Rwandan banks have started rolling out financial products tailored for real estate developers intending to construct low and middle income homes, which are currently in short supply.

(Read: Inflation bites Rwandan homes and businesses)

Tenants in Kigali have had to put up with regular increases in rent due to a shortage of low-cost housing. While Rwanda’s construction sector continues to thrive, growing by about 22 per cent last year, most of the construction is of commercial buildings. The few real estate developers who have ventured into residential housing have focused on the upper end of the market, creating a chronic shortage of low and middle-cost housing.

While between 8,500 and 10,000 units are needed for Kigali and 15,000 units for the rest of the country’s urban centres, supply is currently estimated at 200-300 units annually.

In a new move that is expected to attract developers to low-cost housing, commercial banks have unveiled home products specially designed for this purpose. Kenya Commercial Bank (KCB) Rwanda and Commercial Bank of Rwanda (BCR) have taken the lead by repackaging their home loan products.

To increase the uptake of mortgages in the wake of rising demand for housing, KCB Rwanda now offers the full amount of the mortgage to the borrower as opposed to the market requirement equity contribution of 30 per cent of the value of the property. The product is being offered in partnership with local insurer Soras Assurances Generales Ltd, which will provide insurance cover for the mortgage.

BCR has partnered with Soras and South African firm Home Finance Guarantors Africa Reinsurance to allow relatively low income earners to make the 20 per cent deposit to qualify for the mortgage.

“As bankers, we did not have a project for mortgage finance for the lower to middle income levels of society. Most of our mortgage loans are at a higher level — Rwf50 million ($80,500) and above — so we have focused on that,” Sanjeev Anand, managing director of BCR, told The EastAfrican.

Mr Anand, also the current vice president of the Rwanda Banker’s Association, said there is an “oversupply” of high-end housing.

Cost of borrowing

While the premium cost of the insurance cover has not been disclosed, KCB’s mortgage loan currently comes with an interest rate of 15-16 per cent per annum. However, real estate developers and dealers say it will take a long time before developers begin aggressively constructing low-cost houses as accessing finance locally is still a challenge and it is also very costly to borrow.

In addition, Rwanda faces a critical shortage of construction materials locally, with over 80 per cent of the construction materials imported from neighbouring countries and abroad.

“Affordability is still an issue because even Rwf55 million ($88,500) is a lot of money; we need to find a way of making the houses more affordable,” said Charles Habra, a real estate dealer in Kigali.

KCB Rwanda and BCR have also increased the tenure of the mortgage to 20 years to make it affordable and easy to repay, though on average most banks with home products offer up to 15 years.

While KCB Rwanda’s product is targeting income earners with a gross income of Rwf1.8 million ($2,900) and a Rwf45 million ($73,500) value for the property, BCR has put a ceiling of a gross income of up to Rwf2 million ($3,200) per year with the property value not exceeding Rwf55 million ($88,500).

“The biggest challenge is on the financing side, unless we find an external financier. If you look at the local interest rates we cannot go for affordable housing because the cost of borrowing is too high. To make a profit, the pricing will definitely have to be higher,” said Patrick Sebatigita, managing director of Ugenge Ltd, a local real estate firm.

He said his company has accessed financing from Shelter Afrique, co-financed by Eco Bank, to the tune of $8 million.

Ugenge is in the process of completing 32 units in Palm Estate — currently the cheapest on the market with two-bedroom residential units going for Rwf28 million ($45,000). All the units are booked.

“We sold them off plan and we are now in the process of building them; the units will be ready by the end of this year,” said Mr Sebatigita.
He also observed that access to quality construction materials on the local market is still a challenge.

“If you consider raw materials like cement, the capacity of our local manufacturers to meet demand is low,” he said.