In a letter to the chief executives of commercial banks, credit institutions, and microfinance deposit-taking institutions, BOU said “Current projection and market intelligence indicates that Covid-19 pandemic might in the near term potentially lead to a double-digit decline in real estate valuations.”
House to let in Kampala. BOU says value for real estate could decline in double-digits. Photo by Knight Frank
could see the value of their assets in the real estate industry, including land
and houses decline as a result of the Coronavirus (COVID-19) disruption, Bank of
Uganda has warned.
decline, the central bank says could be in double-digits meaning it could go in the highs of 10 per cent and above.
In a letter sent out this week to
the chief executives of commercial banks, credit institutions, and microfinance
deposit-taking institutions, BoU said “Current projection and market
intelligence indicates that the COVID-19 pandemic might in the near term potentially
lead to a double-digit decline in real estate valuations.”
has taken away demand or made people postpone their plans to purchase or rent
some of the properties. BOU said
this means banking asset quality will reduce. The assets Ugandans offer banks as collateral
in order to borrow will also see a decline in value while losses to the banks on
loans might increase.
sector capitalization would be negatively affected and vulnerability of the
sector increase,” said BOU. This has the potential to see some banks fall below
the minimum capital requirement.
From June 1,
2020 BOU set the maximum limit of 85 per cent on the loan value ratio (LVT) for the
residential mortgages and loans for land purchase, wherein value means appraised
market valuation. This means that
the bank can only offer 85 per cent value of the property as a loan and you have to pay
from your own money the reminder 15per cent.
banks that have been offering up 100 per cent value of the property as a loan. This is
not allowed now.
In a zoom
discussion on Tuesday, Judy Rugasira, the managing director Knight Frank, said organizations and companies were asking landlords in a commercial building to
allow them to reduce the space they have been renting. This is mainly to cut on
the bill they pay.
said, many residential buildings had remained empty because they hardly took
anyone for views or some people changed their minds about moving into new
uptake and demand for the properties reduce their earning power and owners are
likely to default on their loans. Things might not change at least for the next six months, " said Rugasira.
On the borrowing side, reduced values of properties mean borrowers will either be getting less money or expensively.