Rwanda

Excerpt from Africa Housing Finance Yearbook 2015

Overview

Rwanda has achieved impressive development progress since the 1994 genocide and civil war. Rwanda’s long-term development goals are embedded in the Vision 2020 strategy, which seeks to transform Rwanda from a low-income agriculture-based economy to a knowledge-based, service-oriented economy with a middle-income country status by 2020. Between 2001 and 2014, real GDP growth averaged at about nine percent per annum.

According to the Fourth Population and Housing census conducted in 2012, only 16.5 percent of the total Rwandan population lives in urban areas. Rwanda’s percentage of urban dwellers is one of the lowest in Africa with only 18 percent of the country’s population living in cities. Six secondary cities have been identified to be part of the growth poles, besides Kigali. In order to develop these secondary cities the government is currently working on a program, in partnership with UN-Habitat, GGGI and the World Bank to support rapid urbanisation and reach the target of 35 percent by 2020. Progress has been made promoting spatial inclusion, with the share of rural households living in integrated

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Excerpt from Africa Housing Finance Yearbook 2015

Overview

Rwanda has achieved impressive development progress since the 1994 genocide and civil war. Rwanda’s long-term development goals are embedded in the Vision 2020 strategy, which seeks to transform Rwanda from a low-income agriculture-based economy to a knowledge-based, service-oriented economy with a middle-income country status by 2020. Between 2001 and 2014, real GDP growth averaged at about nine percent per annum.

According to the Fourth Population and Housing census conducted in 2012, only 16.5 percent of the total Rwandan population lives in urban areas. Rwanda’s percentage of urban dwellers is one of the lowest in Africa with only 18 percent of the country’s population living in cities. Six secondary cities have been identified to be part of the growth poles, besides Kigali. In order to develop these secondary cities the government is currently working on a program, in partnership with UN-Habitat, GGGI and the World Bank to support rapid urbanisation and reach the target of 35 percent by 2020. Progress has been made promoting spatial inclusion, with the share of rural households living in integrated and economically viable planned settlements increasing from 37.5 percent in 2012 to 53.0 percent in 2013/14.

At least 60 per cent of the people living in the city are renting according to City of Kigali figures. The government of Rwanda has formulated a medium-term strategy. In order to achieve long-term development goals, it put forward the first and second Economic Development and Poverty Reduction Strategy (EDPRS II); with the highest priority being growth acceleration and poverty reduction through five thematic areas: economic transformation, rural development, productivity and youth employment, and governance accountability. The EDPRS aims to achieve the following goals by 2018: increase gross domestic product (GDP) per capita to US$1 000, reduce the poverty rate to below 30 percent, and reduce the extreme poverty rate to below nine percent.

Access to finance

Access to finance has been steadily improving and according to UNDP, the adult population accessing financial services in Rwanda has increased from 21 percent in 2008 to 42 percent in 2012. The government target remains to achieving 80 percent financial inclusion by 2017. The Rwandan banking system now has 16 financial institutions up from 14 in 2012 due to an additional commercial bank and microfinance bank that started their operations during the first half of 2014.

The 2013/2014 financial sector report also recorded an increase in the number of accounts opened in MFIs by 293 percent from 2007 to 2013 (631 689 to 2 295 589 clients), 72 percent of which were opened in SACCOs created under UMURENGE SACCOs program. From 2012 to 2014 the number of accounts opened in MFIs increased by 29.3 percent (from 1.988 million to 2.571 million).

Rwanda amended its mortgage laws in 2011 to facilitate access to home loans. As a result, banks have reduced down payments from 70 percent to 30 percent, and extended the duration of mortgage loans to up to 20 years. However, current statistics show that mortgage financing in Rwanda is still only accessible to people who earn more than RWF 900 000 per month which has led to an adequate supply of high end, luxury homes in Kigali. Property owners complain of falling rents and/or stagnant rental properties in the newer, high-end developments of Kigali.

One major constraint to the development of real estate is lack of mortgage finance at a reasonable rate of interest. In 2012, it was estimated that 96.2 percent of households had no access to housing finance. Since 2014, there has been a clear increase in the provision of mortgage with the current supply of mortgage finance estimated between RWF64.7 and RWF84 billion as well as the number of banks offering mortgage finance.

The Development Bank of Rwanda (BRD) plays a major role in ensuring that Rwandans are properly housed through financing of large-scale real estate projects as well as individual home buying and construction. In 2014, the bank invested over RWF5 billion in mortgage financing for affordable housing in both low and middle income categories. More so the bank launched another product, the Gira Icumbi which enables potential home owners to save for at least one year until they have saved 10 percent of the cost of their home, after which they are able to access a home loan.

In addition to the above, mortgage products offered by other financial institutions have gone a long way in creating an enabling ground for Rwandans especially those in urban settlements to own decent homes. Banks like I&M Bank, Cogebanque, Ecobank, Access Bank, KCB and BK are also big mortgage lenders. From 2004 to 2007, mortgage lending almost doubled from 1.8 percent mortgage debt to GDP to 2.6 percent. Rwanda’s mortgage market in 2009 was worth between RWF33 billion and RWF47 billion (US$60 million and US$80 million), a small number compared to its estimated potential demand of more than RWF200 billion (US$340 million).

A regional bank KCB has also played a pivotal role in the mortgage market by enabling their clients to own homes through providing them with 100 percent mortgage finance. The bank has designed a product where a client can access full sponsorship to construct a home provided that they own the land on which the home is being built.

Despite the above innovations, Rwanda’s mortgage market still faces a number of challenges, the most critical being the lack of liquidity. The Rwandan stock market, in existence since early 2008, has provided some facility for this including BCR’s 10-year note issue worth RWF5 billion (US$8.4 million). As a result, the BCR is now offering 20-year loans, funding mortgages with a mix of short-term deposits (65 percent) and the bond issues proceeds (35 percent).

Rwanda has a well-established micro-lending 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. The government has enacted facilitative, specialized microfinance laws and some housing microfinance lenders are emerging. A study conducted by Ngoga Thierry (2014) reports an increase in registering mortgages. In 2013, the amount of registered mortgages doubled to 12 804 from 6 129 in 2010.

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 micro lending sector. In 2011, eight percent of the top 60 percent of income earners over the age of 15 reported having an outstanding loan for home construction, versus 1.8 percent for home purchase. This was similar for the bottom 40 percent of income earners over the age of 15 with 6.5 percent reporting having an outstanding loan for home construction, versus 1.9 percent for home purchase.

In addition to land titles banks consider many other factors besides collateral before making a final decision to extend loans. These factors include how long one has lived in a particular area, whether one has earned a steady income over time, and whether one is able to secure a solid co-signer and the usually high transaction cost of lending to small borrowers. As a result majority of Rwandans prefer to buy cheaper undeveloped land and invest in developing them gradually over time rather than buying more expensive developed houses.

Findings from a survey conducted by USAID in Rwanda showed that, mortgage usage among those who owned property only 15 percent of respondents reported using mortgage to acquire their properties (most of those who accessed mortgages used them to finance multistoried properties (36.4 percent) followed by enclosed housing properties (20.5 percent). Only 10.5 percent of bungalow owners used mortgages to finance acquisition of their property.

A Real Estates Investment Trusts (REITs) initiative by the development bank of Rwanda (BRD) aims to increase affordable houses by the end of the year. Funds raised will be used to setup houses for the low and middle market segments. Under this initiative, BRD will start investment groups which will then float shares on local capital markets, with the proceeds going to real estate development.

Affordability

FinScope Rwanda 2012 found that 87 percent of adults are from households involved in farming activities. In Kigali, 26 percent generated their income from piecework, 19 percent from business, 11 percent from government employment and 15 percent from farming activities. More so, 44 percent of adults reported having more than one source of income. Three percent of adults do not generate an income, but depend rather on government grants, remittances or household transfers to subsist.

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 percent and short repayment periods make mortgage finance inaccessible to the majority of people without formal employment.

Home Finance Guarantors Africa Reinsurance Limited, a South African company, has been working with Soras Assurances Generales Ltd to establish collateral replacement guarantees. In July, Soras announced a partnership with BCR and KCB to offer the Collateral Replacement Indemnity to their mortgage clients.

In another effort to increase the number of affordable houses, KCB partnered with Region Holdings, a property investment firm to construct low budget homes for low income earners such as those earning less than Rwf 600 000 per month.

Cost of housing in Rwanda, is still on the high end, for instance houses on the market today cost Rwf700 million (about US$1 million) while the lowest decent ones cost Rwf25 million, according to information from property developers. Statistics from the CoK show that about 80 percent of city dwellers earn below Rwf300 000 per month. This makes renting high-end houses a dream to many of them.

It is worth noting however that the reason behind the high prices is due to high borrowing costs for property developers as well as low levels of infrastructure development within the city suburbs. In addition high electricity prices and unreliable availability of water in the city increases costs.

Housing supply

However while construction remains the fastest growing sub-sector of the Rwandan economy (accounting for 27.2 percent of total turnover of the industrial sector), supply of affordable housing to the growing urban population remains a major challenge. According to Rwanda’s National housing policy, one priority problem to be addressed according to the EDPRS2 and Sector Strategy, is the shortage of decent housing which is affordable and accessible through the formal market. This problem is coupled with the current inability of the private sector to satisfy the growing demand for housing. The supply of housing according to demand is challenged by predominantly low income levels, resulting in a low purchase power for conventionally constructed housing units.

As of 2015, at least 60 per cent of city dwellers were renting. According to City of Kigali (CoK), the city needs over 1 000 units per year, especially for the lower and middle market segments. Most of the houses available on the real estate market target the customers that can afford them, ignoring those that cannot afford them who are at times forced to stay in inhabitable dwellings. From the available Kigali housing market, it has been found that by 2022, CoK will require at least 344 068 dwelling units (DU).

However, only 37 594 dwelling units will be supplied by 2022 considering the current circumstances. Hence, there will be a shortfall of 306 474 dwelling units.

Rwanda Housing Authority (RHA) emphasizes that it is prioritizing low cost housing in 2015 in a bid to respond to a long standing shortage of cost friendly dwelling units in the city. During the National Leadership retreat in March 2014, leaders emphasized the need to provide low cost housing units a priority for the government and RHA was tasked to oversee the development.

The Director General of RHA, reports that the body has acquired prime land in Ndera and Kanombe in Kicukiro District, which is suitable for the establishment of more than 2 000 dwelling units. The construction of the housing units is on course, adding that the authority is currently looking for a consultancy firm to draw the housing designs for the proposed units. The sites will be designed to accommodate between 70 to 100 high-density low rise apartment blocks per hectare. The housing units in Kanombe and Ndera are both targeting low and medium income earners and will have two to four bedrooms. Each unit will cost a buyer between Rwf15 million to Rwf30million, according to RHA.
In March 2015, another housing project was launched by the minister of infrastructure to see the construction of 7 480 affordable housing units in Kigali, a move seen to close the looming dwelling units shortage. It is expected to be rolled out in other major towns in the country to provide affordable housing for town dwellers. According to the plan, the project that will be located in Batsinda (Kigali) is expected to be finished in two years and will be carried out in two phases with the first kicking off this month which will involve roads construction. The project will see the construction of affordable housing units in Kanombe and Ndera the outskirts of the city with each project having 2 000 units, 2 743 units and 128 housing units in Rugarama Ziniya Pilot Project respectively. This according to experts will help the city of Kigali through its city master plan to address the challenge of accommodating the expected population growth from over one million currently to over 4.4 million by 2030.

The Kigali city has adopted a low cost model house worth US$10 000. In this model, some building materials, especially bricks are made on site which reduces construction costs since there are no transport costs in this case. The model which is funded by the government of Rwanda is going to be employed in a pilot project to provide 250 low cost houses in Batsinda, Gasabo district and it will be carried out by the City of Kigali. Private enterprises that want to play a role in provision of affordable housing for low income households are also adopting the low cost housing model.
The recent shift of commercial banks to boost the mortgage sector by increasing loans going to the sector mainly developers has led to an increase in housing units being constructed resulting in a decline in the cost of a unit to as low as Rwf 20 million.

In 2013, Rwanda’s insurance sector saw the entry of a new company, UAP Holding Ltd. In July 2014, the company announced that it would invest RWF34 billion in the local real estate industry in a bid to ease the housing shortage that Rwanda faces, especially in the City of Kigali. The project in Kigali is expected to boost its earnings from investments.

The chairman of REITs Rwanda says their target is to set up affordable housing in Nyamirambo and Gikondo, which have many informal settlements. They are targeting 2 500 units for low income earners during the first phase.

Property markets

In the last 13 years there has been a high demand for both residential and commercial buildings, the annual demand for residential houses is increasing at a rate of 25 000 per year and investment in the sector growing from US$100 million to US$480million. All this has been as a result of population growth, an emerging and growing middle class, increased diaspora investment in Rwandan property markets and the government investment in infrastructure expansion and modernization of urban and rural infrastructure.

Rwanda’s real estate sector faces many challenges including low supply. For instance annual demand is estimated at 25 000 units of which 8 000 – 10 000 are in Kigali. Rental is still high due to a lack of supply. 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.

According to the World Bank’s 2015, Doing Business Report, Rwanda made dealing with construction permits much easier by eliminating the fee for obtaining a freehold title and by streamlining the process for obtaining occupancy permit. Globally, the country stands at 34 in the ranking of 189 economies on the ease of dealing with construction permits.

Furthermore the country recorded a significant improvement on the indicator of construction permits, with a reduction of procedures from 13 to 10, and time taken to acquire the relevant documents from 104 days to 77.5 (Doing Business Report 2015). In 2014 the county reduced the building permit fees, implemented an electronic platform for building permit applications and streamlined procedures.

Policy and Regulation

The government of Rwanda is committed to accelerating growth rate in order to reach 11.5 percent per annum (EDPRS2). It is believed that the ‘urban economy’ can contribute significantly to this growth. Therefore the government is working on strategies to urbanise the country starting with six secondary cities – Rubavu, Musanze, Nyagatare, Muhanga, Huye and Rusizi which are considered poles of growth. The EDPRS 2 (2013-18) for the first time, emphasized the significance of good planning and development management. This process has led to creation of the urbanization and rural settlement sector, by which strategic goals and objectives for a sustainable, well-managed and integrated growth were outlined.

The government is also working on the promotion of “Grouped Settlements” this encourages local communities to settle in grouped morphologies to enable efficient servicing and use of resources. Secondary development within grouped settlements will be based on the support by private or semi-private players, namely land developers, private operators and enterprises, including banks, insurance companies, associations, community groups, and housing cooperatives. This type of conception is based on the principles of affordability of the rural housing scheme to the beneficiary and empowerment to participate in its implementation, and on integrating the entire social cross-section of households.

The National Housing Policy which was rolled out in March 2015 aims at fast-tracking affordable housing projects. Under the new instructions, the local government authorities would be required to inform its residents about the housing schemes under which they can apply for support. Government will support the supply of housing which is affordable to people within all income segments, and the creation of an enabling environment to do so. This policy will set the pace for private sector investment, as well as address economic, social and environmental standards to setup affordable housing support.
In August 2015, the division for Housing and Urban Planning at the Ministry of infrastructure (MININFRA) announced measures to ensure every Rwandan has access to affordable housing. Under the new instructions, the Government will offer basic infrastructure to developers including offering land than can cover 30 percent of the costs for affordable housing development. In addition to the above other infrastructure support will include roads, telecommunication, electricity distribution and social amenities. The below policies are in place to target housing delivery.
The law Governing Urban Planning and Building in Rwanda from 2012 establishes the basis for planning and building in Rwanda, including general provisions on the types of plans and the types of urban development related activities and tools, as well as general provisions on building. It refers to a number of implementing orders to be developed, many of which have by now been drafted and submitted for cabinet approval in 2014.

The law governing human habitation in Rwanda, gazette in 2011, governs the occupation of land, and construction on lands reserved for human habitation. It includes provisions for grouped settlement sites on occupied land, and requires minimum infrastructure provision for human settlements.

Opportunities

Housing finance demand, both mortgage and microfinance, in rapidly urbanizing 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. 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.

The government has established a Housing bank to provide loans to Rwandans so as to own houses at an affordable rate in three major ways; housing for employees, housing for sale and housing for rent to low-income households. However this only benefits people with a reliable income.

RHB together with the National Social Security Fund (NSSF) are coming up with options to benefit those with less income so as to get low cost houses. A pilot in RHB is providing funds for expropriation of land for development of affordable housing and a pilot in Batsinda is being financed by the NSS because access to housing for the low income households requires subsidies from stakeholders, for such houses to truly be available.

Another opportunity is that the Government is committed to strengthening of the ongoing integration and coordination initiatives, resulting in cross-sectoral partnership agreements; and in both public private partnership objectives as an important area to be emphasized for its positive prospects.
Sources

Buckley R., (2014) Affordable Housing in Rwanda: Opportunities, Options, and Challenges: Some Perspectives from the International Experience
City of Kigali Development Plan 2012/13
Economic Development Poverty Reduction Strategy II
Financial Sector Development Program Phase II (FSDP II)
Land Market Values, Urban Land Policies, and their Impacts in Urban Centers of Rwanda, Final Research Report 2014
National Bank of Rwanda. Annual Report (July 2013-June 2014)
Rwanda Economic Update: Financing Development in Rwanda 2015
Rwanda Ministry of Infrastructure; Urbanization and Rural Settlement Sector Strategic Plan 2012/13-17/18
Rwanda Ministry of Infrastructure National Housing Policy 2014
Land Governance Monitoring: A Pilot Study In Rwanda (Ngoga Thierry 2014)
Rwanda Vision 2020, 2000
Rwanda Housing Authority; Affordable Housing Development Project In Rwanda 2011
The Fourth Population and housing census, Rwanda 2012SENNOGA E. B.,; DIABATE A. S.; African Economic Outlook, Rwanda 2015
USAID, LAND PROJECT: Land Market Values, Urban Land Policies, and their Impacts in Urban Centers of Rwanda
World Bank (2015). Doing Business 2015: Rwanda.
World Bank 2012; Informal Housing: Reducing Disaster Vulnerability Through Safer Construction
Vision 2020 Umurenge Program (VUP)

Websites

http://www.rha.gov.rw/index.php?id=469&tx_ttnews[tt_news]=124&cHash=2d5741fddf91457fa864523996ac8f55
http://www.worldbank.org/en/country/rwanda/overview
http://focus.rw/wp/2013/09/supplement-land-registration-reforms-boost-doing-business-in-rwanda/
http://fortuneofafrica.com/rwanda/financial-institutions/
http://www.monpalais.com/2015/03/rwandas-new-housing-project-commence-with-massive-construction/
http://www.theeastafrican.co.ke/Rwanda/Business/Cimerwa-turns-to-peat-energy-to-lower-costs/-/1433224/2234412/-/1bru39/-/index.html
http://www.newtimes.co.rw/section/article/2015-01-02/184602/Rwanda http://www.newtimes.co.rw/section/article/2015-01-19/185101/
https://www.brd.rw/?Mortgage-financing-BRD-takes-lead
http://www.numbeo.com/cost-of-living/country_result.jsp?country=Rwanda