Realism is the answer to the Rwandan land question

Our government moved to control the skyrocketing land prices in our city and the nation as a whole; it has appointed a task force to look into the matter as prices of parcels had gone up by 10 times the original price.

Our government moved to control the skyrocketing land prices in our city and the nation as a whole; it has appointed a task force to look into the matter as prices of parcels had gone up by 10 times the original price.

Property speculation is a fact of life in our modern economy; speculation is beneficial in many ways as speculators act as pioneers in regeneration.

Speculation can also have a positive feedback in an economy, as land is sold for liquid capital i.e. money, but this can have a negative effect if the prices rise out of parity with earnings.

That is the problem with our current situation; land is overvalued to a ratio that makes it impossible for the average Rwandan to afford a plot. The fact that land-prices always rise creates a self-fulfilling prophecy, which results in a vicious cycle of more price rises.

I have seen similar practices in Rwanda to what I saw in Britain; this is when property owners are encouraged to inflate the value of their assets. So a surveyor is brought in and gives a price-range, say 40-60m, but the owner uses the higher valuation; the bank prefers higher value assets, the seller gets a higher price, and the buyer can secure debt at a higher rate.

The quick turnover of owners is another issue, several people can own a plot in a 5-year period; meaning it changed hands 5 times and the price rose every time.

The fact that land is mostly bought and sold informally makes it hard to regulate all land sales to avoid exploitation; we are currently in the process of registering land digitally and issuing land titles.

This has caused a rush in the market as people try to take advantage of the informal land-buying process.

I saw this in my first land purchase, I saw a piece that stole my heart, it was not a rational investment, it was gut instinct. We agreed a quick price and set about sealing the deal, when it came to time to sign the contract, the land was undervalued by more than half.

The seller only declared a portion of the price, to avoid sharing with his partners or tax, I was so eager to buy the land that I ignored such treachery.

So even if the government sets prices in stone, people can still hand money under the table; and in Rwanda the seller has all the power, because they have an appreciating asset with more buyers than sellers.

We have a growing population and limited land, so the price of land will always ascend, but it has to be in line with market forces and wages.

If prices rise continually, then we are creating a bubble, because somebody is going to be left holding an overvalued asset, much like a pyramid scheme.

We need to develop hotspots where property is rising, but also have areas where prices are affordable and even falling. That way, everyone can benefit, and not just the speculators.

The author  is a regular contributor
ramaisibo@hotmail.com

 

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