This week, a new financial institution announced joining the Rwandan market. This new institution – a mortgage bank – will exclusively deal with mortgage facilities and it is owned by Westbridge Mortgage, a Canadian firm.
Westbridge has also announced it will be setting up in Rwanda its holding company to oversee its business interests across the African continent.
The development has excited the local market with many expressing optimism that it could improve chances of home ownership, which remains an uphill task in this market.
Locally, the real estate sector, especially in the sub-area of affordable housing, has continued to struggle wing to challenges such as cost of mortgages, limited liquidity and financing options among other bottlenecks.
For instance, for one to own a home, they have options of saving enough to buy or build a home, or getting a loan from a commercial bank, both of which uphill undertakings.
With an ‘affordable home’ in Kigali priced at about Rwf35million, an average Rwandan earning Rwf 350,000 saving 30 per cent of their monthly income would have to save for over 25 years.
In commercial banks, mortgage loans average about 16 per cent and considering that the longest tenure locally is 20 years (only 2 banks), a client seeking to build a Rwf 35m home would end up paying close to Rwf90m in total payment.
These scenarios have made home ownership an elusive dream for many.
Industry experts say that the new player is primed to go a long way in addressing challenges that have long blighted the sector, such as limited liquidity as well as lack of long-term capital.
Charles Haba the Managing Director of Century Real Estate, a leading property management company told The New Times that lack of liquidity often holds back banks from long-term financing at an affordable price.
Haba added that with the exception of two or three players, majority of banks have a tenure of around 10 years which is not practical for a majority of clients.
He noted that a specialized mortgage institution can play multiple roles in the evolution of the market including building capital markets through secondary mortgage markets where investors and lenders can buy and sell home loans and servicing rights.
Haba added that having a specialized financier is also likely to lead to adjustments by other financial players as they seek to be more relevant in the market in the face of a cheaper facility.
Financial experts say that mortgage banks are able to provide long term affordable financing as they do not rely on deposits as is the case for commercial banks.
Ntoudi Mouyelo Strategic Advisor and Coordinator at Kigali International Financial Centre said the new entrant could improve the local mortgage and real estate sector and market which will provide alternative housing finance as they are not dependent on customer deposits for capital.
“A mortgage bank does not provide mortgages based on retail deposits, they do this from their capital to give affordable long term financing to the local market,” he said.
Edward Gasore, Director of Banking Supervision at the Central Bank said that either as a mortgage finance company or a mortgage bank, the new player’s specialty element and aspect is a unique addition to the market as it comes with capacities in managing, pricing and monitoring mortgage activities.
These, Gasore said, would in turn lead to more efficiency in management of mortgage facilities translated in aspects such as mortgage tenure and management among others.
Further impact would be through working with other local banks to service mortgages allowing them to have liquidity and capital to support further lending.
With regard to licensing, he said that already, the Central Bank has provisions for such a player as well as a conducive environment.
The minimum capital requirement for a mortgage bank is Rwf 10 billion while that of a mortgage finance company is Rwf15 billion. A commercial bank’s minimum capital requirement is Rwf20 billion.
According to WestBridge Mortgage Chief Executive JD Diabira, the firm also has a social impact mandate which he said will be translated into better-priced financial products and services.
“As a social impact lender and mortgage trading platform, our operations straddle the retail banking world and the capital markets…The healthier the market the easier it is for us to achieve the economic and social impact we strive for,” he said.
“What we hope to bring to the Rwanda market is a combination of North American banking expertise in credit risk, inclusive growth and practical outlook. It is our goal to see this experience and expertise translate into a healthier banking market in Rwanda, a broader access to better-priced financial products and services for ordinary Rwandans, more innovation as well,” he said.
The annual housing demand was estimated at 31,279 housing units per year against the supply of about 1000 units creating an annual deficit of about 30,000 dwelling units.
With urbanisation expected to rise to 35 per cent urban by 2024, the housing demand is expected to rise further in coming years.
