consulted on the feasibility of converting these dollars denominated loans to shilling loans?       In order for the borrowers to afford their repayments they will have to increase the rent extortionately and the tenant will pay the price. However, there is also a possibility that the banks will not accept to reschedule these loans. Have the repercussions of this been thought through? Or the fact that non-performing loans will increase, repossessed properties will become the order of the day; crashing the property market to smithereens?

Ruparelia Group’s recently completed multimillion dollar KIngdom Kampala Mall. Judy Rugasira Kyanda says that for Uganda to keep such investments flowing into the property market, any legislation should balance the interests of both tenants and landlords alike.

The arguments in parliament were that countries like UK, USA, Europe, China, insist on local currency rents. This is correct, but why? For example, the USD is found in a pair with all of the other major currencies and often acts as the intermediary in triangular currency transactions. This is because the USD acts as the unofficial global reserve currency, held by nearly every central bank and institutional investment entity in the world. It is for this reason that Uganda fixes her exchange rates to the USD to stabilize it, rather than allowing the free (forex) markets to fluctuate its relative value. Why is this the case? Because of the volatility of the shilling to many external factors. Pray I ask, is the shilling a globally traded currency? When our honourables travel to America, are they able to take shillings and exchange them for dollars at JFK Airport? Or London Heathrow for that matter? But you can exchange dollars in London, Japanese Yen in Switzerland, and the Euro in South Africa. The common thread being that these are strong, stable currencies.

You cannot pass a bill on the whims of 1 interest group (tenants) to the economic and social disadvantage of the rest of the country

No prudent investor will go to America, and get property development financing in Pounds Sterling or Euros, simply because it would not make any economic sense. It would be more expensive to borrow in any other foreign currency than the local currency – the USD. Why? Because the USD is a strong, stable currency, and there are several federal reserve banks with adequate deposits to lend at affordable rates. In Uganda it is cheaper to borrow in USD because the reverse is true. It will also make sense to make loan repayments in the same currency as you have borrowed, because 1. it is the terms and conditions of our financing institution and 2. dollar rentals are cheaper than shilling rentals because they are more stable (minimal fluctuation to CPI). At the end of the day, $10.00 per square metre converts to 37,550/- and can fluctuate up or down but mainly upwards, by up to 30% in 1 year. Rentals will still remain pegged to the dollar, but paid in shillings, subject to the exchange rate, and annual escalations on the shilling of over 20% to keep up with interest rates, instead of 3% escalations on the dollar as is the market rate. So, who will be most affected by the dollar rental ban? The bill attempts to limit the extent of the above collateral damage to the tenant by stating that rent increments per annum will be capped at 10%. Are they also going to cap interest rates?

I am sure the honourable Parliamentarians also appreciate why our finance costs are high? Put simply, our savings as a banked demographic are low, therefore banks do not have enough deposits to lend at affordable rates. They in turn need to borrow the money they require to lend to borrowers, and this comes at a cost (both of borrowing and hedge against forex losses). Shouldn’t we be focusing more on how we can increase savings and deposits as a means to lowering interest rates, and stabilizing the shilling?

The need to review this bill is not an option, it is a necessity, or our property market is going to be destroyed. The Uganda property market does not operate in a vacuum, and is a market which is open to both local and foreign investors, not just tenants. We must legislate for all with a long-term view on things. You cannot pass a bill on the whims of 1 interest group to the economic and social disadvantage of the rest of the country! China and America have shown increased interest in investing in Uganda’s real estate sector. I am not certain however, that with such legislation which makes the ease of doing business in Uganda rankings plummet, alongside facing the fear of being imprisoned for “annoying” a tenant, and the inability of a landlord to distress for rent pits Uganda as, an attractive investment destination for property. 

I am appealing to His Excellency The President of Uganda, not to assent to this bill in its current state. Property experts and professionals have offered their free services to help draft a better bill which will stand the test of time and encourage a vibrant property market in Uganda, but to no avail.

Author is Judy Rugasira Kyanda, MRICS

Managing Director, Knight Frank Uganda

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Finance

Oil Money will not be for Consumption or even Salaries – President Museveni

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President Yoweri Museveni while speaking at the Uganda – Tanzania Business Forum

President Yoweri Museveni has echoed that Uganda’s cash from the oil resource will not be used for consumption or even salaries to civil servants.

The President made the remarks on Friday while addressing the business community attending a 3-day Uganda-Tanzania Business Forum 2019 at the Julius Nyerere International Convention Centre in Dar-es-Salaam, the Tanzanian capital. The First Lady and Minister of Education and Sports Hon. Janet Kataha Museveni was among other cabinet ministers and private sector officials at the forum.

“Under my leadership, the money from oil will not be used for consumption or salaries. Why? Because it is a resource that is exhaustible and finite. One day there will no longer be oil. That is why I insisted that money from these resources should only be used to create durable capacity for the Ugandan economy namely; build power dams, irrigation schemes, the railway, scientific innovations and some aspects of education,” he said.

The forum is the first of its kind and was the initiative of the partnership of Tanzanian Private Sector Foundation (TPSF) and the Private Sector Foundation of Uganda (PSFU). It aims at offering a platform for the business community to share experiences, explore investment opportunities across borders, create business to business networks, identify and discuss challenges in the presence of the Heads of State and Government Ministers and policy makers.

The forum also lays emphasis on issues relating to the steps that can be taken to address and overcome the bottlenecks to the thriving of the bilateral trade between Uganda and Tanzania. Earlier, President Museveni and his Tanzanian counterpart, John Pombe Magufuli were conducted on a guided tour of exhibition stalls in which Ugandan companies and government ministries including Uganda Airlines, Uganda Investment Authority, Uganda Railways Corporation, Kakira Sugar Works, Stanbic Bank, National Social Security Fund, NITA, UCC, Ugandan Petroleum sector, the Ministry of Energy, and the National Oil Company, among others, showcased what they offer.

President Museveni said he is interested in learning the conclusions of the forum on topics relating to the attractiveness of the 2 countries as destinations of investments, harmonisation of the strategies and partnerships in the emerging data economy, trade and infrastructure, reducing the cost of doing business between Uganda and Tanzania and the local content as a key to the unlocking of the long term value in extractive industries.

The President and his host concurred on the plan to enhance water transport from the Port of Mwanza in Tanzania to Port Bell in Uganda adding that railway transport between the two countries would go a long way in promoting sustainable trade and investment between the two countries. Mr. Museveni revealed that the East African governments are working aggressively on power saying that in Uganda today total power generation will soon be 2,000 megawatts which will ensure reliable power supply transmission and the lowering of power costs for manufacturers.

President Magufuli described the 1st business forum between Uganda and Tanzania as a historical occasion. He thanked the organizers for effecting the forum and President Museveni for honouring it with his presence. “The cooperation between Uganda and Tanzania has been in existence since time immemorial even before colonial time. The borders cannot separate us. We shall continue working together in development,” he said.

He stressed that it was important for the two countries to strengthen their cooperation in development drawing on the potential of their own natural resources in the sectors of agriculture, tourism and manufacturing. President Magufuli revealed that to ensure faster movement of people and goods between Uganda and Tanzania, his government is going to institute only two checkpoints from Dar-es-Salaam to the Ugandan border.

President Magufuli added that measures are underway to ensure that goods move freely in the EAC region with a view to increasing trade and investment. “The room for investment is very wide for Uganda and Tanzania business sector. This bilateral forum should be promoted for our people in business. Let’s agree and do business and stop lagging behind in development,” he added.

The Tanzanian leader disclosed that President Museveni and himself took the decision and agreed to the building of an oil pipeline from Hoima to Tanga, one of the longest pipelines in the world, as a sign of commitment between the two countries. During the Forum, the two leaders witnessed the signing of a number of Memoranda of Understanding between Uganda and Tanzania in the fields of Agriculture, Foreign Affairs and Migration. President Magufuli also hosted President Museveni and First Lady Janet Museveni to a luncheon at State House, Dar-es-Salaam.

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MP Munyagwa Denies Bribery Allegations As Pressure Mounts On Him Over His Meeting With KCCA ED, Eng. Kitaka

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“Currently, COSASE is seeking the dismissal of Mr Moses Atwine, whose recruitment as KCCA Director Physical Planning, has been termed as “unlawful” because he does not have the requisite qualification for the job.”

On Monday, photos of MP Munyagwa and Eng Kitaka went viral on social media platforms with reports saying the two discussed how to strike a compromise on the on-going probe into KCCA staff appointments by the Committee on Commissions, Statutory Authorities and State Enterprises (COSASE).

MP Munyagwa in a private meeting with KCCA Acting ED Andrew Kitaka

Kawempe South Member of Parliament, Mubarak Munyagwa has since confirmed meeting Eng Andrew Kitaka, the acting Executive Director of Kampala Capital City Authority (KCCA) but refuted claims that their conversation was rotates around the ongoing probe into the authority. The MP currently chairs COSASE.

On Tuesday, Munyagwa told journalists at Parliament that the meeting captured on a CCTV camera at the Silver City Restaurant, Garden City, was not pre-planned because he was “only going to the gym when he encountered Eng Kitaka.

“I met with Kitaka nine days ago. The problem I have with Kitaka is the delay by the contractor to clear the Lubigi Drainage channel. This was not a secret meeting as some media houses are insinuating. How could I have a secret meeting at a balcony of a restaurant in broad day light?” Munyagwa said.

Currently, COSASE is seeking the dismissal of Mr Moses Atwine, whose recruitment as KCCA Director Physical Planning, has been termed as “unlawful” because he does not have the requisite qualification for the job.

Munyagwa says that despite KCCA spending Shs21 billion on the channel, several area of Kawempe South especially Bwaise, floods every time it rains, hence a need for KCCA to fix the problem.

Asked whether, their conversation did not touch issues of Atwine, Munyagwa said that  that Eng Kitaka tried to raise it but it was not necessary because the director (Atwine)“must leave office.”

“Kitaka tried to tell me to let the status quo remain but I told him no. I only want my drainage channel. There is no bribe I can solicit from Kitaba because he has nothing. I failed to cooperate with Jennifer Musisi, former KCCA Executive Director who had authority, why should I go with Kitaka who is also looking for survival?” Munyagwa added.

The COSASE chairman who says he is set to write to the Public Service Commission to terminate Atwine’s contract, alleges that it is the same director or his cohorts who might be playing the blackmail card against his integrity.

He insists that Atwine must leave KCCA because he never studied Physical Planning yet city dwellers must be assured of the quality of structures being constructed.

 Munyagwa said some people are trying to blackmail him by accusing him of “witch-hunting” people from other tribes.

He vowed to resign his position as COSASE chairman if any accounting officer of a government agency or department adduces evidence where he is soliciting a bribe.

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Finance

MP Mawanda Secures Leave to Introduce BOU Amendment Bill Aimed at Reducing Mutebile, Kasekende Powers

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BOU Governor Prof. Emmanuel Mutebile(L) and his Deputy Dr. Louis Kasekende(R)

Michael Maranga Mawanda, the Igara County East MP has been granted leave of Parliament to introduce the Bank of Uganda Amendment Bill 2019.

This bill follows a recommendation from the COSASE report calling on government to establish an independent board of directors of the central bank.

Micheal Mawanda Maranga, Igara East MP

It seeks to amend the Constitution following a resolution by Parliament on 28th February 2019 which sought to remove the Governor and the Deputy Governor from being chairperson and Deputy Chairperson respectively of the board of directors of the Central Bank.

“We have had problems of accountability where a budget is made by top management headed by the Governor and approved by the board headed by the Governor. If there is a mistake that is made by management and carried by the board, which is headed by the same person, we shall not be able to rectify this problem,” said Mawanda.

Mawanda added, “currently, there is no ‘second eye’ in Bank of Uganda. This is the reason we are seeking separation of powers where the Governor becomes the chief executive then an independent person is appointed to head the board which can oversee the operations of Bank of Uganda.”

The bill seeks to separate the fusion between the Bank of Uganda (BoU) management from the board of directors.

It also seeks to provide for the functions of the Governor and to provide for the Governor as the Chief Executive Officer of the Central Bank and to provide for the resignation of a member of the board.

Elijah Okupa (FDC, Kasilo County) said that in countries such as Kenya and South Africa where the governor is separate from the board, the central bank runs smoothly.

Recalling what he termed as trouble in Bank of Uganda, David Abala (NRM, Ngora County) also called for separation of the decision making function from administration.

“You cannot fuse administration with policy making; we know the trouble we saw in Bank of Uganda investigations; this bill is the medicine that will heal what we saw during investigations,” said Abala.

Jonathan Odur the Erute South MP who seconded the proposal says indeed the powers of the Governor and Deputy Governor needs to be checked.

Odur requested the house to allow Mawanda work on the bill because the Government has been slow.

David Abala, the Ngora County MP says there must be separation of Power, and the administration and policymaking cannot be fused together. Abala supported the move saying it will bring sanity to the Central bank.

The plenary chaired by Speaker Rebecca Kadaga approved the motion granting Mawanda leave of Parliament to proceed with the bill. Mawanda will now go-ahead to prepare the bill and present a certificate of financial implication.

According to the Bank of Uganda Act, the Central Bank Governor who is also the most senior officer in the bank also chairs the board of directors and is deputized by the Deputy Governor. The other members are the Secretary to the Treasury and directors from different departments in the bank.

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