|The purpose of the study was to portray the effect of interest rates on the growth of commercial real estate market in Kampala-Uganda. The real estate sector being one of the major sectors of the economy in Uganda has been largely affected by fluctuating interest rates. The study sort to show case this effect by showing how growth of commercial real estate market is affected by the interest rates. Real estate is a large investment which requires huge capital that most ordinary Ugandans cannot raise, therefore they turn to banks to finance this cost of construction or purchase. The cost of borrowing in all banks is driven by the real interest rate which is fuelled or largely accommodates inflation. Inflation is the key driver of interest rates.
The target population of this study was the 10 top mortgage lending banks in Uganda as at March 2019, and 6 real estate developers as all were analyzed to solve the research problem. Data for the purpose of the study was collected using data interview guides in mortgage lending banks that have been running the mortgage product from 2010-2019. In addition, Questionnaires were also used on a sample of 6 property developers where 2 respondents from each company responded.
Study findings indicated that when interest rates are lower, people are generally more willing to take out a mortgage for commercial real estate purposes which include among others tenants renting for commercial office and retail space, investors setting up more commercial developments to meet the demand than when rates are higher. Though higher interest rates typically mean a cooling of demand for real estate.