Rwanda Social Security Board— a public pension body — has moved to recover Rwf102 billion ($120 million) it invested in a property development project.
The pension fund will inject funds into three lenders, who will in return finance the acquisition of homes in Vision City in its latest attempt to recover pension funds invested in the project.
RSSB invested Rwf102 billion ($120 million) workers money in the construction of 504 high-end housing units at Vision City.
However, after completing the project, RSSB through its real estate investment arm — Ultimate Developer is struggling to attract buyers.
Data from Ultimate Developers shows that by April 11, only 142 units had been sold, leaving 362 units without buyers, a year after the project was completed.
Property movers cite the limited high-end, which RSSB targeted, funding constraints faced by potential buyers and high mortgage interest rates on the market as some of the hurdles in selling the properties.
“The targeted high-end market is way off the current demand,” one of the bankers said.
“High-end property owners do not need mortgages as they have the cash and are using that cash to buy properties elsewhere,” the banker added.
RSSB has moved to close the liquidity mismatch in the banking system by infusing more capital in the industry for it to be able to finance its buying of the completed houses but remained without buyers, to save face from accusations of wrong investment decisions as reported in several Auditor General’s reports.
“RSSB is willing to deposit workers’ savings in the three banks. The condition of getting financing for lenders is to price their mortgages at 12 per cent rate for a 20 years term,” a banker said.
And it is understood that Bank of Kigali is in advance stages of getting the funding from RSSB as Ultimate Developers has started marketing the deal.
A banner placed at Ultimate Developers’ office shows that Bank of Kigali has cut its mortgage rates at Vision City by 550 basis points and increased the mortgage term to 20 years.
The current mortgage rates at Bank of Kigali range between 17.5 per and 19 per cent depending on the perceived risk of the borrower but under the deal, the bank will be lending 12 per cent.
Diane Karusisi, chief executive of Bank of Kigali confirmed the deal, saying there will be special conditions for Vision City home buyers — especially for apartments and semi dethatched.
“In the past we were not incentivised to give long-term mortgages because the houses on the market were not all that good. After 10 to 15 years they would lose value. But now we have supply of quality houses by Vision City,” Ms Karusisi had earlier said.
Capping the mortgage rate
KCB Rwanda and I&M Bank are still weighting the options with insiders saying capping the mortgage rate at 12 per cent reduced their earnings.
Bankers said the pricing is out of the range for a small high-end market, even after a 30 per cent price cut announced last year.
A three-bedroom townhouse at Vision City costs Rwf166 million ($194,580), down from Rwf237 million ($277,805).
A four-bedroom apartment, goes for Rwf180 million ($210,991), down from Rwf257 million ($301,248.).
A three-bedroom apartment, which was going for Rwf225 million ($263,739), will now cost Rwf157 million (184,031), while a two-bedroom apartment that initially went for Rwf150 million ($175,826), will now cost Rwf105 million ($123,078.).
“Impactful mortgage financing should target first home owner. Vision City tenants are not buying their first houses,” the banker said. The challenge in Rwanda is that some time developers are building houses that are not in use.”
Data from the National Bank of Rwanda shows that the Rwanda mortgage industry is maturing as it has the highest share of loans.
Last year, banks pumped 37 per cent the total credit in mortgages and recorded the lowest non performing loan ratio.
Out of the Rwf824.9 billion loan book, at least Rwf305.2 billion was allocated to mortgage financing.
KCB Rwanda and I&M Bank are the oldest mortgage players in Rwanda. The lenders pioneered long-term financing, a break away from home the stressful short term loans.
“From 2011, we have financed over 1,000 homes with repayments extending to maximum 20 years. Our clients looking for homes costing not more than Rwf80 million ($93,457) and have land registered in their name at major towns have a chance of 100 per cent as long as they have repayment ability,” said George Odhiambo managing director KCB Rwanda.
The supply of affordable housing for the majority of the urban dwellers has not attracted big private players, living over 50 per cent of the population in unplanned overcrowded, low-quality houses, according to report detailing the city’s housing needs and opportunities for investors in the sector.
The report, which was released by the Kigali City Authority, further states that there is a shortage of over 400,000 houses, meaning many city dwellers live in unplanned neighbourhoods.
Despite, the huge demand for low cost houses in the city, developers are investing in high-end properties, saying returns on investment in the lower market are low as the project costs are high.
Besides infrastructure rebate for developers of mass residential and commercial properties, where roads, water, electricity, sewage and telecommunication costs are met by the public, the government also set up Rwf200 billion ($233.6 million) affordable housing fund.
The fund is meant to subsidize mortgage loans with a target to bring down the annual interest rate to 10 per cent from the current market 17 per cent average.