Finally, a house at Rwf20 million!

After a spate of negative publicity regarding the billboard ban, road closures and mismanagement of car free zones, City of Kigali got some positive press this week, alongside Shelter Afrique (SHAF) and the Development Bank of Rwanda (BRD). The three parties are collaborating on a fascinating affordable housing project involving the redevelopment of an informal settlement located at Rugarama, in Nyarugenge district. It is a big money project expected to cost US$160 million dollars, create some 54000 construction related jobs and deliver 2700 units of 1, 2 and 3 bedroom units. Our BRD is meeting the bulk of the bill with SHAF, the continent’s only pan-African finance institution that exclusively supports the development of the housing and real estate, investing US$60million in the project. The average cost of a housing unit in this ground breaking project will range between $60, 000 (Rwf48million) and $25000 (Rwf20million). At least 50 percent of the project has been earmarked for sale at Rwf20million, under the current dollar exchange rate with delivery of all units expected within the next three years. It is hard not to be excited by such news, in spite of past experience where such projects have been publically launched but secretly failed to kick-off. A decent modern house at Rwf20million is the closest we can perhaps get to an authentically affordable dueling unit in Kigali, under the prevalent commercial circumstances. However, the State needs to go beyond supporting real estate developers to put up inexpensive houses and explore policies through which they can actually facilitate Rwandans to own properties in these fancy projects through accommodative housing finance schemes. A good starting point is to review the current commercial mortgage rates. For a twenty million house, your typical buyer would be a guy in his first job, probably earning Rwf300,000 a month and with a long list of personal social needs and dependants. Yet under the current mortgage circumstances, to commercial banks, such a person can only qualify for a mortgage facility of slightly more than Rwf10million, at an interest rate of 18 percent repayable in a fifteen year period. The bank will normally also require the buyer to commit a down-payment of at least 30 percent the value of the property; that would be about Rwf6million off a property of Rwf20million. Now, how much do you save in a year? Don’t mention it! There is no prize for guessing right that majority of salaried earners in this our city earn between Rwf250,000 and Rwf600,000. While a house of Rwf20million ideally belongs to people in this income segment, it is unfortunate that they also don’t have a mortgage product they can afford. It is why commercial banks have understandably been involved with persons earning above a million francs a month, quite in line with a recent City of Kigali sponsored survey that found that to qualify for a decent mortgage facility, one needed to be earning above Rwf900,000 a month. To beat that, many a young person, I know, have had to resort to early marriage, shortly after graduation in order to combine incomes of hubby and wife to at least be able to afford a joint facility; a solo project is simply impossible. The other alternative for most is progressive construction mortgage facilities, where they shun outright buying for personal construction, to avoid the life-sentence of facilitating an expensive mortgage facility. What must we do? First, we must also appreciate that Rwandan housing taste and preferences are delicate and quite hard to satisfy. For instance, the Rwf20million house is likely to be a 1 or 2 bedroom unit. That is a very unpopular typology for a typical Rwandan, single or married. The minimum they expect is a three bedroom house, with a decent garden and an annex behind the main house. With land and cost of construction, such a project, fully completed, will come at no less than Rwf50million in suburban Kigali. Housing is one area where we have decided to keep our taste expectations traditional compared to, for instance mobile phone technology. Ideally, a small two bed room modern apartment built with rice straws would be the equivalent of an iPhone 7; but the house version of an iPhone is unpopular. While we need to change our mindset and embrace small and cheaper houses, here is what government must do, in the short run. Try and work with banks to find long-term financing, accessed cheaply in order to help them design more affordable mortgage facilities that resonate with the income levels of most salaried workers in Kigali. With long term and cheaper credit available to banks, we can now fix interest rates on mortgage products, say, not more than 10 percent, for specifically first home buyers. As for the Kagarama project, to ensure that those Rwf20million houses are actually bought by the intended target, let us design a housing rotary where participants are those in a predefined income segment, with say Rwf500, 000, they can participate in the rotary to book a unit in the estate. There is simply so much that we can do to amplify benefits of the government’s efforts to delivering affordable housing, unfortunately, the conversation on housing seems to be lacking a moderator; as a result, everyone is talking but no one is really listening.

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Finally, a house at Rwf20 million!