An affordable housing financing fund that Government plans to set up next month will subsidize mortgage loans on affordable housing to an extent that interest rate will reduce to around 10 per cent down from the current 17 per cent.
This was said, yesterday, by the Minister for Infrastructure, James Musoni, during a meeting with real estate developers. The meeting aimed at presenting to the investors the opportunities available in affordable housing sub-sector.
Last month, Musoni told Parliament that the Government planned to establish Affordable Housing Financing Fund with over Rwf200 billion initial capital in the next fiscal year to subsidize mortgage loans and provide funding to private developers at low interest.
“The intention is to be as much as possible close to 10 per cent of interest rate (on low-cost housing). This is going to significantly reduce the cost of financing. We want the Fund up and running as soon as possible,” Musoni said.
The Fund will be managed by the Development Bank of Rwanda (BRD).
Musoni urged developers and bankers at yesterday’s meeting to design projects so that the financing plan can come in when they are ready to use it.
Documents released by the Ministry of Infrastructure yesterday indicated that the Fund will be operational starting with next month and that it will provide a guarantee facility for developers, producers of locally made construction materials and any investors going into residential housing.
The move will cut down the cost of houses by up to 50 per cent, officials at the ministry said, which means that a house that currently goes for Rwf50 million will go down to about Rwf25 million.
If that happens, experts in real estate development including Kigali-based developer Vincent Sekimondo say, the price of decent family homes could be well tailored to the pockets of Rwandans who earn between Rwf300,000 and Rwf700,000 in monthly wages and want to buy a house.
“Massive construction of residential homes should be considered as a public interest activity and facilitated as much as possible to reduce costs. I was doing home development projects using my own means but now that a fund is going to be in place to help us I will approach those in charge of it and see how they can facilitate me,” Sekimondo said.
The First Vice-Chairperson of the Rwanda Private Sector Federation (PSF), Claver Mugabo, said the subsidy Fund has been introduced to deal with a critical issue to ensure that the country’s growing economy doesn’t leave citizens behind.
“It’s good news for real estate developers. At PSF, we believe people are going to try working together so they can take on the challenge of affordable housing in the country. There is no way an economy can grow and our people remain behind. We must grow together socially and economically,” Mugabo said.
Linking with commercial banks
Once set-up, the Fund will also enable commercial banks to provide long-term loans to borrowers in affordable homes sector because it is likely to enable home mortgages to be paid over 20 years or more instead of the current 10 to 15 years.
That aspect about the ability to lend money for a longer term was also welcomed by investors on top of the chances to reduce interest rates for home mortgages.
“Commercial banks don’t have long-term funds. You would be asking them to bank against the wall if you asked them to give long term loans,” Maurice Toroitich, the KCB-Rwanda managing director, said.
A 2012 housing market study by the City of Kigali showed that 340,000 new housing units are urgently needed by 2022 and out of those 86 per cent should be affordable housing and mid-range housing, 13 per cent should be social housing, while only less than 1 per cent should be premium housing.
That means the country needs to make available at least 34,000 new housing units every year over the next ten years, which makes the role of the private sector crucial in the process.
“We need to work together to solve the issues in the sector. The Government has done what it is required to do and it is ready to do more working together with the private sector to solve challenges of housing,” Musoni said.
In February, Rwanda Housing Authority announced that projects for 30,000 housing units in line with the government’s move to scale up affordable housing had been identified of which about 1,500 houses were being built.