The construction sector has grown tremendously in the past few years, expanding by 9 per cent last year. However, the high cost of mortgages is threatening to erode these gains, according to the real estate Association of Rwanda. The body is seeking central bank’s intervention to compel commercial banks to cut rates. Business Times’ Peterson Tumwebaze brings you the story.
The real estate sector grew by 9 per cent last year, but developers are worried these gains could be eroded by high interest rates on mortgages.
Charles Haba, the president of the Real Estate Association of Rwanda, said this was besides concerns over the proposed new law, which will see construction materials imported from outside the East African common market and COMESA trading blocs subjected to a five per cent tax.
Currently, building materials are not taxed. The proposed law stipulates that as long as the construction materials are available in these trading blocs, those imported from outside would be taxed.
“Mortgages are expensive, with the interest rate at a high of 16 per cent,” Haba said.
He explained that this means that if someone, earning Rwf500,000 took a mortgage of Rwf30m, he would have paid Rwf70m after 20 years.
However, Diane Rwabuhungu, the in charge of mortgage loans at the Development Bank of Rwanda (BRD), said the 16 per cent interest rate was the best deal on the local market.
“Before we come up with any rate, we first look at the profit margin across all sectors…we can’t just come up with 16 per cent.
“Commercial bank charges range from 18 per cent to 19 per cent due to their various reasons, meaning that 16 per cent is the best take on the market,” she explained.
The developers want the central bank to intervene and compel commercial banks to reduce mortgage rates.
“Developers are business people and don’t work for charities,” Haba noted. “The government talks of affordable houses, but how can we provide them houses when the cost of construction is high?”
Although the demand for houses has been growing, the housing sector remains under served with an annual demand estimated at 25,000 units, of which 8,000 are in Kigali. According to the City of Kigali new report, 34,406 housing units are still needed to cater for the growing population.
Last year, the Development Bank of Rwanda launched a new mortgage product called Gir’icumbi savings account, which targets to attract a lower rate on mortgages annually on one’s savings. Under the scheme, salary-earners, who want to buy or build a house but cannot afford the cost, can secure a mortgage.
Rent fees are still high because supply has not yet met the required demand, Haba said. While a plot of 50 by 100 metres in Kimironko will cost you $100,000 (about Rwf63m), renting a 3-bedroomed house in Kacyiru costs $3,000 or about Rwf1.9m per month. Buying a 4-bedroomed house in Kicukiro will set you back by $134,000 (about Rwf85m) and $79,000 or about Rwf50m in Remera, all city suburbs.
Theo Kayiranga, the Sefix Property manager said prices of plots of land and houses are influenced by the type of infrastructure developments in a particular area and the demand of the services.
“If the demand is high, prices will definitely shoot up. Also, the general developments in an urban area ultimately determine the cost of a plot of land or a house,” Kayiranga said.