How ICT can unlock millions of francs in undervalued property

Many Rwandans and companies use informal land or property brokers when they want to buy land or rent a residential house or office space at favourable rates.
A commercial building under construction at Mulindi trading centre,  (Nuwagira Stephen)
A commercial building under construction at Mulindi trading centre, (Nuwagira Stephen)

Many Rwandans and companies use informal land or property brokers when they want to buy land or rent a residential house or office space at favourable rates.

However, it is often difficult to work with the commissionaires, as they are commonly known in Rwanda, to establish the true market value of property. This also makes it hard for government to collect rental income taxes and land fees, among other challenges.

However, all these challenges can be addressed by digitising and professionalising the real estate sector, according to Shane Dale, the chief executive officer of Propertymode Limited, a company that provides back office software systems for real estate agents.

“By bringing digital transparency to the real estate sector, we can change our finance and taxation ecosystem,” he says.

Basing on the firm’s 19 years experience in the Australian real estate and taxation systems, Propertymode started in Rwanda in 2011, with pilot initiatives to digitise the real estate sector in a bid to establish the true value of local properties, increase revenue collections for landlords, as well as formalise rental income taxes.

Digitisation of the sector also helps to lower loan interest rates since banks will know the real value of collateral presented to them in the form of land or housing property before issuing credit.

Dale estimates that collections on rental income tax are around only 20 per cent, noting that digitisation of the sector can enable tax authorities tap the revenues are never declared.

“First, we use rental tax, land lease fees and other tax collection contracts to fund the creation of an information base of all property information,” he explains.

How it works

The information base and the revenue collection contract would earn us income to pay the real estate “e-agents” to do this work as contract tax collectors for Rwanda Revenue Authority (RRA), but we also create lease agreements between tenants and landlords, he adds.

“The e-agents are part of the information base of professional agents. They also pay tax on their incomes and are able to operate in the market helping people, buy, rent, sell and get mortgages ethically and legally at a fee, using Propertymode electronic-transaction information systems,” Dale explains.

Dale says by working with them to collect the revenues, RRA, not only relieves itself off the high cost of collecting taxes, but also allows the real estate agents to grow in their professional fields.

“You can trust their professionalism because all information is filed online for auditing and compliance. We have already got large parts of the system operating on with 126 e-agents in Rwanda.”

Using the information to get cheaper credit

The information from tax collection and related activities; lease and real estate agents is combined and formatted to give banks an accurate data to gauge the real value on any property, Dale says.

“This ensures they do not make bad loan decisions by using the information we provide them. This means they can give loans faster and at much lower rates because we make that process easier and more profitable for them,” he argues.

Currently, market interest rates for mortgages range from 16.5 to 20 per cent per year, but Dale thinks that 12 per cent mortgage rates over 20-year period could be possible in the next two years if their system is rolled out fully and running.

“Why not aim for nine per cent mortgage and 30 year repayments? This alone would create a construction and investment boom in a digitally-manageable way for government.”

Dealing with illiterate land owners

Many people in Rwanda lack knowledge in technological advancements, making it hard to adopt electronic systems. Dale says this issue can still be addressed by technology.

“We have installed software that enables our real estate agents to use smartphones to teach and explain to clients all the modalities of given contracts. When an agreement is reached, a video affidavit is recorded using the smartphone, with both the client and agent stating that the presentation was done to their satisfaction,” he explains.

The video is then uploaded onto the electronic information base for legal filing and approval. It also supports the contract, meaning that the e-agent takes professional responsibility for any contracts they conclude with clients.

“The auditing of such e-transactions is simple, easy and transparent and is done instantly through cloud computing dashboards that are interlinked with relevant government agencies.

According to Dale, when all that information is available, government bodies can access the nationwide financial and market activity reports to make evidence-based policy decisions.