Several years ago, when I first ventured into the Ugandan real estate market, a common practice among real estate agents was to top-up property prices with their commission. This practice resulted in each agent having their own price for the same property. Back then, it seemed like a normal part of doing business, as landlords were often unwilling to pay commissions on their quoted prices.
Agents resorted to topping-up property prices in order to secure their commissions, and the more they added, the more they earned. However, this practice had its downsides, including the hardening of landlords' hearts, locally known as "Okuzimba Omutima."
As a proponent of capitalism and a believer in free market economics, I initially saw no issue with agents topping up prices. Buyers willingly paid the quoted price, and yet they had plenty of options to choose from. Moreover, topping-up property prices was not illegal.
However, times have changed, and this practice has become increasingly rare in favour of commission as a percentage of the sale price. In this blog, we will explore the reasons behind this shift in the Ugandan real estate market.
1. Emergence of large-scale Developers:
One significant factor that contributed to the decline of price topping was the emergence of large-scale property developers. These developers built numerous apartments and were unwilling to let agents set different prices for similar properties. To maintain a competitive edge and uphold their commitment to affordable housing, developers encouraged uniform pricing. Divergent prices for identical apartments within the same complex frustrated potential buyers and discouraged the practice of topping-up.
2. The Rise of Real Estate Portals:
The spread of the internet and the emergence of real estate portals like Lamudi, Realtor Uganda, and the Real Estate Database (RED) revolutionized the way properties were bought and sold in Uganda. These platforms allowed buyers to search for and compare prices of identical or similar properties easily. Agents who inflated prices found it challenging to compete when their listings were significantly higher than those of other agents on the same platform. Transparency and price visibility became key factors in property transactions.
3. Market Saturation:
In some areas, the property market became saturated with available properties. Oversupply reduced the ability to create artificial scarcity and drive up prices through topping-up. The abundance of options and increased competition among sellers put downward pressure on property prices, discouraging the practice of price topping.
4. Focus on Affordability:
Buyers shifted their focus towards affordability. When property prices became excessively high relative to the average income in Uganda, it limited the pool of potential buyers. This affordability constraint discouraged agents from inflating prices, as it could lead to properties sitting on the market for extended periods.
5. Reduction in Speculative Buying:
Speculative buying, where investors purchased properties solely for the purpose of selling them at a higher price in the future, was a driving force behind property price inflation. However, speculators have become less active in the market, resulting in a cooling effect. This reduction in speculative activity has contributed to more stable property prices.
Conclusion:
The practice of real estate agents topping up property prices in Uganda has evolved significantly over the years. While it was once a common practice driven by market dynamics, several factors have contributed to its decline. These include competition from developers, the rise of online real estate portals, market saturation, a focus on affordability, and a reduction in speculative buying.