The World Bank’s long-term credit line to finance low-cost housing in Rwanda is expected to expand the banking industry mortgage book from $150 million to $300 million.
The Rwanda government and the World Bank Group signed a $150 million credit agreement to expand access to housing in Kigali this past Thursday.
Banks to benefit from the credit line are expected to put up a 50 per cent contribution. This will create liquidity in the mortgage market.
The credit line will be available to banks, individual home owners and property developers.
Currently, the Rwanda mortgage industry is skewed towards the middle and upper market segment.
The World Bank country manager for Rwanda, Yasser el Gammal, said the mortgage lenders have benefited only two-three per cent of the population.
Wooing private sector
These are salaried employees earning over Rwf700,000 ($795) per month, leaving out the majority of the population.
“This project is expected to provide six thousand new housing loans to targeted households thus creating incentives for private sector participation in the housing market,’ said Mr Gammal.
Kigali city suffers an acute a shortage of affordable planned housing, with officials estimating that at least 350,000 units are needed by 2022.
“The facility will also create a socio-economic transformation at a household level, which is achieved by spending less of monthly budgets on housing, leading to an income substitution effect that will result in improving education and health outcomes for families,” said Mr Gammal.
While the lending rate of the mortgage has not been made public, realtors say the move by the government to borrow concessional loan at 1.35 per cent per annum from the World Bank will reduce the lending rates substantially.
Baseline lending rate
Market players project the credit facility will push housing prices and mortgage loans downwards by 400-600 basis points, from the current baseline lending rate of 16 per cent down to 10-12 per cent.
“The Government is keen to ensure the sustained provision of long-term finance to support the development of the mortgage market beyond the lifetime of the project,” said Minister of Finance and Economic Planning Uzziel Ndagijimana said.
Analysts blame lack of long-term finance for the low supply of affordable housing and the high cost of mortgage financing in Rwanda.
Through the Rwanda Housing Finance Project, the World Bank also announced that it will strengthen an enabling environment for affordable housing and financing through technical assistance.
“Working in close collaboration with relevant government departments and agencies, the technical assistance will focus on efforts to address housing supply constraints, such as high cost of land and building materials, by preparing and enhancing the grounds for private developers to construct more affordable houses than are currently offered in the market,” said the World Bank.