Borrowing to finance land acquisition in Uganda: The financial impact and opportunity cost
January 24, 2024 - Unit Trust version.
One of the leading banks in Uganda has partnered with a land developer to offer a 3-year titled land loan to eligible customers. The customer is required to pay a 20% down payment, and the bank will finance the remaining 80% of the land value at a 19% interest rate on a reducing balance. The repayment period for the loan is 3 years.
In this article we look at Kawuku Bwerenga 50*100 Plots of land right now valued at UGX 60 Million per plot.
Any loan with an interest rate below 20% is considered a good deal by Ugandan standards, but this loan can still be expensive. Before you take out this loan to acquire land, here are a few things you need to consider:
Initial value of the land: The bank has provided the current value of the land from this particular land developer to be around UGX 60 Million. It is important to do your own research to ensure that you are not overpaying for the size and location of the land, as the initial cost will determine the total amount you pay. If you go through the bank-funded land acquisition process, you will not be able to negotiate the price.
Value of the land vs. the total amount you will pay over the loan period:
The current value is UGX 60 million. The bank will finance you UGX 48 million, and your monthly payments will total UGX 1.76 million. After 3 years, you will have paid a total of UGX 75.3 million. (Other loan fees not considered). Before you take out this loan, make sure that the land will be worth more than UGX 75.3 million in 3 years, or else you will have paid too much for it.
Your payment Schedule would look like this for the next 3 years.
Opportunity cost for the taking the loan.
For the same period and same amount of cash, If you were to invest in unit trusts instead of taking out a loan to buy this land, matching the loan outflows coin for coin to a Unit Trust Investment, you would have around UGX 92 million plus in 3 years (By December 2026) the time you would have been finishing to pay off the loan.
Unit Trust Investment growth.
The first Month considers the 20% deposit you would pay on the land (12 Million) and the initial UGX 1.75 Million initial loan payment.
This may seem like a more attractive option, but if your goal is to own land in Kawuku, which option is better? The one where you take out a bank loan and pay UGX 76 million for the land over 3 years, or the one where you invest in unit trusts for 3 years and end up with UGX 92 million, which you can then use to buy the land all at once with a possibility of even having some balance?
This is a question that can be answered differently for different people, and you may want to consult with a financial advisor to get personalized advice.
Happy investing!
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I hope you have a great week and potentially invest in Uganda’s Capital Markets.
Alex Kakande
This comparative analysis is a good one.
It helps the reader look through the data and make an informed decision.
The pressure to buy land NOW! is something that has been engrained in our cultural upbringing. An asset that some sees is what we have been taught to appreciate more.
In this era of Unit Trust Funds and more financial education.
I see people waiting for three years or more to have the purchasing power to buy these properties and more.
The question then is, can someone wait? Can they be patient to consistently put the same money aside to invest it and have that 92 million.
I was once denied a loan by my bank. I decided ask my friend how much he would pay every month. I chose the option of saving that same amount for 3 years, I only wished I had put it in a Unit Trust fund that would give more interest. It was in a high yield target savings account. But still with that strategy, I bought land debt free and build our home debt free. It's possible. It's about will power and being consistent.
You pushing for unit trusts .Have you taken keen thought of these companies make money? where they based ? who owns them ? Are they listed?
i would rather fly to nairobi and buy a numberal of shares in these companies/ check with dyer and blair Uganda. than getting 10% -12 % on my money HERE
AND YOUR ANALYSIS IS ALWAYS ONE SIDED.
YOU ASSUME LAND WILL NOT APPRECIATE IN VALUE..
TRY ENGAGING WITH Ugandans who are in land buisness or you can compare notes with your landlord.
Making money in Uganda is difficult no need of sophisicated excel sheets to make high return on investment.
IN 10,000 ULTRA WEALTHY UGANDANS, YOU WILL NOT FIND ANY CFA.
IN MY EXPERIENCE land will give you high return on investment than unit trusts.
here is my score card in land buisness in Uganda
30million -2 billion
100million -400 million
100 million - 900million
500 million - 10 billion
1.8 bLilion -31 billion
i look foward to 200 billion GOD WILLING.
IM STILL OPTIMSTIC ON UGANDAN LAND.
WE ARE FIRST GENERATION WELATH CREATORS/HANDAFUL OF THEM
HUGE YOUTH POPULATION EARNING LESS THAN 400,000 UGX LOOKING FOR WHERE TO SETTLE ,TO EARN AND LEAVE SOMETHING TO THE NEXT GENERATION.