One great advantage of living in a developing country like Uganda is this very fact; that it is developing. Opportunities abound. We don’t have the challenges that most developed countries have where economic development seems to have reached a plateau. Their populations are aging, birthrates are plummeting and the future looks bleak.
In Uganda, the opposite is the case. More than 50 percent of the population is under the age of 18. Birthrates are accelerating. Our population is growing at more than three percent per annum, being one of the highest in the world. And therein lies the endless investment opportunities, especially in real estate.
As Uganda’s population increases and arable land reduces, more and more people will likely run to urban centers looking for opportunities. A study by Broll Uganda shows that in the new cities and other large towns with significant economic activity, the renting population is continuing to increase, driving demand for more rental homes. The trend across the country has always been that there are more owner-occupied homes than rented ones but experts say the last 10 years have shown a spiking growth in renter-occupied homes. Rural-urban migration is causing this trend.
But it is not just the reduction of arable land in some areas that causes the youth to move to the towns. As the fire of modernity continues to rage, more and more people will choose town life over village life because of the rise of communication technology. The ubiquitous nature of the smartphone has exposed the youth to enticing lifestyles far away from their villages.
The youth are constantly being exposed to the allure of urban life through TikTok, Facebook and WhatsApp. The town is calling more than the village is pushing away. Urbanization is projected to grow at an accelerated speed going into the future.
According to Acode, Uganda is currently experiencing rapid urbanization estimated at 20%, and that by 2050, it will be among the most urbanized countries in Africa (GoU, 2017). In Uganda, urbanization has been looked at a prerequisite for the country to achieve upper-middle-income status as part of achieving Vision 2040 (MoFPED, 2016). The fact that there are always better chances of making quick money in urban centres will always drive the youth townward.
With time, small trading centers 100 km away from the nearest highway will soon become towns. Towns along the highways are already becoming major economic hubs. Fifteen years from now, today’s dusty small towns in the middle of nowhere will be the bustling town if the trends remain constant. The rapid transformation of towns around Kampala over the last 15 years years should tell you everything you need to know about these trends. The future is urban.
Small towns to watch
Having said that, today is the day to invest in small, far-flung towns in the middle of nowhere. As major towns and cities become saturated, expensive, and competitive, the smart investor ought to look towards the towns that no one cares about today. These small towns are scattered across the country. Towns like Ngoma and Kapeeka in Nakaseke show signs of rapid growth in the near future. Towns such as Mpara in Kyegegwa are vibrant because of all the donor aid coming in for the nearby refugee settlement.
The list is endless.
Small towns offer lower prices for prime land, they experience high demand for decent hotels for travelers, and they have a growing demand for modern commercial and residential properties. These are just a few of the reasons why you need to consider investing in unknown small towns today.
Affordable land
For any first time investor with beginner resources and a big dream, small towns are the best investment destination. As land in major cities and towns becomes prohibitively pricey, most first-time investors have no chance to compete. Fortunately, land in smaller towns far away from the cities is affordable. These small towns lack decent hotel accommodations and modern commercial properties yet they are vibrant and growing fast. Many such towns are surrounded by vibrant farmer communities and healthy local economies.
Attractive rental yields
The fact that the price of land, labour and building materials are cheaper in smaller towns means that the rental yields will likely be more attractive. As young people move into towns, demand for commercial and residential homes increases. In some small towns, rental demand is steadily growing due to local employment hubs like universities, new nearby industrial parks, commercial farming and growing populations.
Lower competition
Established property investors compete fiercely for prime properties in major cities. This is what drives the prices to the stratosphere, leaving first-time investors in the dust (literally). However, in smaller towns, there’s barely any competition as few investors are interested in those towns. This gives you a better chance to negotiate favorable deals that will yield higher returns as time goes by.
Higher return on investment
Land prices in small towns are very attractive even when development is rapidly happening. You have better chances of buying prime land along the main road in a small town today whose value appreciation will go skyward in a few years.
Vacation rentals
Many small towns lie in the idyllic countryside surrounded by farms, virgin lands in the middle of nature. Some towns are located near rivers, lakes, hills and beautiful farmland, all of which are attractive to vacationists and tourists. Additionally, there are also better chances of finding larger tracts of land in smaller towns than in larger cities. Such large plots are ideal for investing in such hospitality ventures that might pan out to be a lot more affordable and lucrative.
Lower operating costs
From taxes to maintenance, operating costs are typically lower in small towns. Labor also tends to be a lot more affordable in small towns because chances are the workers don’t the burden of rent and other big town bills. Combined with sustainable real estate practices like energy-efficient upgrades, these savings can increase your net returns over time.
Country home
Not everyone has the luck of inheriting ancestral land where to build a country home. Additionally, there are people who grew up urban neighborhoods that have completely turned into city suburbs and yet yearn for a quiet country home for when they are tired of the noisy city. Small towns are perfect for such investments because they offer the best of both worlds. A quiet life not too deep in the village.
Farm house
The outskirts of small towns are surrounded with farms ready to change hands with the right offer. If you have always wanted to own a farm or a farm house, small towns are the places to go because land is not only abundant but cheap in comparison to the case in larger towns. When you have spent all your adult life in the city, a time comes when you start to yearn for the slow life at a farm. Investing in a farm near a small town helps you to have access to necessities like piped water and electricity. As big towns become crowded and loud, those looking for quaint lives must look to small towns. Running a farm while working remotely might be the big break in life you have always hoped for.
Risks involved
Any investment comes with its share of risks, and small-town real estate investing is no different. The market will likely be slow-moving due to less demand, and property resale might take longer.
Fraud
Alex Mugabo, a land broker dealing mostly in farms says that land fraud is as bad in small towns as it is in big ones. He advises that you take extra caution as some of these lands deep in the country usually have family wrangles surrounding them.
‘Having a lawyer during the entire process is a must as you will likely bump into legal problems if you close your eyes at any one time,’ Mugabo says.
Poor infrastructure
Infrastructure like roads, piped water and electricity are often nonexistent in smaller towns. Accessibility can be tricky. But that is why one must pay attention now because things change as soon as the main road is tarmacked.
Low economic activity
Small towns often lie in the quiet countryside where very little economic activity takes place. Because of this, economic vulnerabilities and limited growth opportunities will be inevitable but that, probably, is only for the first few years. Urbanization is the future and the small town will grow with time.
Factors to consider
For better chances of profitability, the choice of which small town to invest in matters depends on various factors of which main ones include:
Proximity to city
While the town itself might be small, its proximity to larger cities or areas of growth can significantly impact property values. This should not deter you from small towns far away from cities as they always have so many gaps waiting for you to fill them and smile to the bank.
Property type
Know the demand – is it for single-family homes, townhouses, or apartments? Is it more advisable to invest in a farm or in a hotel? Some towns might have high demand for affordable single rooms (mizing) for the young factory workers like Kapeeka in Nakaseke while other towns like Mpara may need commercial properties or even hotels.
Local economy
A stable local economy, even in a small town, can attract residents and fuel rental demand. For instance, no one cared about Kapeeka until the government build a large industrial park in the area about ten years ago. Then everything changed. Now Kapeeka is a hotbed of real estate development, from rental to commercial to industrial.
Growth trends
Consider population growth trends, local policies, and infrastructure development plans. Towns that are about to get a tamarc road for instance are great to invest in because value appreciated will take a much shorter time as soon as the road gets paved. Towns very close to new industrial parks or universities will start growing rapidly.
While there are unique challenges associated with smaller town investments, understanding the real estate market and exercising due diligence can lead to impressive returns. Always remember that every small town has its dynamics and market characteristics. Research well, understand the pros and cons, and more importantly, know your investment goals. Small-town real estate investing can indeed be a profitable venture when done right.
Take time to analyze your options, study the market trends, and opt for a sound investment strategy. In the vast world of real estate investing, sometimes, ‘less is more,’ and small-town real estate investing might just be the road less taken that leads you to your pot of gold.