Mortgage finance market and housing affordability in urban areas in Rwanda

Abstract

The high speed of urbanization in Rwanda has considerably increased housing demand and the mortgage market has emerged to ensure that funds are available to producers and purchasers of real estate. But, the housing needs vis-à-vis the capacity of most people to afford to own homes from their own incomes is still a challenge as mortgages products are available at outrageous conditions making mortgage finance unaffordable. For better market readjustment, the effects or mortgage market factors to housing affordability should be clarified. The objective of this study is therefore to determine how mortgage finance market affects the affordability of housing in Rwanda, particularly in Kigali city. To attain this objective, relevant research methods are used to collect and analyse data. The research findings revealed that the adopted loan amortization schedule, the risks caused by the absence of secondary mortgage market resulted in high cost of finance, and the dominance of short-term financial institutions reduced mortgage finance affordability and therefore only 15% of Kigali city households could afford housing annually in the last ten years. It is noted that, this said affordability is only purchase affordability without repayment affordability. The study highlights also that, if the secondary mortgage market is properly developed to reduces the risks that caused the high interest rate, the flexibility on loan amortization is adapted and the long term financial institutions participate in the market with favourable legal framework, the mortgage finance market can contribute a lot in alleviating the issue of housing affordability in Kigali city. And Kigali city become a show case to other developing countries to