The above question is one that many Ugandans willing to invest in the above topics can’t really seem to answer and therefore make the correct decision. However, worry not because one of Uganda’s top financial consultants, Alex Kakande took the initiative to break the topic down and compared Treasury Bonds, Land and Unit Trust.
According to Kakande, he had a discussion on the long-term Investments between constructions of a family house or investing in a Treasury Bond that ignited a conversation in many spheres he’s in. there are those who are more inclined to Land as an Investment component especially on the capital appreciation of land/RE which is truly valuable.
He went ahead to say that “In Uganda, many of us have invested heavily in real estate because we believe it is the best low-risk, low-activity investment even when we have seen more fraud cases and land wangles in the last 5-10 years than never before.”
But what does the data say? This article by Kakande focuses on a particular class of Ugandans with ready cash to buy everything and particular locations. Prime locations like Kyanja, Kungu, and Kira are some of the best places to buy land and majority of the Moneyed people have almost bought this north metropolitan Kampala out.
Case 1: In July 2015, a plot of land in Kyanja was selling for 380 million shillings. This is the quoted public price, but my research indicates that such a plot sold for between UGX 300 million and UGX 350 million. For this discussion, let’s assume the price was UGX 300 million. Quoted price of 60 decimal plot in Kyanja.
“From an online survey and in some groups I’m in, I asked how much this plot of land would go for right now, 10 years later, and answers ranged from 600 million to 750 million. My closest estimate of the current sale price might be around 600 million shillings at the lowest and 800 million shillings on highest.” he stated.
This means that a plot of land that cost 300 million shillings in 2015 (as above in picture) is now worth at least 600 million shillings, doubling in value. At best, it is worth 750 million shillings, a significant increase. But this is one portion of the land/RE investments. Because Land Investments are heterogenous, some plots of lands can even take more than 5 years to double value while others take even 2 years to double value.
Which would require you to make the right investment decision, doing enough survey, using experts to ensure you get the right land deal that will make you money in the timeframe.
Before you deploy capital in some areas, when it comes to Land, ask yourself if the location is on a start-up level (higher risk of value growth but not yet good for development) or Maturity level (lowest risk of value growth of Land prices but good for development of like apartments)
What if you had invested this money in other products? What would have been the return? Unit Trust: If you had invested 300 million shillings in a unit trust with the lowest return over the same 10 years, you would now have 780 million shillings with an average return of 10.5% per annum.
With an average return of 11.5% per annum, you would have 950 million shillings by end of 2024 and that value would be racking in on average 8 million per month in income without any struggle or risk of worry of land grabbing,’ he writes.
That’s to say, in the last 10 years your value in the Unit Trust, without any extra fees or any addition would have increased from UGX 300 million to over 950 million to enable you to go buy that similar plot of land that was being sold at UGX 300 Million but now going for around UGX 750 Million with a balance of around UGX 200 Million to your pocket.
Then there is an element of liquidity, that you can easily access all your money from a Unit Trust account whenever you want, something that might not easily be the case with a land investment, and if you want to sell off land quickly, you might have to take a haircut.
Treasury Bond Investments: If you had invested 300 million shillings in a treasury bond in 2015 (the comparable bond at the time, UG0000001517, had a coupon of 17% for a 10-year treasury bond issued in 2015).
But for Conversation, let’s cap the net return to 14% interest it has been in the last 15 years for long term treasury bonds. But note, Treasury bonds over the last 10 years have even seen returns as high as 17% that would literally help an investor double their money almost every 5 years.
“So, if you invested 300 Million in a 10 year plus bond in 2015, while re-investing the coupons of around UGX 42 million per year to allow the value to compound, you would have an average of UGX 1.2 Billion in total Treasury Bonds Value that could be bringing in over 120 Million in profits annually and doubling in value every 4 years to grow to up to 4 billion in 2035 and over UGX 9 billion by 2040, a value that is far outpacing the value realized in a land investment,” Kakande further explains.
“Where do you want to invest next if you have cash at hand and your goal is to invest for the long term (over 10 years)? Buy land, invest in a unit trust, or invest in bonds? This question is not as straight forward as it seems since many of us might be investing for different reasons, but if I’m to bet and want to maximize return while minimizing risks in the longest run” he stated.
ALSO READ: Traders in Uganda to Temporarily Suspend Strike After Meeting President Museveni
Or grow my value before I take on more risky ventures? I would go and Invest in Treasury Bonds or Unit Trusts. If you enjoyed this letter, please consider sharing it with your friends and families, I hope you have a great week ahead and potentially invest in Uganda’s Capital Markets.
