#OutToLunch Houses depreciate if not well maintained

By Denis Jjuuko

There is a common theory that houses or real estate assets don’t depreciate. People who advance this theory usually compare it to cars, urging especially young people to first buy land and build houses (or buy houses) before cars. The argument is that cars depreciate whereas houses/land don’t.

They may have a point but only if you scratch the surface. Cars like land or houses appreciate though it takes a long term to do so. A 50-year-old car today, if it is in good shape, attracts a premium and could cost more than some car types that were rolled off the assembly line the other day. Land and especially houses depreciate too. A 50-year-old house if not well maintained loses its value. Land in some cases can lose value too. For instance, if an area becomes a slum, land can lose value.

Kololo and some parts of Bugoloobi are increasingly becoming commercial areas with bars dominating the area. Unless noise pollution is controlled, the properties especially residential ones can easily lose rental values. Imagine if you live on Bandali Rise in Bugoloobi today, accessing your home at night from around Thursday to Saturday is a nightmare as revelers in the area jam park the roads. There is noise too that will come from those area. Kololo is no longer quiet at night. Property owners may have to double glaze their houses to control noises from the mushrooming bars and restaurants in the area.

High rise buildings being constructed in the area may also lower the rental value in the area for those with non-storied buildings. You don’t want to be in a house where those in storied buildings watch whatever goes on in your compound and even inside the house from their balconies. So, to attract any tenant, you have to lower the rent.

Infrastructure changes such as a bypass that makes one area hard to access can make land lose its value. Converting a street into a one way road can also lead to a property losing value as traffic is diverted away.

Then of course, areas reach what I call price ceilings. There is a limit to how much people can pay for a property in a certain area. Today, areas like Kololo and Nakasero have reached their price limitations for an acre of land. It will take a long time for them to appreciate again.

It isn’t just such high end areas. If you look at residential areas where a 50×100 feet plot is going for over Shs150 million, they are about to reach their ceilings as well as people will start looking for alternatives further out than paying that. In such areas, appreciation is when you develop the land.

This means that if you buy in such an area today, your land won’t appreciate that much unless if you buy a sizeable piece such as an acre or more. This is because, they will be buyers such as organizations in need of bigger land in an area that is already developed. Anybody who has a single piece of five acres in Kololo, Nakasero, Bugoloobi, Lubaga or Ntinda can ask for a premium that somebody with half an acre can’t (if you look at the price per a decimal). So, there are limitations to the price ceiling theory I mentioned earlier.

What can one do to ensure the house doesn’t depreciate? Of recent there has been some tiff between the city authority and Watoto church which wants to demolish an old building for a hotel and conference centre. The argument is that the city needs its historical buildings. Like the 50-year-old car I mentioned earlier, an old building if looked after well can keep its price value or even appreciate.

This requires constant repairs and maintenance. If you keep maintaining the property such as regular application of paint, replacing broken toilets and fading floor tiles, the property will maintain its value and even appreciate. And it is cheaper to maintain than demolishing and building a new one.

If you are to sell, when a house is so dilapidated, potential buyers would only be interested in the land which technically means that your investment in the building wouldn’t be considered. You have probably seen people demolishing the building on the land immediately after buying it and then putting the land on the market. The reason they do so is because the building isn’t valuable at all. That means that the previous owner lost money when selling. So, if you don’t want your property to depreciate, regular maintenance is critical.

The writer is a communication and visibility consultant. djjuuko@gmail.com