Property owners are taking advantage of the battered shilling to charge exorbitant rental fees
On average Jimmy Mugira, a designer operating in Printers’ Arcade along Nasser Road has been paying $1,025 monthly for the two roomed (5sq meters) premise on the second floor.
“The previous quarter of May, June and July, I paid $1,054 per month when the dollar was Shs 2,850; during the month of September, I paid $1,045 when the rate was at Shs 2,870,” Mugira said.
The desire by Kampala’s property owners to be paid in dollars might be their right in a liberalized economy governed by forces of demand, but it is one factor that has escalated the cost of doing business in Kampala. This trend has forced many people out of business due to the fluctuation of the dollar on the international market, and made others resort to selling on the streets, which have been now cleared by the city authorities.
Mugira said that in the past, he was paying a standard Shs 3,000,000 per month and this worked out without hindrances, but since last April the landlord told him to pay in dollars, a demand he could not object to because his tenancy agreement lacks a clause about the currency to use.
Asked what impact this has on his business, Mugira said, “Certainly we do pass it on to the consumer. It is natural that any business exists on making profits and retaining much of it. So that explains the ever-soaring prices for our consumables.”
Swaibu Mulekwa, who rents a shop in City House along Luwum Street said property owners claim that their demand to have rent paid in dollars comes as a result of the depreciation of the shilling since late 2009. The effect is price instability.
Hanah Kwagala who imports domestic hardware and rents a shop in Kikuubo at an average of $1,350 argued that while Uganda’s economy also suffers global effects, nothing explains property owners demanding rent fees in dollars.
“Before they changed to dollars, I was paying Shs 3,350,000 per a month till February 2010. But depreciation of the shilling makes me pay anything between Shs 3,500,000 and Shs 3,850,000,” the 56-year-old Kwagala explains.
“What explanation do the property owners have for their demand, apart from finding it a better way to enjoy better value in dollars than in shillings? How are their properties, which have been standing for decades, been affected by fuel prices – one of factors governed by the strength of international currencies?”
According to her, these are some the internal problems contributing to the high cost of doing business in Uganda, which government has done nothing to alleviate. Meanwhile the traders too have to recover their operational costs by factoring it into the final prices for every item.
In a seemingly rehearsed answer, property owners ranging from small scale to large scale reached for a comment about the issue of paying rent in dollars attributed their actions to economic volatility.
“The economy is so volatile, with the shilling increasingly battered by international currency which poses losses, and the only way within our means to avert it is to compel our tenants to pay in dollars,” said Gupta Rajiv, owner of a mall on Wilson Road.
Asked of the recent impact, Gupta lamented, “I realize some of my tenants are leaving my shops because they cannot pay, and others are joining their friends who are sub-letting shelves and thus you find one shop rented by one person but also sub-let to others.”
According to Knight Frank, one of the leading property management firms in Kampala, the trend is that one retail unit of approximately 10 square meters is subleased to five tenants as “stalls.”
“This makes the high rents quoted more affordable. We are of the opinion that these high rents will not be sustainable in the longer term and there will be a downward market adjustment as more modern and functional malls are constructed in future, closer to the consumers in the suburbs,” an official of the firm who preferred to remain anonymous said.
He added that “the prime retail malls within the Central Business District have reached rentals of between $25 – 30 per square meter per month inclusive of service charge. Anchor tenants are usually able to negotiate relatively lower rates, owing to the large space that they occupy and their covenant strength.”
Efforts to contact government authorities ranging from urban authorities to government economists at ministry of finance were denied.
However an official who preferred anonymity, claiming he was not authorized to speak to the press, said, “I tell this in confidence. Nothing else explains the behaviour of property owners but the urge to earn in better value and keeping it in international currencies.”
Asked what government can do, the official said that “the only thing government can do is to rescue the shilling from further battering by international currencies, but we cannot put a stop to it even when the shilling is stabilized for a century.”
By Sam Simba Ntale