One of the fastest-growing economies in the world is Rwanda’s economy. Thanks to economic and structural changes as well as substantial international backing. In the ten years leading up to 2018, annual growth averaged 7.5 percent. Through its National Strategy for Transformation and Vision 2050 strategy, the government has set even greater goals: to achieve middle-income status in 15 years. It will necessitate a change in the economy toward high-value, competitive sectors, particularly those with export potential. Better regional economic integration through the East African Community (EAC) and access to ports through Kenya and Tanzania would also be required.
On the other hand, Rwanda can drive one area of growth with private sector participation: housing, not dependent on export markets. Fast urban population growth—estimated at 5.75 percent yearly, more than twice the pace of general population increases in the country—is driving up demand for safe, affordable housing. According to World Bank data, worldwide urban population growth in 2018 was 1.93 percent, nearly double the global population growth rate of 1.1 percent.
Sales of new dwellings in Kigali alone are expected to reach approximately 350,000 in the next three years, indicating a widening disparity from the current pace of only 1,000 housing units created per year. Huye, Muhanga, Musanze, Nyagatare, Rubavu, and Rusizi are secondary cities with severe housing shortages. New residences are also only affordable to the wealthiest 20% of the population.
Formal housing is out of reach for most persons in the cheap housing segment, which the government defines as those with monthly salaries of less than $232. Dan Kasirye, IFC Representative in Kigali, said that a significant gap is underserved in the housing sector.
Affordable housing was identified as a sector with significant potential for economic growth, job creation, and development impact in the next three to five years by the World Bank Group’s Rwanda Country Private Sector Diagnostic (CPSD), published earlier this year. Drawing private sector engagement will necessitate a multi-faceted approach, which the reform-minded government will prioritize. According to analysts, private sector firms like construction companies, developers, building materials suppliers, and professional services organizations (for example, architects) are expected to benefit from new prospects in the affordable housing industry.
Century Real Estate’s managing director in Kigali, Charles Haba, is pretty hopeful. “The Rwandan housing market is essentially untouched, and one must be cautious in approaching it,” he remarked. “The intermediate to high-end of the market has a lot of promise.” You’ll need scale to generate money on the lower end. But, in general, I’d say house market aspirations are rising.”
Creating incentives to attract multinational developers capable of large-scale housing projects might boost private sector investment and diversification in the affordable housing industry. According to the paper, import tax rebates, fee exemptions, serviced land systems, or new finance ways could all be part of a tailored incentive framework.
It also provides solutions to the shortage of specialists such as architects, engineers, and developers needed to construct housing on a large scale. Building financial, city management, administrative, and technical competence is critical to putting development goals into action. The required skills could be obtained through vocational training and expanded tertiary education programs. Regional and international talent recruitment programs to satisfy local needs may also be possible.
Enhancing the finance industry will also assist in improving the affordability of housing by making more Rwandans eligible for lower-cost mortgage loans. About 5% of Rwandans currently use bank financing to buy a house. Mortgages are only available to the formally employed, which eliminates a substantial percentage of the population—just about 1% of Rwandan households can currently afford a $40,000 mortgage on a house. Moreover, microfinance companies lack the resources and capacity to provide long-term financial support banks rely on short-term deposits, limiting their ability to give long-term mortgages.
However, efforts are being made to increase the mortgage lending market. The World Bank and the International Finance Corporation are working together on the Rwanda Affordable Housing Finance Project to build and assist the Rwanda Mortgage Refinance Company, which will allow banks to provide mortgage financing. Through the project, the World Bank will grant a $150 million, 25-year credit facility, which will create a revolving fund that may give cheap mortgage loans to Rwandans who are not customers of commercial banks and with longer repayment terms. Approximately 2,000 reasonably priced housing units could be built with an International Finance Corporation investment in partnership with the Rwanda Social Security Board.
Support from the IFC for public-private partnerships, such as the Deloitte PPP framework study, could aid the sector by addressing infrastructural challenges.
Rwanda’s housing market is not as vast as Kenya’s or South Africa’s, despite both countries having significantly greater populations and economies. According to analysts, the government’s commitment to the housing sector in Rwanda attracts local and foreign investors through the allocation of land, assistance for local infrastructure, tax benefits, and willingness to give loans and equity through sovereign investment companies.
Along with the Rwanda Social Security Board, important government entities such as the Rwanda Housing Authority, the Ministry of Finance, and the Ministry of Infrastructure have vowed to collaborate with industry stakeholders to allow affordable housing investments, with active backing from the Rwandan President Paul Kagame. As a result, the future appears bright. Olaf Schmidt, an IFC Manager, located in Johannesburg, said that they believe the market will be ready for investments, notwithstanding the hurdles.
Ken is a Quantitative Trader with experience in investments, quantitative finance, financial modelling and algorithmic trading in Global Investable Markets (GIM). He enjoys using Bayesian Statistics, Time Series and Machine Learning in developing Robust consistent Alphas in Equities Market, FX, ETPs and Derivatives instruments. He enjoys deep dives in understanding High Frequency Trading infrastructures and improving how the African financial markets work. He holds a Bachelor's in Actuarial Science from Strathmore Institute of Mathematical Sciences : An Executive Program in Algorithmic Trading (EPAT) certificate in Algo Trading from QuantInsti : A current MSc student in Financial Engineering at World Quant University.