Following Kampala Investment Opportunity research report, Sub Saharan Africa Financial Services Report and Accra real estate investment research report, we continue to assess investments opportunities in the region, in our key focus areas of Real Estate, Banking, Education, Hospitality, and Technology to enable us diversify our portfolio of investments and product range to our clients. In line with this strategy, we continue to conduct comprehensive research of various regional markets in Sub Saharan Africa. This report is an update to the 2016 Kigali market research with the 2018 data. Rwanda is one of the fast-growing countries in Africa at a GDP growth rate estimated at 6.2% in 2017 compared to an Africa average growth of 2.4% and a sub-Saharan Africa average of 3.2% and has ranked the 41st and second-best country in Africa to do business after Mauritius which ranked 25thglobally and best in Africa according to World Bank Ease of Doing Business 2018 report.
According to the research we did in May 2016, Kigali recorded attractive rental yields of 9.3%, 10.8% and 12.3% for residential units, offices and retail space, respectively, in comparison to the January 2018, where it recorded rental yields of 8.1%, 9.8%, and 12.6% for residential units, offices and retail space, respectively. This is a 0.7% and 0.5% annual decline in rental yield for residential units and office space respectively, and 0.2% annual increase in rental yield for retail sector. The decline recorded in residential sector was mainly for 3-bedroom houses as the rental charges stabilised due to increased house supply, while decline in commercial offices performance was due to increase in office space supply outstripping demand.
This week we therefore look at our real estate findings in the residential, commercial and serviced apartment performance in Kigali.
- We start with the general overview of Rwanda and Kigali, the factors driving the real estate sector, and the challenges facing the sector in Kigali,
- We then delve into the thematic performance of real estate, while comparing the market to other real estate markets in our focus areas in the Sub Saharan Africa, which are Kenya, Uganda, and Ghana,
- We conclude with our outlook on the Kigali real estate investment opportunity.
1. Rwanda Overview
Rwanda, a member of East African Community with Kigali as the capital city, borders the Democratic Republic of Congo, Uganda, Tanzania and Burundi. Rwanda gained independence on 1st July 1962 from Belgium and is officially known as the Republic of Rwanda. Most of Rwanda territory is hilly and mountainous and has no direct access to the sea.
The country size is 24,670 SQKM with a population density of approximately 495 people per SQ KM according to the National Institute of Statistics of Rwanda (NISR). The Rwanda population is approximately 12.4 mn, growing at 2.4%, compared to Kenya, Tanzania and Uganda at 2.6%, 3.1% and 3.3% respectively. The population in Rwanda is young, an estimated 42.7% are under the age of 15 years, and 97.5% are under 65 years. The official languages in Rwanda are Kinyarwanda, English and French.
Kigali Overview
Kigali is the capital and largest city in Rwanda. Other notable towns in Rwanda are Muhanga (Gitarama), Huye (Butare), and Gisenyi, all with populations below 100,000. Kigali covers a total area of 730 SQKM and has a total population of 1.3Mn as at 2017, with a population growth rate of 2.4% and urbanization rate at 4.9%. It is divided into three districts; that is Gasabo, Nyarugenge and Kicukiro. Generally, Kigali city zoning regulations are strictly regulated by Kigali Master Plan 2013.
Infrastructure and amenities
Kigali is endowed with various developments that make it attractive for economic development;
- Kigali City is relatively less congested owing to decentralization of the CBD by having two more major commercial zones with one being an exclusively commercial centre and the other being a transport HUB,
- Kigali city comprises of Bitumen roads, paved and all-weather roads,
- Kigali city is served by one international airport in Kanombe with Bugesera International Airport under construction,
- The city is served by electricity power imported from Uganda and also generate its own power using diesel generators,
- The water and electricity are provided by the Energy, Water and Sanitation Authority (EWSA), and
- The city however has inadequate sewerage system and residents rely on septic tanks.
Factors Driving Real Estate in Kigali
- Government Incentives -These include; i) the government investment in infrastructural expansion and modernization of urban and rural infrastructure, which involves the construction of roads and provision of utilities such as water and electricity in development sites,
- Political Stability - political stability with well-functioning institutions, rule of law and zero tolerance to corruption,
- Housing Deficit - The affordable housing demand in Kigali for 2012-2022 is estimated at 186,163 Dwelling Units (DU) with an average demand of 16,923 affordable Dwelling Units per year according to Planet Consortium 2012 Housing for the City of Kigali report, hence increasing investment activities by the government and developers with the aim of meeting the demand,
- Economic Growth - Rwanda’s real GDP growth recorded an estimated growth of 6.2% in 2017 from 5.9% in 2016, an indicator of macro-economic stability that is conducive for growth. Rwanda was also ranked the 41st and second-best country in Africa to do business in after Mauritius which ranked 25th and best in Africa according to World Bank Ease of Doing Business 2018 report,
- Demographics - Rwanda has a population of approximately 12.4 Mn people and growing at a rate of 2.4% compared to the global average of 1.2%. The urban population stands at 30.7% of the total population and urbanization rate of 4.9% p.a. hence creating increased demand for real estate developments, and
- Master Plan- Strict Implementation of zoning regulations guided by the Kigali master plan introduced in 2013, which outlines the conditions and plans for development in Kigali. This is a visionary project which will see planned development in the area and control urban sprawl in future.
Despite the above factors driving real estate in Rwanda, the sector continues to face major challenges that have discouraged potential investors from investing in the real estate sector in Rwanda. These include;
- High Construction Cost- The construction cost in Rwanda is high, since it imports most of the construction materials. However, the country is trying to bridge the gap, with companies such as Cimerwa, Rwanda’s sole cement producer and S&H Industries that produces stone-coated tiles (Hippo brand),
- High Cost of Financing- Funding real estate developments has resulted in excessive debt financing, with a debt interest rate ranging from 17% - 19% per annum on the Rwandan Franc. The market also does not embrace presales but rather prefer to buy after completion of the project or sometimes during the construction. In addition, Development bank of Rwanda is the only main lender providing development loans, and
- Low Purchasing Power- The high mortgage rates makes it hard for Rwandese to borrow to finance the purchase of houses given the low levels of income, with approximately 66% of the population, earning less than USD. 243 per month. Currently, the value of mortgage to GDP stands at 3.6% against Sub Saharan Africa average of 5.0%.
2. Market Performance
- Residential Sector
Generally, the residential sector is picking up, with increased supply of apartments and detached units to bridge the housing deficit gap in Kigali. The demand for housing in Kigali is approximately 16,923 units p.a with a supply of 800-1,000 units p.a according to Planet Consortium 2012 Housing for the City of Kigali report and only a quarter of these units are apartments the rest being detached units. The housing demand is mainly on affordable housing segment which can serve 54.1% of the population. Key to note is, 80 % of the market prefers to acquire housing through mortgages and currently the borrowing rate average at 18% p.a.
The sector is mainly dominated by standalone units, since Rwandese community appreciates exclusivity thus lower demand for densely populated developments. However, the sector has witnessed increase in apartments in Kigali city suburbs. The developers are targeting investors purchasing these apartments as a yielding asset targeting the renters market. These investors are mainly expatriates and Rwandese diaspora.
The residential sector is largely driven by (i) Stable economic growth, (ii) positive demographics, (iii) housing deficit, and (iv) government incentives
The Key target residential market in Kigali is as shown below;
|
The Target Market for Housing in Rwanda |
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|
Target Group |
Monthly Income (RWF) |
Monthly Income (USD) |
% of Population |
Developer |
|
High End |
Over 900,000 |
Over 1,139 |
3.8 |
Private Sector |
|
Mid- End |
Between 200,000 and 900,000 |
Between 253 and 1,139 |
29.5 |
Public & Private Sector |
|
Affordable Housing |
Between 33,500 and 200,000 |
Between 42 and 253 |
54.1 |
Public & Private Sector |
|
Social Housing (Subsidy) |
Below 33,500 |
Below 42 |
12.6 |
Public Sector |
|
||||
Source: RHA/Affordable Housing development for Government Employees
In our research we however covered the following key market segments;
- High-End: These include estates in Kigali such as; Nyarutarama, Kimihurura and Kacyiru
- Mid-End: These include Kibagabaga, Kanombe, Gisozi, Kagugu and Rusororo
Below is the apartment performance analysis;
|
A. High End Market Performance |
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|
Typology |
Unit Plinth Area (SM) |
Price 2018 USD |
Price in Kshs |
Price per SM (USD) |
Rent in USD |
Rent in Kshs |
Rent per SM (USD) |
Annual Uptake |
Rental Yield |
Price App. |
Total Returns |
|
|
2 -bed |
109 |
113,350 |
12.2Mn |
1,034 |
820 |
84,460 |
7.5 |
48.4% |
8.8% |
4.9% |
13.7% |
|
|
3-bed |
139 |
145,800 |
15.7Mn |
1,031 |
1,000 |
103,000 |
7.2 |
49.2% |
8.6% |
8.0% |
16.6% |
|
|
Average |
1,033 |
7.4 |
48.8% |
8.7% |
6.5% |
15.1% |
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|
B. Middle income Market Performance |
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|
Typology |
Unit Plinth Area (SM) |
Price 2018 USD |
Price in Kshs |
Price per SM (USD) |
Rent in USD |
Rent in Kshs |
Rent per SM (USD) |
Annual Uptake |
Rental Yield |
Price App. |
Total Returns |
|
|
2 -bed |
114 |
97,195 |
10.4Mn |
836 |
539 |
55,492 |
4.7 |
43.0% |
6.8% |
3.3% |
10.1% |
|
|
3-bed |
146 |
103,198 |
11.1Mn |
753 |
625 |
64,375 |
4.6 |
51.4% |
7.5% |
4.7% |
12.2% |
|
|
Average |
795 |
4.7 |
47.2% |
7.2% |
4.0% |
11.2% |
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|
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Source: Cytonn Research 2018
Below is the Detached unit’s performance analysis;
|
A. High End Market |
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|
Typology |
Unit Plinth Area (SM) |
Price 2018 USD |
Price in Kshs |
Price per SM (USD) |
Rent in USD |
Rent in Kshs |
Rent per SM (USD) |
Annual Uptake |
Rental Yield |
Price App. |
Total Returns |
|
3 -bed |
248 |
166,465 |
17.9Mn |
671 |
1,167 |
121,067 |
5.1 |
35.1% |
9.1% |
5.0% |
14.1% |
|
4-bed |
308 |
257,081 |
26.8Mn |
811 |
1,775 |
190,813 |
5.2 |
17.8% |
7.7% |
1.0% |
8.8% |
|
Average |
741 |
5.1 |
26.5% |
8.4% |
3.0% |
11.5% |
|||||
|
B. Middle-lower income Market |
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|
Typology |
Unit Plinth Area (SM) |
Price 2018 USD |
Price in Kshs |
Price per SM (USD) |
Rent in USD |
Rent in Kshs |
Rent per SM (USD) |
Annual Uptake |
Rental Yield |
Price App. |
Total Returns |
|
3 -bed |
193 |
65,407 |
7.0Mn |
351 |
483 |
51,286 |
2.6 |
45.5% |
8.9% |
4.7% |
13.6% |
|
4-bed |
211 |
80,901 |
8.7Mn |
382 |
519 |
55,844 |
2.5 |
42.6% |
7.8% |
3.6% |
11.4% |
|
Average |
367 |
2.5 |
44.0% |
8.3% |
4.2% |
12.5% |
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|
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Source: Cytonn Research 2018
In summary,
|
Segment |
Unit Type |
Average Price per SM(USD) |
Average Rent per SM(USD) |
||||
|
Annual Uptake |
Rental Yield |
Price App. |
Average Returns |
||||
|
High- End |
Apartments |
1,033 |
7.4 |
48.8% |
8.7% |
6.5% |
15.1% |
|
Middle income- End |
Apartments |
795 |
4.7 |
47.2% |
7.2% |
4.0% |
11.2% |
|
High- End |
Detached Units |
741 |
5.1 |
26.5% |
8.4% |
3.0% |
11.5% |
|
Middle income- End |
Detached Units |
367 |
2.5 |
44.0% |
8.3% |
4.2% |
12.5% |
|
Average |
41.6% |
8.1% |
4.4% |
12.6% |
|||
|
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Source: Cytonn Research 2018
Below is the summary of the trend analysis between 2016 -2018;
|
Market Average – Apartments Trend Analysis |
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|
Type of Housing |
Annual Uptake |
Yield 2016 |
Price appreciation |
Yield 2018 |
% change in Yield |
Annual % change in Yield |
|
2 bedrooms |
45.7% |
7.5% |
4.1% |
7.8% |
0.3% |
0.2% |
|
3 bedrooms |
49.2% |
11.9% |
6.4% |
8.0% |
-3.9% |
-2.2% |
|
Average |
47.4% |
9.7% |
5.2% |
7.9% |
-1.8% |
-1.0% |
|
Market Average – Stand Alone Units Trend Analysis |
||||||
|
Type of Housing |
Annual Uptake |
Yield 2016 |
Price appreciation |
Yield 2018 |
% change in Yield |
Annual % change in Yield |
|
3 bedrooms |
40.3% |
11.9% |
4.9% |
9.0% |
-2.9% |
-1.7% |
|
4 bedrooms |
30.2% |
5.6% |
2.3% |
7.8% |
2.2% |
1.3% |
|
Average |
35.3% |
8.8% |
3.6% |
8.4% |
-0.4% |
-0.2% |
|
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|
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|
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|
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Source: Cytonn Research 2018
- Commercial Sector
Commercial buildings in Kigali embrace mixed use concepts, with most of the developments comprising of retail space in the lower floors and office space in upper floors. The office sector in Kigali is at Peak/maturity stage attributed to increased supply in office space over the last 5 years. Over the last five years, the Kigali market has witnessed accelerated increase in commercial office space, changing the Kigali skyline, with developments such as M-peace plaza, Kigali city tower and Kigali heights among others, mainly concentrated in Nyarugenge which is the CBD. In additional 70,000 SQM are in the pipeline for the next two years according to Knight Frank Africa report 2017. This has therefore resulted to decline in rental prices and occupancy rates.
The commercial sector is mainly driven by; (i) Government activities, (ii) Growth in SME’s, (iii) International Players, (iv) Positive economic growth and (v) Infrastructural developments
Below is the summary of the commercial sector performance analysis;
|
Office Grade |
Market Share |
Rent Per Sqm USD |
Rent Per SqM Kshs |
Rental Yield (2018) |
Occupancy (2018) |
Change in Rent ($) |
% change in Rent |
change in occupancy |
% change in yield |
Annual % change in yield |
|
Grade A & B |
72.7% |
19.1 |
1,964 |
9.9% |
76.1% |
-0.7 |
-3.3% |
-3.4% |
-1.3% |
-0.7% |
|
Grade C |
27.3% |
14.3 |
1,598 |
9.7% |
96.3% |
-0.2 |
-0.9% |
-3.7% |
-0.5% |
-0.3% |
|
Average |
17.7 |
1,818 |
9.8% |
82.2% |
-0.5 |
-2.4% |
-3.5% |
-1.0% |
-0.5% |
|
|
Retail Space |
21.0 |
2,168 |
12.6% |
89.0% |
2.2 |
11.6% |
-6.3% |
0.3% |
0.2% |
|
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Source: Cytonn Research 2018
- Hospitality
The hospitality industry in Rwanda recorded an average growth rate of 8.8% over the last 8 years according to the Africa Hotel Report 2017. In 2015, Rwanda welcomed 1.3 mn visitors, up from 1.2 mn in 2014 and 1.1 mn in 2013. In the same year, MICE tourism (meetings, incentives, conferences and exhibitions) earned Rwanda $37.7 mn — up from $29 mn the previous year. After the Rwanda Convention Bureau was established, visitors for conferences nearly doubled from 17,950 to 35,100 and revenue from MICE events increased from US$29.6 mn in 2014 to US$47 mn in 2016.
There are approximately 200 hotels and 4,500 hotels rooms in Rwanda according to Rwanda Development Board, with international brands such as; Marriott, Serena and Radisson Blu, which operates Radisson Blu and Park Inn.
The sector is largely driven by i) political stability thus boosting investor confidence and also the growth of the expatriate community ii) MICE and International Tourism iii) Aggressive marketing strategy by the government iv) free entry visas for all African citizens arriving at its borders and v) availability of public interests.
Serviced Apartments
The Serviced Apartments sector is still in its nascent stage in Kigali, with most apartments having come into the market from 2015 onwards. However, there has been a growing demand for the serviced apartments with occupancies at 67.2%.
In Kigali, 1 bed and 2 beds are the most popular typology with average occupancies of 72.5% and 77.3% respectively, with most of the serviced apartments being let, usually within long term contracts. The high demand for serviced apartments is attributed to the high numbers of expatriates in Rwanda, given the countries good security and political stability.
Performance summary is as shown below;
|
Typology |
Size |
Average Daily Rate (USD) |
Average Daily Rate(Kshs) |
Average Monthly Rate(USD) |
Average monthly rate(Kshs) |
Average Daily Rate Per SQM(USD) |
Average Monthly Rate per sqm(USD) |
Average Occupancy |
Average Rental yield |
|
Studio |
38 |
120 |
12,360 |
1,200 |
123,600 |
3.2 |
21 |
54.3% |
6.9% |
|
1 Bedroom |
65 |
181 |
18,597 |
1,594 |
145,917 |
2.8 |
15.6 |
72.5% |
5.1% |
|
2 Bedroom |
101 |
223 |
23,003 |
2,558 |
263,508 |
2.2 |
18 |
77.3% |
5.9% |
|
3 Bedroom |
245 |
717 |
73,817 |
6,000 |
618,000 |
2.9 |
17.7 |
51.7% |
5.8% |
|
Average |
137 |
374 |
38,472 |
3,384 |
342,475 |
2.6 |
17.1 |
67.2% |
5.6% |
|
*Studios have been excluded from the analysis since there were only two comparable, of which one was set aside for short term guests only |
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Source: Cytonn Research 2018
- Land Sector Analysis
|
Unserviced Plots - Asking Prices |
||||
|
Area |
price(USD)/SQM |
Price per Acre (USD) |
Price Per Acre (RWF) |
Price Per Acre (Kshs) |
|
Nyarutarama |
180 |
719,287 |
618.6 mn |
77.3 mn |
|
Kibagabaga |
81 |
323,188 |
277.9 mn |
34.7 mn |
|
Kagugu |
43 |
172,152 |
148.1 mn |
18.5 mn |
|
Gisozi |
49 |
197,200 |
169.6 mn |
21.2 mn |
|
Remera |
106 |
425,597 |
366.0 mn |
45.8 mn |
|
Kicukiro |
56 |
290,378 |
249.7 mn |
31.2 mn |
|
Gacuriro |
66 |
265,389 |
228.2 mn |
28.5 mn |
|
Kabuga |
30 |
120,000 |
103.2 mn |
12.9 mn |
|
CBD |
250 |
1,000,000 |
860.0 mn |
107.5 mn |
|
Rusororo |
33 |
131,783 |
113.3 mn |
14.2 mn |
|
Average |
89 |
364,497 |
313.5 mn |
39.2 mn |
|
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Source: Cytonn Research 2018
- Summary Kigali Real Estate Sector Performance Summary
|
Theme |
Occupancy Rates (2018) |
Annual Uptake (2018) |
Price App. (2018) |
Rental Yield (2018) |
Rental Yield (2016) |
% change in Rental Yield |
Annual % change in Rental Yield |
|
Residential |
41.3% |
4.4% |
8.1% |
9.3% |
-1.2% |
-0.7% |
|
|
Office |
82.5% |
9.8% |
10.8% |
-1.0% |
-0.5% |
||
|
Retail |
89.4% |
12.6% |
12.3% |
0.3% |
0.2% |
||
|
Serviced Apartments |
67.2% |
5.6% |
|||||
|
Average |
79.7% |
41.3% |
4.4% |
9.0% |
10.8% |
-0.6% |
-0.3% |
|
|||||||
Source: Cytonn Research 2018
Comparative Analysis
Source: Cytonn Research 2018
In comparison with other cities in Sub-Saharan Africa, Kigali has higher dollarized rental yields than any other key cities in residential and retail sector at an average rental yield of 8.1% and 12.6% respectively. Kigali outperforms Nairobi market in Residential, retail and office with rental yields of 8.1%,12.6% and 9.8% respectively, compared to Nairobi with 5.6%, 9.6% and 9.3% respectively. The Kigali market is however nascent and small as the City has a population of 1.3mn against Accra’s 2.4mn, Nairobi’s 4.1mn and Kampala’s 1.5mn people according to the country’s respective statistical bureaus
We further delve to identify the specific investment areas, of which we ranked the areas, based on annual uptake, Yield and Land price and the recommendations area as below:
- Outlook on the Kigali real estate investment opportunity
|
Theme |
Performance (2018) |
Recommendation/Outlook |
Area of Focus |
Outlook |
|
Residential |
The residential sector has an average rental yield of 8.1% at an uptake of 42.6%p. a, recording an annual decline in rental yield of 0.7%. This is mainly due to stability in rental charges due to increase in housing units supply |
For apartments focus on 3-bed units in High end areas with a total return of 15.1% |
3 – bed apartments in areas such as Kagugu, Gacuriro and Kibagabaga |
|
|
For standalone units, focus on 3-bed units in the mid-end segments with total returns of 12.5% and 44% annual uptake |
3-bed units in areas such as Nyarutarama and Rusororo |
|||
|
Commercial Office |
On average, the monthly rent per square metre in Kigali is USD. 17.7, with an occupancy rate of 82.2% hence a rental yield of 9.8% |
The office market is on a declining trend and vacancy rates are likely to increase due to increasing supply, outstripping demand |
Areas in the outskirts of CBD such as Kimihurura |
|
|
Retail Sector |
On average, the monthly rent per square metre in Kigali is USD. 21.0, with an occupancy rate of 89.0% hence a rental yield of 12.6% |
The outlook is positive with the retail sector recording an annual 0.2% increase in rental yields and the government ban of open air market |
Urban areas outside Kigali CBD such as Remera and Nyarutarama |
|
|
Serviced Apartments |
Serviced apartments have a high average occupancy of 67.2% and a rental yield of 5.6% |
The serviced apartments sector is positive, hence our recommendation focussing on the sector with bias to 2-bedroom units |
High end areas such as Nyarutarama and Kacyiru |
 |
We have a positive outlook for the Kigali real estate market driven by the high housing demand, attractive returns, political stability, a positive demographic profile and government support through incentives. And our preferred investment areas are mid to high end residential, Retail sector and Serviced Apartments.
For comprehensive market research on residential, commercial and serviced apartments in Kigali and its environs, refer to the full report here: Kigali Real Estate Investment Opportunity
Disclaimer: The views expressed in this publication, are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only, and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.
