Rwanda has a growing housing finance sector. As the mortgage market does not yet meet the breadth of the population who might afford a mortgage, most households still finance their housing independently, with savings or non-mortgage credit.
The lowest recorded interest rate on a mortgage in Rwanda is 17.26 percent repaid over a term of 15 years, as of September 2016, and requires at least a 20 percent down payment. The cheapest newly built house by a developer recorded by CAHF is US$ 38 000.00, which is for a 95 square metre unit. Cement prices are higher than the continental average, at US$ 12.00 for a 50-kilogram bag.
With an urbanisation rate of 5.76 percent, demand for affordable housing will remain strong, both for rental and purchase. Housing microfinance will play an important role in increasing the supply of housing, and efforts to increase access should be undertaken. A National Affordable Housing Approval Committee, was established by the Prime Minister. This committee has approved the first affordable housing development, Batsinda2, where more than 530 housing units will be developed. Seven other housing development sites with a total land area of about 257.5 ha are open for investors to develop high density, mixed use housing. At least 22 000 housing units are estimated to potentially result from this in the mid-term. With a good macroeconomic environment, sound policy, better data and increased access to affordable credit, an enabled housing market can increasingly provide housing that the average household in Rwanda can afford.
Find out more information on the housing finance sector of Rwanda, including key stakeholders, important policies and housing affordability:
- Access to Finance
- Housing Affordability
- Housing Supply
- Property Markets
- Housing Policy and Regulations
- Housing Sector Opportunities
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2016 edition, which has up-to-date profiles for 51 African countries.Download yearbook
Rwanda pursues a series of reforms aimed at improving living conditions and service provision to the population. Over the last 10 years, Rwanda’s GDP grew 8% on average. As at March 2016, Rwanda’s credit rating was rated as B with a negative outlook, by credit rating agency Standard and Poor. Rwanda was ranked Africa’s most efficient Government in the 2014-2015 Global Competitive Report and the 2nd most competitive place to do business in Africa after Mauritius. It is positioned 62nd out of 189 countries in the World Bank Doing Business 2016. Such achievements can be attributed to strong political will driving these positive changes.
The national five-year development plan – Second Economic Development and Poverty Reduction Strategy 2013-18 (EDPRS2) – emphasises on coping with the challenges of the urbanisation process by taking a proactive approach to well position Rwanda for the future. The overall goal is to promote good urban and human settlement development that enhances local and national economic growth, and ensures good quality of life for everyone. A fundamental concern in the context of accelerated urban and demographic growth is access to housing. Since the early 2000’s, the way to an exemplary housing policy had been paved, and it is now well under implementation. With the uniform registration of land ownership, land reform has made way for a formal real estate market as a legalised part of the national economy. Subsequently the formation of a private construction and real estate sector has been triggered.
The understanding of the actual housing demand in the context of financial resources available to average private households made housing a high level priority. Housing construction shall no longer benefit only a minority, and urban renewal processes must be based on socially acceptable strategies. In the foreground of the National Housing Policy, 2015, stands the vision of “access to housing for all”. Besides goals of how to maintain sustainability in human settlement development, the policy explores a set of housing access scenarios with the purpose of integrating all society levels within its strategy. It is now essential to enhance capacity in the real estate and construction industry, with the aim of increasing the quality of planning, design and construction. Since 2015, the government’s commitment to facilitate housing is reflected in two concrete legal documents which offer government incentives for private investment in affordable housing.
Access to Finance
Bookstaber, in a study for the Rwanda Development Bank (BRD), noted that Rwanda’s policy environment for mortgage lending, home building and investment in affordable housing stock is increasingly enabling, but insufficiently used. The available framework, important for modern housing finance, is characterised by i) an electronic land registry; ii) a modern mortgage law; iii) a law enabling off-balance sheet securitization of mortgage assets and other asset-backed securitization; and a law enabling real estate investment trusts.
So far, while more than banks are registered to provide the service, few banks offer active mortgage lending. There are five banks active in providing housing mortgages, which are the National Bank of Rwanda (BNR, for staff), Rwandan Development Bank (BRD), I&M, Bank of Kigali (BK), and Kigali City Bank (KCB). Rwanda’s financial sector consists of nine commercial banks, three microfinance banks, one development bank and one cooperative bank, and by microfinances institutions (11 limited companies, 63 savings and credit co-operatives (SACCOs)  and 416 savings and credit cooperatives at Sector level (UMURENGE SACCOs). Those are complemented by non-bank financial institutions, including ten private and two public insurers, and one public and 52 private pension funds.
To make housing more affordable, a mixed set of instruments targeting the supply and demand side of housing is being considered by the government, of which the first two – supporting developers – are operational. The government already supports construction of infrastructure services and facilities related to affordable housing projects. It further supports the preservation and upgrading of urban neighbourhoods and acknowledges the importance of the existing housing stock.Further discussed are funding to emergency repairs as part of disaster response, schemes for material bulk purchase for government assisted housing programs, and enabling of access to capital for subsidized low cost and social housing programs. In support to the side of households, forms of assistance for low and very low income households for renters and buyers are discussed.
The Rwanda Development Bank (BRD) in its draft business plan discusses the mortgage lending regime. Taking into account that the build up from a risk-free mortgage interest rate is comprised of credit risk, interest rate risk, liquidity premium, operational risk, servicing fees and uncertainty premium, a total build-up of about 5 points was identified as being reasonable in Rwanda; according to figures published by the Central Bank of Rwanda, the spread of the lending rate over inflation was 17 percentage points in October 2015, with a high point over the last three years. The spread had an average of 8.4% over the past three years. The study highlights the importance of a clear mortgage pricing system and a transparent methodology for re-pricing interest rates on outstanding mortgage loans, as interest rate levels change over time.
The immediate goals in the housing finance sector are to develop the long-term investment sector including the insurance industry and long-term savings schemes; active and fair competition in mortgage lending, and facilitation of liquidity in mortgage lending through securitization legislation. BRD proposes a Secondary Market Facility to serve the overall Rwandan mortgage market by sustaining mortgage liquidity. The entity would link between the banking sector and the capital markets, buy mortgages and either hold them in its own portfolio and/or pool them into securities for long-term investors. While BRD would service one regulated construction mortgage finance line, the risk for large scale affordable housing projects would be spread to several banks. To foster a high volume of lending as quickly as possible, BRD further proposes a Revolving Credit Line Facility. BRD intends to collaborate with banks who are interested in developing their own construction finance departments under their own corporate identity.”
Rwanda has the highest discrepancy between the Gross National Income per capita and the cost for cheapest newly constructed (formal) house in Africa. Consequently, less than 10 % of households are able to afford a formal housing unit. High subsidies would be required to make units accessible to poor families and those families with median income, while the housing deficit is expected to increase since the required expenses would not meet demand. In the EDPRS2, the Government targets a framework which facilitates private sector-led housing finance and construction. The National Housing Policy identified the discrepancy between incomes and formal sales costs and has initiated a discussion about how to enable access to housing for all. Its vision is: “Everyone independent of income, base of subsistence, and location shall be able to access adequate housing in sustainably planned and developed areas reserved for habitation in Rwanda”.
Monthly household incomes valid for the City of Kigali, in the market quintiles 1) very low (81.03%), 2) low (11.25%), 3) mid (4.17%), 4) high (2.41%) and 5) very high income (1.13%) are about US$ 0-380 for the first quintile, US$ >380-720 for the second quintile, US$ >720-1 140 for the third quintile, US$ >1 140-1 900 for the forth quintile, and US$>1 900 for the fifth quintile. Countrywide, the average household income differs significantly from household incomes in Kigali: the national average annual household income is US$368, which is a monthly income just above US$30.
The disproportion between affordable house costs compared to actual house costs is significant. To be able to afford the lowest cost formal house in the market, which is above US$25 000, an urban household income would have to be more than triple the current average; to be able to afford a commonly available house of US$125 000, incomes needed to be more than 16 times higher .
The National Housing Policy highlights that, despite the constraint of high interest rates prevalent in Rwanda, the bigger challenge is the value and regularity of household income. Lowering the interest rate for home owner mortgage would not cause significant change for the lowest income earners. A wide approach is needed to make housing affordable by addressing i) cost-efficiency in design, construction, and construction management; ii) increase of available material resources; iii) decrease of unit sizes and floor area per person; iv) use of technologies which allow lower construction cost; and v) settling households closer to economic opportunity. Above areas are now consistently integrated as part of the guiding framework.
Rwanda, since 2015, has financially incentivizes large scale private investment into affordable housing, and in collaboration with the banking sector addresses accessibility of financial products. Government supported affordable housing development projects must fulfil predefined eligibility criteria and target specified beneficiary profiles. The criteria state that a project must offer a variety of housing unit categories and sizes; exceed the minimum density provided for by urban planning code; and be designed under predominant use of locally produced or locally prefabricated construction materials as far as this is possible. A developer is expected to include an on-site training program and to contract local or national small and medium enterprises for more than half of the works. Housing development will also be financially supported if meeting one of the following requirements: the sales cost per square meter of a housing unit, excluding the cost of public infrastructure, shall be below a set benchmark; beneficiaries shall be offered an affordable financial scheme to access a unit; or the developer may be a cooperative formed by individual land holders of the housing planning area, with members fulfilling the beneficiary conditions.
According to EICV4, 62.6% of all urban households country-wide live in unplanned urban settlements. The reason for this is the accessibility of housing units corresponding to quantitative demand and most households’ financial capacities. There is a supply backlog of 344 068 formal housing units in Kigali alone. About half of the demand is among households with monthly incomes of up to US$ 250. With Rwanda’s Vision 2020 supporting an urbanization rate of 35% by 2020, an additional demand of 350 000 units is estimated countrywide.
A National Affordable Housing Approval Committee, established as part of the Prime Ministers Instructions No 004/03 of 13/09/2015, which ensure transparency in Government support provided to projects. The committee has approved the first affordable housing development, Batsinda2, with more than 530 housing units to be developed. Seven other housing development sites with a total land area of about 257.5 ha are open for investors to develop high density, mixed use housing; mixed land use is considered important to assist residents in increasing their socio-economic levels through proximity to local economic opportunities. At least 22 000 housing units are estimated to potentially result from this in the mid-term.
It is being reported that the newly offered incentives clearly appeal to investors in the sector. Over the course of the coming three to five years, 4 500 affordable housing units are expected through involvement of the BRD with 20-30% equity participation. There are currently plans for a Rental Housing Company with BRD and RSSB as shareholders, support from Shelter Afrique, and Guarantco involved in the bond interest guaranteeing. Planned are a minimum of 800 rental units targeting households with monthly incomes around US$500. The intention is to trigger the professionalization of a formal rental housing market which would integrate professional asset management. An important long-term strategy is to increase awareness about the opportunities in collaborative development as part of urban renewal, where original land holders either form cooperatives to finance their development projects, or team up with a private investor and hold shares in the redevelopment, with administrative procedures guided and supported by local governments.
The foundation for a formal property market has been set with the National Land Policy and the Land Tenure Regularization Program (LTRP), which implemented the Land Policy from 2008 onwards. The LTRP resulted in the issuance of registered titles to every landholder in an effort to unlock the potential for sustainable growth, based on a clear framework which would be equally valid to all users of land. The land and property market activity is increasing as a consequence of the reform, and the real estate and construction industries have formed and become potential drivers of economic growth in Rwanda.
No complete and comprehensive property market studies are available so far. However, a case study from 2015 helps to confirm market activities after land reform implementation. The case study identified 27 land or property transactions among 120 respondents between 2011 and 2013, and 30 transactions between 2014 and 2015. Although the case in a neighbourhood in Kigali may not be representative of all urban areas, it does however highlight that about half of the respondents have made a form of transaction within four years; before land reform implementation, only about one fifth of (mostly informal) house owners considered the option of a future sale. With property registration effective, efficient and accountable building permitting, and with urban master planning documents available, a continuous increase of property transaction is expected especially in the City of Kigali and the six secondary cities promoted since the EDPRS2.
Housing Policy and Regulations
The National Housing Policy, adopted in March 2015, envisions enabling everyone irrespective of income, base of subsistence, and location to access adequate housing in sustainably planned and developed areas reserved for habitation in Rwanda. The Policy strategizes the way toward positive impact on the increase of employment rates, skills transfer, and on quality enhancement in the local construction industry – all seen as factors contributing to the vision of increasing wealth for all. In three policy pillars, the document covers the aspects of access to housing, resource efficiency, land, infrastructure, skills development, enhancement of the local construction industry, construction materials and technology, townscape and liveability, as well as public responsibility. The Policy provides a framework to enable the private sector to satisfy the current and growing demand for housing in terms of quantities and access costs offered to clients. It addresses support to purchasing power among the population through saving for housing, and pooling of individual resources, and financing models accessible to the full range of residents, including low income earners. Lastly, it emphasizes principles of quality and professionalism in the planning and construction of neighbourhoods and housing, and combines land, land use, urban planning and housing policy directions in order to achieve the efficient use of land and resources when developing housing.
The Law N°10/2012 of 02/05/2012, Governing Urban Planning and Building in Rwanda, guides the overall framework for urban planning and building. It is implemented through a set of implementation orders. The orders in their co-existence support cross-sectoral and cross-hierarchy coordination and consider different types of planning and framework for the integration of civil concerns. They provide clear procedures for local management to support sustainable, integral and inclusive development, clear institutional framework and decentralization, local economic development, citizen participation and accountability mechanisms. The orders further specify urban plan processes to be followed, the legal basis for building and real estate development permitting, and for development management at plot and site level. They provide for public administrative procedures, such as planning auditing, public inspection, and guidance to physical principles of urban planning and building.
Two legal documents adopted in 2015 intend to facilitate private investment in affordable housing. The Prime Minister Instructions No 004/03 of 13/09/2015, Determining the Conditions and Procedures for Obtaining Government Support for Affordable Housing Projects, are a step toward the collaboration with the private sector in housing delivery. The instructions represent a commitment by the Government to finance neighbourhood infrastructure. They also relate to the profiles of beneficiaries of supported housing units, affordability of access schemes to housing (which may either look at the sales prices or affordability of financing schemes), resource-efficiency, and local skills enhancement through collaboration with local Small and Medium Enterprises.
The Law N° 06/2015 of28/03/2015,Investment Promotion and Facilitation, incentivizes investment in affordable housing. It offers tax incentives, such as a preferential corporate income tax rate and accelerated depreciation for investments in construction projects worth US$ 1.8 million or more.
Housing Sector Opportunities
Rwanda’s National Housing Policy reacts sensitively and holistically to the country’s housing situation by demonstrating innovative solutions under strict adherence to the challenging starting conditions. Essentially, in an effort to overcome the limited resources at the household level as well as at the macro level. It is now essential to fully concentrate on completing all strategic, technical and institutional improvements. It is especially considered appropriate to develop such housing finance and development solutions where financial risk is carried collectively, to ensure that the largest population groups with low and irregular income receive opportunities for improvement to the personal socio-economic situation. The opportunities lie in a close collaboration between the Government and private sector. From the side of the Government, an approach prioritising investment in public infrastructure to service urban land area, poses a continuous priority. Completion of fiscal, monetary and tax policies should be further pursued to cause rise of household incomes through facilitating increase of employment opportunities; increase domestic productivity and production of building components and materials; offer incentives in support of savings for down payment on a first house, first-time homebuyer tax credit for interest on a home mortgage, tax abatement to investors in affordable housing in clearly defined categories; and support the competitiveness of the local construction industry by emphasizing on professionalism and supply capacity of construction materials, as well as construction.
The private sector, with government facilitation, should take on the development of a long-term investment sector, including the insurance industry, private sector pension funds and other long-term savings vehicles, as well as the fostering of active and fair competition in mortgage lending, backed by securitization legislation.
A transnational organization could specialize in addressing certain challenges on behalf of their member countries that they usually cannot yet carry in the development context; it could, in particular award investment guarantees under clearly defined conditions and, where appropriate, offer loan guarantee programs for home seekers.