Rwanda

Overview

Since 1996, Rwanda has seen a positive economic transformation, focussing on upgrading infrastructure, reducing poverty, privatising state-owned assets, expanding its export base and relaxing trade laws. In 2008, the capital Kigali was the first city in Africa to be awarded the Habitat Scroll of Honour Award in recognition of its “cleanliness, security and urban conservation model”.

With only 26% of its population urban, Rwanda is among the least urbanised countries in Sub-Saharan Africa, but its densities are the highest within the mainland region. Rwanda is classified as a low income country, with the majority of its population still engaged in agricultural and mining activities. Urbanisation levels are expected to increase to 43% by 2050. This will have consequences on urban policies and the construction rate of housing. Kigali will be most affected. Already, however, informal settlements in Kigali make up about 62% of the land area and house about 83% of the city’s population.

In 2012, GDP growth was estimated at 7.7%, a decrease from 8.3% in 2011, due to the global economic crisis and the government’s fiscal consolidation.  Still very healthy

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Overview

Since 1996, Rwanda has seen a positive economic transformation, focussing on upgrading infrastructure, reducing poverty, privatising state-owned assets, expanding its export base and relaxing trade laws. In 2008, the capital Kigali was the first city in Africa to be awarded the Habitat Scroll of Honour Award in recognition of its “cleanliness, security and urban conservation model”.

With only 26% of its population urban, Rwanda is among the least urbanised countries in Sub-Saharan Africa, but its densities are the highest within the mainland region. Rwanda is classified as a low income country, with the majority of its population still engaged in agricultural and mining activities. Urbanisation levels are expected to increase to 43% by 2050. This will have consequences on urban policies and the construction rate of housing. Kigali will be most affected. Already, however, informal settlements in Kigali make up about 62% of the land area and house about 83% of the city’s population.

In 2012, GDP growth was estimated at 7.7%, a decrease from 8.3% in 2011, due to the global economic crisis and the government’s fiscal consolidation.  Still very healthy and among the strongest globally, the economy is expected to slow further to 7.1% in 2013 and 7.3% in 2014.  Annual inflation in June 2013 was 3.68%.

Coffee, tea, minerals and tourism are the main sectors. The economy is dominated by services, which contributed 46% of GDP in 2012. This growth was built on the expansion in trade, transport and telecommunication, and increases in finance and insurance. Agriculture decreased its GDP share to a still significant 35.8% in 2011, due to the decrease in productivity and limited added value.

Access to finance 

Access to finance has been steadily improving.  According to the 2012 FinScope Rwanda survey, financial inclusion has improved by almost 50% between 2008 and 2012, with only 28% (1.3 million adults) excluded.  The improvement in access was caused by a significant increase in the proportion of adults who were formally served: in 2012, 42% of adults used a product or service from a formal financial institution and the banked population increased to 213%.

The Rwandan banking system comprises 14 financial institutions as listed by the National Bank of Rwanda, up from 10 in 2010. These are made up of nine commercial banks (Kenya Commercial Bank (KCB), Bancor, Cogebanque, Bank Commerciale du Rwanda (BCR), Banque de Kigale (BK), Banque Populaire du Rwanda (BPR), Fina Bank, Ecobank and Access Bank Rwanda), one commercial bank which merged with a mortgage financing bank (Rwanda Development Bank merged with Housing Bank of Rwanda in 2011), three microfinance banks (Agaseke Bank, Unguka Bank and Zigama CSS) and one co-operative bank. The banking sector is highly concentrated with three banks accounting for 60% of assets, loans and deposits.

In the first half of 2012, credit to the private sector increased by 18.1% and new loans stood at FRW 237.3 billion, an increase of 68.6% on the 2011 figure of FRW 140.7 billion.  In 2012, 26.8% of lending went into the mortgage market.  Mortgage lending contracted in the first quarter of 2013, by 44%.

Banque Housing du Rwanda was a state-sponsored institution set up to promote the development of the housing market. This was taken over by the Rwanda Development Bank (BRD) in April 2011. The takeover was successful and the BRD has incorporated all the activities previously done by the housing bank.  BRD operates a mortgage refinancing facility to ease the liquidity challenges faced by commercial mortgage lenders.  In late 2012, BRD also launched a retail savings-linked mortgage product.  By opening up a ‘Gira Icumbi’ housing savings account, customers would be eligible to borrow money to build or buy a house, after accumulating savings worth at least 10% of the planned project.  The savings account would earn 8% annual interest (tied to the repo rate).  The interest rate on the loan was heavily discounted at 0.5% in the first year, 1% in the second year, and 1.5% in the third year, making it the lowest priced mortgage loan in Rwanda.

BCR, Cogebanque, Ecobank, Access Bank, KCB and BK are also mortgage lenders. From 2004 to 2007, mortgage lending almost doubled from 1.8% mortgage debt to GDP to 2.6%. Rwanda’s mortgage market in 2009 was worth between RWF 33 billion and RWF 47 billion (US$60 million and US$80 million), a small number compared to its estimated potential demand of more than RWF 200 billion (US$340 million).  In 2009, a mortgage finance shortage arose as a result of difficult lending conditions.  A domestic liquidity squeeze caused outstanding credit to the private sector to fall by 1.8%. This contributed to a fall in housing prices, by as much as 20% in late 2009. As a result of these liquidity problems, BCR suspended its mortgage product in early 2009, but resumed lending later in the year.

Since then, the mortgage market has been growing rapidly.  KCB introduced its mortgage business in 2011. In June 2011, the bank reported it had approved loans to a value of RWF 3 billion (US$5.059 million), and by June 2013, its loan book had grown to RWF 14.2 billion (almost US$22 million).  In June 2013, the bank announced a further injection of RWF7 billion (US$10.8 million) into the mortgage market.

Rwanda’s mortgage market faces a number of challenges, the most critical being the lack of liquidity. Long-term finance for mortgages as well as for microfinance has been a constant problem. Part of the solution lies in selling long-term debt to the market, given the growing demand for such from good companies in an economy with limited investment opportunity. The modestly sized Rwandan stock market, in existence since early 2008, has provided some facility for these listings. This includes BCR’s 10-year note issue worth RWF 5 billion (US$8.4 million). As a result, the BCR is now offering 20-year loans, funding mortgages with a blend of short-term deposits (65%) and the bond issues proceeds (35%). BCR also has a construction loan of seven to 15 years.  BCR’s growth has been substantial – in 2011 BRC posted a net profit of FRW 2.9 billion, up from FRW 2.8 billion in 2010. KCB shares have also been listed on the Rwanda stock exchange as they have been through cross-listings across the East Africa Community.

A further challenge is access to land titles.  An IMF report noted that land registrations in Rwanda would be improved by 2012, which will greatly improve the prospects for access to finance for the rural population and SMEs, given the importance of land as a source of collateral for lending.

Rwanda has a well established microlending sector, with 22 MFIs reporting to the Mix Market in 2013.  Between them, they have issued US$128.1 million in loans to 80 413 borrowers, and have collected US$56.5 million in deposits from 285 603 depositors. According to the African Economic Outlook 497 savings and credit co-operatives and MFIs operate in the country, together with 49 non-bank financial institutions.  The government has enacted facilitative, specialised microfinance laws and some housing microfinance lenders are emerging. For example, COOPEDU-Kigali, a local MFI, is offering housing microfinance loans averaging US$350 for a term of one to five years. Urwego has also partnered with Habitat for Humanity to offer home improvement loans.

The Global Financial Inclusion (Global Findex) Database shows that loans for home improvement and construction are more popular than loans for home purchase, suggesting the importance of the microlending sector.  In 2011, 8% of the top 60% of income earners over the age of 15 reported having an outstanding loan for home construction, versus 1.8% for home purchase.  This was similar for the bottom 40% of income earners over the age of 15: 6.5% reporting having an outstanding loan for home construction, versus 1.9% for home purchase.

Affordability 

FinScope Rwanda 2012 found that 87% of adults are from households involved in farming activities.  In Kigali City, 26% generated their income from piecework, 19% from business, 11% from government employment and 15% earned an income from farming activities. That said, 44% of adults reported having more than one source of income.  Some 3% of adults do not generate an income, but depend rather on government grants, remittances or household transfers to subsist.  As a result, access to mortgage finance is limited by household affordability as well as the irregularity of incomes among some borrowers. Further, deposit requirements of up to 30% make mortgage finance inaccessible to the majority of people without formal employment.

An intervention launched in 2012 promises to ease some of the affordability challenges. Home Finance Guarantors Africa Reinsurance Limited, a South African company, has been working with Soras Assurances Generales Ltd in Rwanda to establish collateral replacement guarantees.  Effectively, the product is an insurance cover equivalent to a loan deposit – with the cover. The borrower does not have to pay the deposit, and the lender can offer a 100% loan without compromising its balance sheet.  The lender remains in an equivalent risk exposure as it would have with a cash deposit.  In July, Soras announced a partnership with BCR and KCB to offer the Collateral Replacement Indemnity to their mortgage clients.

Even so, the price of formal housing is out of reach of the majority.  A 2012 study of housing in Kigali found that a well-located, formal, developer built house costs about RWF70 million (about US$116 000).  This is far out of reach of the majority, in a country where an estimated 90% of the population earns less than US$60 a month.  Low and middle income households rather build their housing independently – often incrementally – on the peripheries of the city, generally at a cost of between RWF 10 million and RWF 30 million (about US$17 000 to US$50 000) including land and construction. Plots in peri-urban areas are bought at low prices, a 600m2 or more plot can be purchased at RWF 1 million to RWF 3 million (about US$1 500 to US$4 600).

Much of inner city of Kigali (Nyarugenge district) has been re-zoned in the District Masterplan, with an emphasis on larger plots and multi-story multifamily residential buildings – new developments as opposed to in-situ upgrading. Accordingly, no permits are being issued for construction, including home improvements, unless the house plan and underlying structure is in full compliance with the new zoning regulations, which includes a larger minimum plot size ranging from 250m2 to 1 000m2 and higher minimum floor-area ratios. In the other two city districts, Masterplans are being developed, and no new construction permits are being issued by the district authorities until that process is complete.  Households unable to afford to comply with the regulations are selling their stake and moving to the periphery.

Construction costs are high in Kigali, between US$400 and US$600 per square meter, because of the high cost of materials. The cost of steel, glass and cement tripled from 1994 to 2011 (cement increased from RWF 3 000/bag (US$4.83) to RWF 10 000/bag (US$16.09) in 2012 and the materials are mainly imported. (Rwanda imports US$64.6 million worth of materials a year.) Due to the lack of skills in the country, many construction contracts are sourced from outside the country.  In an effort to promote the use of local materials, Rwanda’s new tax regime, implemented in early 2013, however, imposed a 25% tax on imported construction materials.  In December 2012, PPC cement announced that it would buy a 51% stake in Cimerwa, a Rwandan cement manufacturing company.  The move would expand the cement manufacturer’s capacity five-fold.

Rentals are high.  According to a World Bank study, a two-bedroom 70m2 apartment (formal sector housing) can be rented out for as much as US$1 000, although these are typically aimed at expats or Rwandan diaspora. Most low to middle income earners cannot afford such rents, as their incomes are too low. They mostly live in informal housing where the rents are more affordable but basic infrastructure is typically inadequate and unsanitary. Rentals are volatile and can be raised anytime if demand is high, which is why landlords usually do not get into long contract periods that are over a year.  At the bottom of the income pyramid, the rent for a 10m2 room could be as high as RWF 20 000 (US$33) for a household that earns RWF 50 000 to FWF 60 000 a month.

Housing supply 

A 2012 study of the Kigali Housing Market calculated that the city’s total housing requirements by 2022 would be 458 265.  Towards this, 42 710 of the city’s existing stock was upgradeable and 71 487 was in good condition, meaning that the total requirement for new stock by 2022 was 344 068.  This suggested an annual required delivery rate of just over 34 000 units.  The study also noted that the bulk of the demand, 78%, was for households with a monthly income of less than RWF 300 000 (US$463) per month.  To address the demand, the study proposed the construction of 1 601 high value units, targeted at households earning above RWF 2.5 million (US$3 864) per month; 112 867 mid range units, targeted at households earning RWF 200 001 (US$309) to RWF 2.5 million; 186 163 affordable units, targeted at households earning RWF 33 501 (US$51) to RWF 200 000; and finally, 43 436 fully subsidised social housing units, targeted at households earning less than RWF 330 500 per month.  The high value and mid range units would be financed only with mortgages, and a rent-to-own mechanism would be applied to the affordable units.

In mid-2013, Kigali City announced that it was renewing plans to issue a municipal bond to raise funding for housing construction, in terms of its housing development objectives.  The original plan to issue a bond had been developed in 2009, but had been put on hold because the city’s revenue collection was too low.  However, the pressure for delivery has led the City to work with the Capital Markets Authority to draft a regulatory framework to facilitate the issuance of the bond within the year.

At the national level, the Rwandan government has undertaken a pilot housing project to address the needs of public servants.  The Affordable Housing Project for Government Employees aims to act as a model for creating more sustainable affordable human settlements. Low and middle income government employees (with an income of between RWF100 000 and RWF 350 000 (US$154 to US$540) are targeted and the project will develop about 200 two- and three-bedroom units in four storey buildings.  Another government project involves the construction of houses for 30 822 families living in disaster prone areas.  The evacuation plan is expected to cost the government RWF 6.5 billion (US$10 million) and new units will be made available to evacuees for RWF 9 million (US$13 910).

Barring a few development entrepreneurs experimenting with houses in the RWF 40 million to RWF 50 million (about US$62 000 to US$77 000) range, most developers are building homes priced above RWF 70 million. The costs of land and materials, and limited access to finance, were cited as the reason for the high costs of the houses. In addition, capacity remains limited among developers. Many of the housing projects undertaken are small (five to 100 houses). The Rwanda Social Security Board (RSSB) is the largest developer in Rwanda and has built about 700 units in seven years (2004 to 2011), 250 of which were subsidised housing targeted at low to middle income earners.  RSSB announced a plan in late 2012 to build 1 000 housing units for the middle and high income market in Kigali City, and a further 200 low cost units in Gasabo district.   Shelter Afrique plans to invest US$10 million in low cost housing. It has co-financed with a local bank the construction of a 168-apartment estate in Kinyinya.

A US$150 million project known as Vision City is intended to bridge the city’s accommodation and commercial housing gap.  It will include luxury condominiums, as well as houses and detached units for medium and low income earners, accommodating an estimated 500 households.  The development was mired in controversy following expropriations that some landowners had said were below market value.

The reality is that the majority are unable to afford the housing that is delivered, often whether or not state support is involved.  With the new District Masterplans, informal, self-build activity ahs ground to a virtual standstill, and those without affordability to comply with the inner city standards are forced to move to the periphery.  There, they face the challenge of access to serviced land, as the government makes very few plots available.

Property markets 

The residential real estate market in Rwanda is growing, with more developers entering the market.  From a buy-to-let perspective, Knight Frank real estate consultancy suggests a 7% yield can be achieved.  The cadastral system is new, however, and resale market transactions are only just beginning.

The National Land Tenure Reform Programme has recently been launched to improve the deeds registry system. The programme was launched in Rwaza Sector, in the Western Province. The government of Rwanda has purportedly issued hundreds of titles to farmers across the country. The Rwanda Natural Resources Authority expects to complete the registration and issuing of deeds across the country by December 2013.

According to the Doing Business indicators for 2013, the five procedures involved in registering a property take about 25 days and cost an estimated 5.6% of the property value, or about RWF 970 000 (about US$1500). Private ownership of land needs to be applied for from the state and is granted on condition that investment and development of the land has happened. Additional steps are being taken to accelerate the point at which creditors may obtain valid mortgages on undeveloped land. This is by issuing beneficiaries of state lands with long-term leases, which can then be mortgaged pending completion of improvements and conversion to free hold.

Policy and regulation

Housing in Rwanda falls under the responsibility of the Ministry of Infrastructure, within the Habitat and Urbanism sub-sector.  Rwanda’s National Urban Housing Policy acknowledges the lack of affordable housing finance products and calls for facilitation of greater access for lower and middle-income groups. The country is generally regarded as a top reformer in making its business environment more investor friendly.

Some of the major policies include the Vision 2020, a broad policy that, among other things, aims to encourage capacity building for human resources and encourage investment to enable economic growth. The Economic Development and Poverty Reduction Strategy is another policy that targets the human settlement and the management of public property through improving planning and development, and sustainable use of land and the environment, among many other objectives.

A modernised law on mortgages has made it easier for Rwandans to access home loans by improving the risk parameters under which banks operate. Banks can now sell the loan security in the case of default, and the down payment requirements have been lowered to 30%, and lower, with the new collateral replacement guarantee. A new banking law has been published, and the process to update the prudential regulations started towards the end of 2009. An amendment to the Social Security Act of 2006 resulted in the establishment of an umbrella, compulsory contribution provident fund to which citizens and government will contribute. According to reports, the fund will be used to help develop affordable housing.

Opportunities

Housing finance demand, both mortgage and microfinance, in rapidly urbanising Rwanda has barely been met, and there is great potential for growth. More players are needed in the market to improve accessibility. As a top regional performer in reforming the macroeconomic environment, the state has performed its role as a market maker well. For example, the incorporation of the Rwandan Housing Bank into the BRD has created liquidity.

Rwanda has made tremendous progress in registering property, and this shows the commitment of the government to improve the property market by making it more inviting for developers.

Given Rwanda’s high poverty rates, the mortgage market will not meet the needs of the majority. Housing microfinance offers an important opportunity and the nascent HMF lending practices serve as a pointer to this enormous potential. Further action by the state to enable incremental construction by providing serviced stands, relaxing plot sizes and building regulations, and promoting the use of local building materials would all contribute towards growth in this sector and meeting the needs of many Rwandans.  Clear action towards creating a good investment climate by the state, growing urban demand and positive economic growth has already made a good start and provides substantial opportunity for the growth of housing finance in this country.

References:

  1. Cuevas, M. (unpublished, 2012). Housing Market Demand, Housing Finance and Housing Preferences for the City of Kigali.  Presentation prepared from the Kigali Housing Market Study.
  2. Demirguc-Kunt, A. and Klapper, L. (2012). Measuring Financial Inclusion: The Global Findex. World Bank Policy Research WP 6025.
  3. DFID (2010). Access to Finance Rwanda. Programme Document.
  4. IMF (2011). Rwanda: Financial System Stability Assessment. IMF Country Report No. 11/244
  5. Mathema, A. (forthcoming). Kigali, Rwanda: Housing Market Study. The World Bank, 2012
  6. Rwanda Housing Authority (2011).  Affordable Housing Development Project in Rwanda.
  7. Rwanda Ministry of Infrastructure (2009). Updated Version of the National Human Settlement Policy in Rwanda.
  8. Shah, A. (2006). Rwanda.  See www.globalissues.org/article/429/rwanda.
  9. World Bank (2012). Doing Business 2013: Rwanda.
  10. World Bank (2012). Kigali, Rwanda: Housing Market Study.
  11. National Bank of Rwanda (2013). Quarterly Bulletin, end March 2013.
  12. National Bank of Rwanda (2012). Activities Report, January – July 2012.

 Websites

www.africaneconomicoutlook.org

www.focus.rw

www.mixmarket.org

www.newtimes.co.rw

www.landesa.org

www.pesatimes.com

www.theeastafrican.co.ke