Interview: Create synergies to exploit housing units law – expert

The real estate industry has been severally mentioned as one with a lot of potential to attract local and foreign investors, increasing Rwanda’s appeal as an investment destination. Yet a majority of citizens in the middle class unable to own home due to high costs. The New Times’ Collins Mwai spoke to Mark Essien, the managing partner of Cromwell Urban Developers, a Nigeria-based real estate firm with operations in Rwanda, for insights into the sector. Below are the excerptsAs a foreign investor in the real estate industry, what do you consider before venturing into a market?The first is political stability of a country; the environment has to be calm for investors to conduct their business and Rwanda has that. Investors also consider the sincerity of the political class and the government.A good example is the Rwandan government, when they pledge to do something for their people, they do it. That is crucial for an investor while planning the pace of their investment in an area.Another thing a potential investor is likely to look at is the success of other foreign investors in the country to see how friendly an environment is to any foreign investors.Investors also consider environmental appeal, because as much as we are investing, we would like to lure in other investors who are outside to put in their money. The legal framework around investments is another factor investors consider.So far what is your assessment of the local real estate sector?The first batch of real estate surveyors graduated last year. That shows that all the while there has not been expertise in the field. By my personal research, there have not been many who went out to study about the industry.That has made the industry an all-comers’ industry; professionals from other fields have been dominating it.The economy is highly growing and dynamic. In such an economy, we need expertise to strengthen sectors. We need to work by global standards so that whatever we develop meets standards of the global market considering that the country is now attracting investments from all over the world. The same model makes provisions for how valuation should be done.With a population of about 11 million in Rwanda and going by United Nations reports, there is a huge deficit of housing, especially in Kigali, and it is set to grow going by results of the 2011 population census.This leaves a huge market opportunity for investors in the real estate sector, and other sectors that work hand in hand with real estate like financiers. It also means that we are not only to fill a gap but we must work to ensure that property and development is competitive in terms of quality and pricing.There is a lot of potential in the industry although the industry is generally slow but it is picking up.For a long time now, there has been talk that the chances of the middle class owning homes are getting slimmer. Most homes are financially out of reach. What should be done to see to it that this changes?The challenge in real estate is that there are factors that are beyond the private sector players. When a private developer acquires land in the open market and develops it, it could easily be out the financial reach of most citizens by the time he is done working on it.The government has a key role as the regulator, one of the things they can do is provide incentives to developers by assisting to subsidise cost of land. With that, the cost of the developed housing units or property can be held back from being unaffordable and the government can also put price caps in the cost of property to protect buyers.Encouraging development of property out of town, in the rural areas would be a good move to ensure affordability of property.Through agreements with developers, the government can have specific rural areas developed for the interests of civil servants or any other groups whereby the property will be co-owed by the government or by local associations.Real estate developers have listed high cost of construction materials among the reasons for high cost of property as most of them are imported, how can this be handled for both the developer and client to go home happy?The government remains the key stakeholder in dealing with this. If most of the materials are imported, there is need to come up with ways to attract the producers of the materials to put up plants in the country to reduce the costs taken up in logistics.It would also help a lot giving incentives such as tax exemptions to the importers of certain materials that would influence the prices of building materials.Local developers should also see how to make use of the cheaper locally available materials without influencing the quality of property.There have been cases of construction projects that have been abandoned half way by developers or even when they go through with it, it is not worth as much as the investor put in….The main cause of stalling of such projects is if they were emotionally driven without proper assessment of the viability of the property.Emotionally-driven projects lack rational analysis and the developer could easily get frustrated half way through it and abandon it.Poor pre-investment analysis could also cause the end product not to be worth as much as it should.This is why there is need to put to use services of knowledgeable property valuers. There should be tight regulations in the registration of qualified property valuers to reduce chances of reoccurrence of such cases.Rwanda recently put in place a condominium law to facilitate easier ownership of housing units without having to own the entire building, how better can this be used to address the housing gap?That is a positive move to be commended. It will lead to synergies that will widen the scope of development as several people can team up and develop property. Synergies, if well managed, always expedite and increase value of property.In the local property development scene, there is a policy that requires commercial building developers to factor in the needs of persons with disabilities. So far, only the new buildings are compliant but there is still a majority of buildings to comply. Does having facilities for PLWDs affect the cost of property?It may not necessarily affect the value of the property. For it to affect the cost of property, there are several factors like the percentage of Persons Living with Disabilities and their competitive strength in purchasing property.But that does not mean they should not be considered while developing property, being citizens they have a right to access buildings like anyone else.There is, however, need to have a law in place that will ensure that property developers put up facilities for PLWDs because some of them could ignore it as it comes with additional costs that may not be recovered while selling or renting out the property.Infrastructure and real estate development are related and with the rate of real estate industry, there might be need to reconsider the pace of infrastructure development like water and sanitation services as well as roads. Is there reason to worry that infrastructure may not match the pace of real estate development?There is a lot of demand regionally and beyond to invest in Rwanda, there are many people looking to come and do business in the country, which could create fear that we may end up having the infrastructure overwhelmed.But the fear could be overcome if there is good planning by the government. Pro-active planning is the only way to deal with infrastructure needs, considering the city’s population growth rate and trying to ensure that all necessary infrastructures will be at par if not ahead.To be on the safe side there is need to look at it from an ‘explosive’ angle, where they will consider a higher than the expected population growth.Slums are born out of presence of high population that can not afford standard housing in cities most of them turning into informal settlement, speaking of the interest that Rwanda and Kigali have generated in the recent past, how can we reduce chances of slums emerging?We should probably begin by tackling the challenge before it comes up by encouraging investors to invest in rural areas so that the population there is comfortable reducing chances of Rural to Urban migration which is the leading cause of population influx which leads to growth of informal settlements.Infrastructure development in the rural areas, coupled with social amenities, greatly reduces chances of migration.The government could also consider partnering with select private sector firms to provide low cost housing to the population that emigrates to the urban areas that targets the would be slum dwellers.That goes down to cheaper materials and technology to ensure that the cost of the housing units doesn’t shoot up. We need a model that caters for social and financial needs.As an investor, what would you like done to make the environment more conducive for real estate investors?Continued development on the current infrastructure to cater for the country’s growing needs and upcoming property developments. That will see investors putting up properties and going out to develop property beyond the city.Development of skills will also make it easy for some real estate investors as it will reduce cost that would have been incurred in bringing skilled workers from outside the country. It will also come in handy to increase job opportunities for Rwandans.A real estate model that you would advise us to consider considering the high demand for housing and land size?One that I would encourage to be adopted is joint ventures where there are partnerships in developing property to cut on costs incurred by individuals or organisations.The government is also welcome in the partnerships. With that those with small amounts of capital to develop property are also catered for, most of them being the middle class who have been previously unable to afford housing.The model also creates public confidence in investors as they also have a stake in it.

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Interview: Create synergies to exploit housing units law – expert