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Mortgage Loan at 11% Interest: BRD Changes Game

by Daniel Sabiiti
4:38 pm

Rugarama Estate, one of the Affordable housing project

With a secured World Bank (WB) loan of $150m now available, the Development Bank of Rwanda (BRD) has given fresh opportunities for Rwandans to own a house at low interest rates, as low as 11%.

According to BRD the funding will be dispatched to all commercial banks and micro-finance and saving scheme, where citizens will also get an option on choosing a rent-on mortgage loan- where ones money spent on rent can be used as payment for the loan for a period of more than 20 years

The new rates and offers, in themselves, are a game changer in the mortgage segment which has been offered by commercial banks at a rate of between 16% and 18% and for a short tenor.

Applicants for affordable funding must be first time home owners and citizens having an income of less than Rwf700, 000 per month and they can borrow to purchase a house starting with a worth of Rwf10million not exceeding Rwf35million.

“This kind of loan is strictly meant for low income earners which include teachers and the fund is for those who don’t have houses at all but need an affordable one for the first house not for those with other houses,” said Eric Rutabana BRD CEO, during a press conference to announcement funding Wednesday November 20.

The new funding is expected to respond to the need for affordable housing in general especially in Kigali which has more than 1.2 million dwellers with a majority of them renting houses.

A 2017 research conducted by international growth center (IGC) shows that Rwanda needs about 310,000 houses in between 2017-2032, which annually represents a need of 18,000 new homes in 2017 rising up to 32,000 in the 15-year period.

The demand for affordable houses has seen high appetite from citizens to an extent the one of the 2017 projects with 56 units with homes costing Rwf12 million in Kigarama – Nyarugenge district, was consumed before the construction started.

Rugarama Park estate among affordable housing project in Nyarugenge district-Kigali city

Rwanda Housing Authority (RHA) said that there are no enough affordable houses yet complete but the 17 ongoing housing investments projects will be able to provide at least 12,050 units in total. The target is 1,128 units in fiscal year 2019/20 and 1,500 by 2024.

To make this possible and flexible BRD will lend to commercial bank at 6% interest rate but also government will be subsidizing the cost of land by providing needed infrastructure around the designated sites, like roads, water and electricity among others. This, for the last consumer to get loan at 11% interest rate.

β€œThe government wants to make it easy for investors in real estate business so that the 30percent they incurs in other costs are covered but also share the burden in resolving the problems around affordable housing which mainly are high cost of land, source funding, design and materials,” said Eric Serubibi, the Director General RHA.

Ndera housing project in Gasabo district is among the affordable housing projects

To ease on cost of land RHA said it has identified 10 sites for settlement upgrading and other chunks of land for affordable housing in Kigali, Bugesera, Rwamagana, Kayonza districts among others.

The $150 million WB loan means that if every legible Rwanda took a house worth Rwf35 million, the funding would provide at least 4000 affordable units.

However BRD and RHA database indicate already 7000 persons who have showed interest in need for housing which means more funding will be needed to fill the gap.

BRD CEO said that the list is not conclusive and it will be scrutinized to verify if applicants are legible for the new affordable housing borrowing scheme, though as soon as the loan is consumed more will be borrowed with time.

Asked if there will be any guarantee needed to secure the loan, BRD said that the house in itself the guarantee, which relieves the current burden of commercial banks asking for a 20% personal investment of the total housing loan cost requested.

The affordable housing project will be applicable to Kigali residents and later be extended to other six secondary cities in the provincial regions.

In the meantime, RHA said that already investors have showed interest to soon put up some 420 units in Musanze district and more units under negotiations for Rubavu district soon after investors finalise the needed paperwork.