The Kigali city authority last week said providing affordable housing is one of the key priorities now. City of Kigali mayor Monique Mukaruliza said the authority is seeking ways to avail affordable housing to city residents. 

"That is our prime focus,” she said on Wednesday on the sidelines of the 7th edition of the World Bank Metropolitan Strategic Planning Laboratory at the City Hall.

A study by the City of Kigali, the Ministry of Infrastructure, and the European Union (EU) indicated that Kigali could face a housing deficit of 344,000 homes in 2020. Between 800-1,000 housing units hit the market annually, with supply skewed towards high-income earners, leaving the majority of city dwellers without decent homes.

However, the city needs to build at least 31,000 housing units annually, according to the 2012 study, to ensure city dwellers get quality shelter. The city low and middle-income earners make up about two-thirds of all new housing demand.

Kigali’s population is currently at 1.2 million people and is projected to reach 3.8 million by 2040.

This challenges city planners, developers, and banks to seek new approaches to encourage investors to fund housing projects for lower end of the pyramid. With Rwanda expected to be 35 per cent urban by 2020, it is critical to institute new initiatives to increase investments in the real estate development to help bring more houses onto the market, particularly targeting the low market segment.

While launching the Batsinda II low-cost housing project in Kirinya, Gasabo District, Infrastructure Minister James Musoni said affordable and adequate housing in Rwanda is an urgent issue, noting that there is need to bridge the gap between housing demand and supply for people in low and middle-income segments.

Provision of affordable homes is a key element of the country’s development blueprint, the second Economic Development and Poverty Reduction Strategy (EDPRS II), needed to support urbanisation.

According to the Ministry of Infrastructure, demand for affordable housing in general is estimated at 560,000 units by 2020. This requires construction of 93,400 units annually (or 7,780 units per month), the ministry indicates.

How this can be achieved

William Karaiga, an associate at the Aims Capital, a Kigali-based law firm, said banks and real estate developers should work together and come up with mechanisms to ensure that more units for low and middle-income earners are delivered onto the market.

Leopold Uwimana, the affordable housing division manager at the Rwanda Housing Authority (RHA), told Business Times that the government has set up a fund where mortgage rates will be lower than those of banks.

The urban development fund will be funded by the government and will charge as low as 10 per cent interest rate of mortgage to help low-income earners to access houses, said Uwimana.

He added that the assessment of the annual supply in the formal markets in Kigali indicates that 800 to 1,000 units are brought onto the market per year; most of which target the high end market segment.

He said ongoing projects, like Batsinda II and others in different parts of the city, will help address the mismatch in housing demand and supply. He said the houses cost between Rwf10 million and Rwf20 million each in Batsinda II.

"We (RHA) are also working with private investors to build more houses in the satellite cities of Muhanga, Huye, Rusizi, Musanze and Nyagatare,” he said.

Uwimana said they are encouraging real estate developers to raise funds on the stock market, arguing that this could help reduce the cost of homes. Fast-tracking the Real Estates Investment Trusts (REITs) initiative unveiled last year by city authorities and the Capital Market Authority and other stakeholders is one of the best ways through which funds can be raised to build low-cost homes, he added.

Under REITs, businesspeople and individuals buy shares, and the funds raised are used to construct houses for the low and middle-income market segments.

Uwimana and other sector experts say this investment vehicle could help the city and other Provincial satellite cities raise affordable finance by mobilising money from public and private sectors to construct decent low-cost homes for low and middle-income earners on a sustainable basis. The experts argue that this would significantly ease the housing problem in the city and the country generally.

Real estate developer, like Century Real Estate, call for increased involvement of government, especially by giving tax waivers and other sector targeted incentives to encourage developers to cut prices of homes.

Paul Rwigamba, the director for commercial, residential and rental sales at Century Real Estate, argued that this could attract more developers into what he called a "less attractive market that has low returns and a lot of challenges”. Eventually, with more investors to facilitate projects for affordable housing, the cost of decent homes will reduce, he said.

According to Dr Emmanuel Gatabazi, the Bank of Kigali head of the corporate banking, there is need to mobilise more savings by banks to be able to fund real estate projects, particularly those targeting low and middle-income people. Gatabazi said there is a huge demand for mortgage loans, which pushes up mortgage rates, making it hard for low and middle-income earners to access mortgages to acquire decent homes.

He, however, noted that the interest on mortgages depends on many conditions, saying that the rate can be reduced to under 18 per cent, especially on long-term mortgages for big projects. He also said mortgage loans are more affordable in Rwanda compared to other countries in the region.

"Rwanda charges 16-18 per cent interest rate, while in Kenya the interest on mortgages is about 27 per cent interest rate,” he said. He noted that encouraging more Rwandans to save with banks could boost deposits and eventually ease rates for mortgages.

Pacifique Nkongori, the head of the education, financing and origination at Urwego Opportunity Bank, supports this argument, noting that low deposits mean that banks do not have enough money to finance projects like building decent homes for the masses.

"Therefore, this shortage of liquidity forces banks to borrow money from funding organisations, which increases interest rates on mortgages.

"If more Rwandans could save with banks, this will increase bank deposits and hence encourage more banks to fund housing projects at reduced rates,” he said.

Nkongori said Rwandans who earn less than Rwf300,000 per month cannot afford mortgages that go for 18 per cent per annum. This, he said, has created a market disparity that favours the rich, leaving low and middle-income earners in the cold. He added that though some banks charge 18 per cent interest on mortgage loans, this is still too high for low-income earners.

Experts say that Rwandans earning Rwf100,000 or Rwf300,000 monthly salary can hardly afford the cheapest homes on the market that go for Rwf10 million a unit, with the majority of affordable homes on the market at between Rwf20 million and Rwf28 million each.

Century Real Estate’s Rwigamba said the industry has poor marketing strategies, arguing that most buyers are not aware of the type of houses on the market.

"Marketing in the housing sector is partially done…some developers do not market their products and this has affected the supply side of the market,” he added.

Affordable housing projects

Last year, the city authority said there were plans to implement three housing projects, with over 1,000 affordable units in Kibenga and Cyaruzinge both in Ndera, Gasabo District, among others. Rwanda Housing Authority (RHA) says there are about 500 affordable housing units under construction in Batsinda, while other affordable homes will be built in Busanza, Nyamirambo and Ndera sectors, totaling over 4,000 low-cost housing units. Eng Didier Sagashya, the RHA chief, said these projects will bridge the initial housing gap.

Abadahigwa ku Ntego Ltd, a subsidiary company of the Kigali Veterans Cooperative Society, last year invested over Rwf1 billion in development of affordable housing in Kigali, where each house will cost Rwf25 million.

The developments are being erected in a few miles away from Kabuga centre in Masaka Sector, Kicukiro District.

The 2012 Housing Demand Study carried out by the City of Kigali indicated that out of 223,000 housing units examined in 2011, only half were in good conditions. At least 71,000 housing units could be upgraded, while the remaining 108,000 were of such low quality that they needed to be replaced.

According to statistics, 43,436 housing units for Kigali residents who earned less than Rwf35,000 per month would have to be built. These units would be financed through a government subsidy. Some 186,163 units will be built for households earning between Rwf35,000 and Rwf200,000 per month.

Another category of 112,867 dwelling units for those earning between Rwf200,000 and Rwf250,000 per month will be built – this segment of the housing market is eligible for mortgage financing. Demand for premium housing in Kigali stands at 1,601 units.

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