Rwanda grapples with low-cost housing crisis

A picture taken on January 2, 2014 in Johannesburg shows the entrance of the "Michelangelo" Hotel. Colonel Patrick Karegeya, former head of Rwanda's external intelligence service, was found after being murdered in the "Michelangelo Towers Suites", where he has lived in exile for the past several years, the opposition party he belongs to said on January 2. PHOTO | ALEXANDER JOE  AFP

By BERNA NAMATA The EastAfrican

In Summary

• Country requires at least 25,000 housing units every year, but developers say the cost of land, mortgages and building materials have made it difficult for more investment in the sector.
• Rwanda imports almost 80 per cent of construction materials from neighbouring countries and overseas.
• While commercial banks recently repackaged their home and mortgage products to make them attractive to buyers, they remain too expensive for ordinary Rwandans.

Rwanda is facing a housing shortage with developers blaming high cost of land, building materials and mortgages for a fall in the number of low-cost houses coming up in the market.

The country requires at least 25,000 housing units every year, but developers say the cost of land, mortgages and building materials have made it difficult for more investment in the sector.

However, supply of houses targeting the upper class have surpassed the demand leading to decline in prices.

READ: Expensive Kigali land chokes low-cost housing growth

For instance, rent for high-end residential housing have dropped to approximately $1,300 since last year, from about $2,000 a few years ago.

“Because prices of high-end housing are reducing, now most landlords prefer to occupy their houses or turn them into guesthouses,” said Charles Haba, a real estate dealer in Kigali.

Rwanda imports almost 80 per cent of construction materials from neighbouring countries and overseas.

“As long as these issues are not addressed, it is not going to be possible to attract real estate developers into low-cost housing,” Mr Haba said.

While Rwanda’s construction sector continues to thrive, growing on average over 10 per cent in recent years, most of the construction is of commercial buildings due to the rapid economic growth.

The few real estate developers who have ventured into residential housing have focused on the upper end of the market, creating a chronic shortage for low and middle-income earners.

“The demand is huge. What is killing this huge demand for low-cost housing and high interest rates on mortgages,” said Shane Dale, the chief executive officer, a property consultant in Kigali.

While commercial banks recently repackaged their home and mortgage products to make them attractive to buyers, they remain too expensive for ordinary Rwandans.

On average a house, which is considered affordable costs Rwf40 million ($57,662) but attracts an interest rate of at least 18 per cent for 20 years. While this is relatively lower compared with those in Kenya and Uganda, it is still too high considering the size of Rwanda’s economy.

“If the mortgage rates can be lowered, we feel the demand is there, and this will drive massive construction because with the free flow of labour in the region it is easier to get the skilled people to get the work done,” Mr Dale said.

READ: KCB Rwanda plans to grow its mortgage book