The facility meant is designed to be a game change in provision of bigger stocks of affordable homes in the market through cheaper long term mortgages targeting lower income earners
|The retail cost of mortgages in the country seen as a critical component in boosting construction and eventual supply of bigger stocks of affordable homes especially in Kigali city could drop significantly in coming days as the government increases its intervention in the local housing finance sector.|
The issue of constructing and supply of bigger stocks of affordable homes needed to adequately satisfy the needs of majority of Kigali city residents with decent shelter will continue receiving attention of key public players in the economy if recent efforts by key public organs is anything to go by.
Experts familiar with the matter say that a $150 million funding line from the World Bank Group specifically International Finance Corporation (IFC) and other arms of the multilateral lender that was requested and put in place by the ministry of finance and economic planning(Minecofin) is set to be aoperational by before early 2019.
The major objective of the new funding line from the multi-lateral financier according to experts is that it is meant to cushion the local mortgage financing sector in a way that the mortgage subsector can positively impact on boosting supply of construction and supply of greater stocks of affordable homes by private sector developers over the medium and long term.
Analysts are quick to point out that the local mortgage financing subsector currently dominated by a few commercial banks are keen to offer expensive and short term facilities thereby rendering the local mortgage sub sector ineffective in boosting affordable housing sector prospects.
In a bid to offer a sustainable solution, Minecofin has put in a request to World Bank for a government backed loan facility whose proceeds will be used to provide cheaper, longer term and therefore cost effective mortgages whose cost and tenure profiles is meant to be passed to the final end user which in this case is the owner of an affordable home as one way of strengthening value chains in the local housing sector.
The profile of a prospective owner of an affordable home owner targeted by the new government backed up facility is a worker within low income brackets.
Analysts paint the low income earner as a worker single or couple working within private or public sector or living as an entrepreneur earning approx. Rwf 150,000 to Rwf 350,000 per month.
This particular worker is profiled by analysts as someone who is capable and is need of acquiring through mortgage of a home retailing and available in the market at between Rwf 7 million to Rwf 30 million with repayment of between Rwf 50,000 to Rwf 75,000 per month over a 15-20 year tenure at affordable interest rates ranging between 11 to 13 percent per annum.
It is understood that the capital proceeds of the new housing fund will be used by government to set up and operate what could easily pass as Rwanda’s new mortgage financing company targeting the affordable housing sector especially low income earners .
The intervention comes at a time when the housing sector in Rwanda has been plagued by multiple challenges in both demand and supply aspects limiting chances of home ownership especially low income earners majority of whom work in the country’s public sector.
Currently, mortgage loans in Rwanda are in the range of 16 per cent interest per annum or above with shorter tenures of between 5 to 10 years which is beyond the reach of potential owners of affordable homes in the market. This sort of scenario has continued to create a market distortion further compounding the challenges in provision of decent shelter to majority of Rwandans.
Minister of finance and economic planning Uzziel Ndagijimana while breaking the news of the new developments recently stated that the proposed intervention is part of concerted efforts aimed at boosting commercial prospects of affordable housings sector in line with national housing policy.
“We are starting a new housing fund which we are going to use a seed capital injection of $150million, a loan from the World Bank Group which can be used spur development of at least 6,000 homes. The money will be a revolving fund and will provide cheap loans below commercial rates and combined with a long period for repayment,”
The latest move by government to set up and operate a mortgage financier with an eye geared towards the affordable housing sector is in addition to its previous major intervention meant to strengthen value chain the housing construction sector.
The government in early 2018 put in place a multi- million dollar funding mechanism meant to fund provision of basic infrastructure in mass housing projects to order reduce final retail prices of homes being supplied in the market by about 30 per cent.
A major likely long term trigger of the latest move by government is that local commercial mortgage financiers are very likely to rethink and review their strategies in the market to match new realities as potential clients are prone to shift their focus to the new financing firm fronted and funded by government that is keen on offering cheaper and cost effective alternatives.
Experts say that increased competition to be brought by the new player in the mortgage financing sub-sector could improve the diversity of products in the sub-sector thereby boosting construction and by extension supply of affordable homes in the economy.
Rwanda Development Bank (BRD) CEO , Eric Rutabana, weighed in on the issue by stating that there is need for putting in place long term affordable financing mechanism to address issues on the demand side of housing.
“There is need for more private public partnerships to address shortcomings in the sector. The status quo in the market has seen developers prefer high end housing projects -often out of reach for most Rwandans- as they are promised better returns in the short term”.
By Collins Mwai