By Stephen Wandera
KIU, Main Campus - Assets quality in the real estate sector declined in value for the first time in the half-year ended June 2020, according to the Bank of Uganda.
The decline, according to the Bank of Uganda Financial Stability Review June 2020 (Page 2), presents “risks to credit performance arising from the real estate sector, which is experiencing a decline in the price of residential properties and land.
For instance, the report indicates, during the period, the threat was most exhibited in a decline in the prices of residential property, which fell by 2.9 per in the first half of 2020. The decline presents a risk in timely loan servicing, especially in the real estate sector, which according to Uganda Bankers Association currently holds the biggest share of restructured loans.
Speaking during the fourth Economic Growth Forum in Kampala last month, Wilbrod Owor, the UBA executive director, said 50 per cent of the loans restructured in April, May and June were in real estate and trade. This means that the two sectors hold at least Shs2.95 trillion of the Shs5.9 trillion consolidated loan amounts that were restructured in the three months to June.
During this period, the Bank of Uganda said, the ratio of non-performing loans had increased from 3.8%in June 2019 to 5.8 % in June 2020.
The increase was blamed on deterioration largely coming from real estate, trade and commerce, and household sectors. The real estate sector continues to record some distress given the number of property disputes currently in the banking sector, arising from default on loan facilities advanced in the last two years.
However, COVID-19-related disruptions have created more distress and there is a likelihood of an increase in property disputes going forward.