We need a study on real estate economics

Editor, RE: “Property devt boom ‘a vote of confidence’ in Rwanda’s economy” (The New Times, December 13). Real estate development is a cycle, it booms and bursts, dips and rises. The real estate sector has four sub-sectors: Housing, retail, hospitality and commercial sectors. Real estate economics, like all economics, is governed by factors of supply and demand. If the supply is more than demand, a burst is likely while if demand outstrips supply a boom is likely. A healthy balance needs to be achieved, led by the Government and factors affecting both supply and demand need to be thoroughly analysed and relevant policy interventions identified. For supply, the rate of construction is important and healthy rate of new constructions should be about 3% in any economy. My rough guess is that Rwanda could be in the 10-15% new constructions per year. A second factor is construction costs. With high construction costs comes high price of houses. On the demand side, some factors affecting demand include population of a city/place and the purchasing power of a population. The factors are not exhaustive and could be many more. Now if you map the above factors against the four sub-sectors mentioned above, it makes sense that currently housing is the most healthy real estate sub-sector in Rwanda (although with all the affordable housing projects all over this again may lead to an oversupply), hospitality has suffered its burst as witnessed by the small and medium hotels that were auctioned. The retail and commercial sectors now need urgent interventions to avoid a likely property burst. It goes without saying that a property burst has adverse ripple effects on the economy due to its high percentage contribution to an economy. I propose, as the way forward, that the Ministry of Infrastructure (specifically Rwanda Housing Authority) and the Ministry of Finance/Central Bank urgently commission a study on real estate economics in Rwanda. The study would then inform policymakers on what policy interventions are required to ensure the sector is healthy. This needs concerted efforts of all stakeholders in the real estate sector. Secondly, for real estate developers/owners, invest in a good real estate/business plan study that will feed into the actual building design. Then get your architectural plans and go to the bank for funding. Problem with getting the bank to approve your projects is that the bank has nothing to lose and will approve as big a project as it can, because eventually it has covered its back with your guarantee to recover its money. Hope some actions can be taken soon. Kigali Girl

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We need a study on real estate economics