Low-end market could spur real estate growth

Friday October 13 2017

Real estate investors are now focusing on

Real estate investors are now focusing on low-cost houses to tap into the available market due to increased demand from young families. PHOTO | FILE | NATION 

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Real estate developers in the Rwandan capital Kigali have been urged to invest in low cost rental units to spread risks and boost their revenues.

Kenya Commercial Bank Rwanda’s managing director George Odhiambo noted that while the lender will still lend to developers of high end rental units, they should also consider building smaller three and two bedroomed units to meet the needs of a larger segment in the market.

“The Kampala and Nairobi rental business is booming, partly because developers have tapped into the mass market of young people seeking houses to rent in well planned neighbourhoods. In Kampala and Nairobi, two and three bedroom house is the peak of the rentals. The developers have targeted young families,” said Mr Odhiambo.

Industry players say there is a concentration of supply in the upper end rental segment, which could expose the industry to risks associated with market failures.

Mr Odhiambo said some of the developers who built five to six bedroomed houses in Kigali are struggling to find tenants, noting that high-end market has many people who own their houses.

This, according to market players, explains why when a tenant leaves a high end home, it stays vacant for months while new projects also have trouble of getting occupancy.


The developers are concerned that the challenges disrupt the revenue stream from bank-financed properties.

Financial constraints

For instance, a home owner in Rebero, Kigali, was forced to turn his house into four apartments, which she rents at $200 each, every month, the units rake in Rwf750,000 ($894) monthly, mirroring the market potential in low cost apartments.

Kefa Angwenyi, a team leader at Neocraft, a property developer in Kigali, cited financial constraints as the biggest challenge hindering many developers from venturing into the mass rental market.

“I see a lot of interest from developers in rental apartments. There is also a buildup in demand for apartments from Rwanda single families but we are constrained by capital,” said Mr Angwenyi.

“Real estate business is capital intensive. It needs patient capital. No developer has this capital,” added Mr Angwenyi.

While the government announced that it was creating a fund for house owners to tap into and reduce the debt financing costs, commercial banks say they have not received the money.

With the set up of the fund, the government plan is to pay the part of the bank interest rate for the construction loan while the home buyer or developer foots the remaining 10 per cent. The mortgages is supposed to be serviced for 25 years.

Financing real estate business

Mr Odhiambo said KCB Rwanda will continue financing real estate business. KCB Rwanda is one of the leading mortgage financers in the country.

From 2011, the banks has financed over 1,000 homes at a maximum of Rwf80 million ($95,400). The borrowers have a repayments period of 20 years.
“But that does not mean that we don’t do it, case by case we still have discussions with them. It is not a policy. Market understanding is that rental market is majorly in lower end. These developers are in upper end,” said Mr Odhiambo.

A 2012 study titled Housing Market Demand, Housing Finance, and Housing Preferences for the city of Kigali shows that at least Rwf996 billion ($1.1bn) is needed in the next eight years as mortgage financing to address the current housing shortage in the city.

This translates into Rwf91 billion ($108.5m) annually to finance mortgages. The study also puts Rwf623 billion ($743m) as the money needed to drive investment in affordable housing.