Saturday, November 25, 2017

Why selling Lugumi property is difficult


By Alex Malanga and Gladys Mbwiga

        Dara es Salaam. A liquidity crunch and tax crackdown fears are being sighted as reasons why no buyers have so far been found to purchase real estate properties belonging to businessman Said Lugumi.

The properties located at JKT Mbweni and Upanga in Dar es Salaam have failed to attract succesful bidders at three different times, including yesterday.

The up-market properties put under the hammer after Tanzania Revenue Authority accussed Mr Lugumi of tax evasion were over two weeks ago the centre of drama when one Dr Louis Shika was arrested and questioned over a non responsive bid of more than Sh2 billion for the two mansions. A third one, also in JKT Mbweni was bought for Sh1 billion during the second auction.

Dr Shika who has since becone a public sensation drew murmurs when he bid for the three houses for a total of Sh3.2 billion, monies which he claimed would be sent to him from unknown foreign associates. His story has since metaphorsed into a dramatic tale of a Russian trained medic who apparently got entangled in the underworld of business before he was controversially deported to Tanzania.

Yesterday analysts who talked to The Citizen explained what in their view could be behind failure by prospective investors to snap up these prime properties located in the prime areas of the city. Yono Auction Mart have been forced to suspend the open sale as potential buyer failed to reach the unspecified offer price said to be in the region of Sh900 million for each of the properties.

The highest price offered during the three auctions in September 7, November 9 and yesterday for the Upanga-based house stood at Sh700 million, Sh1.2 billion and Sh650 million respectively.

On the other side, the highest price for JKT Mbweni-based house in the three auctions stood at Sh450 million, Sh900 and Sh510 respectively. The highest bids were those from Dr Shika who was brieftly detained by the police and released without charges. He was a no show for yesterday’s auction.

Economist and business expert Dr Donath Olomi said liquidity problems currently being experiencedc in the economy has taken a heavy toll on Tanzania’s real estate. He attributed the problem to government’s measures to drastically cut unnecessary expenditure, a sustained war against corruption and the relentless crackdown on tax evasion.

According to Dr Olomi, high end properties were lacking buyers or tenants given that those who were accumulating unexplained wealth have diminished or gone under. He said said some people might be able and willing to buy but are scared to do so in fear that they might be asked by the government to explain where and how they got the money.

“Tax regime is now followed up very closely, so by spending huge amounts of money you are exposing yourself to the taxman,” noted Dr Olomi.

“It is not only Lugumi’s houses which are suffering from economic hardships but the whole industry.”

Similar sentiments were echoed by property consultant Sultan Mndeme, who said the government’s fiscal policies were to blame for the problem.

“People’s pockets are empty. The government has taken most of the money in circulation to its own basket,” said Mr Mndeme. He said majority of sectors were now formalised to leave no loophole for tax evasion. He also linked the inability to get customers of the properties with the government’s move to send parking ghost workers. This particular loophole enabled some public employees to accumulate billions of shillings in loans which they used to invest in areas such as real estate. It has been reported that local banks are owed nearly Sh50 billion by some of the workers sent home or those whos used ghost salaries to borrow heavily.

Sinai Tanzania Solution Company director Maxmillian Matala was also reading from the same script on the grounds that it was now not ideal to invest in real estate. “Practicisoners in the real estate have lost the appetite to invest, and so are the other investors. This is because the expected return from the industry is currently unpredictable,” said Mr Matala.

He said there were no new projects which had been developed by real estate practicioners since the fifth regime came into power over the past two years.

He attributed the performance to difficulties in getting money or loans and how to justify them to the government.