Property developers are set to struggle raising capital on the domestic market to finance new projects as banks indicate that they will no inject money in commercial mortgages.

However, analysts warned that putting breaks on financing commercial real estate could slow down the delivery high density buildings in Kigali.

"I can expect that banks are going to stay away from commercial mortgages and instead finance the residential mortgages,” said Maurice Toroitich managing director of Bank Populaire du Rwanda.

Mr Toroitich, who doubles as chairman of Rwanda Bankers Association says developers of commercial mortgages — office and retail space are finding difficulty to service the outstanding mortgages due to falling cash flows from rent and yields.

As such, the struggling commercial mortgage market has dented earnings of banks but also reduced returns on investments for property developers.

Mortgage non-performing loans have been recorded from the commercial segment — retail and office space with the central bank data showing that the mortgage industry bad loans averaged 5.3 per cent to June 2018.

Lenders have to provision for the bad loans which puts pressure on their capital, reducing their lending abilities.

“When you go into banks for commercial mortgages most banks have a low appetite for new projects financing. Most of the non-performing loans are coming from the commercial real estate projects,” said Mr Toroitich.

Industrial players project the bank’s move will impact the City of Kigali Development plan.

The city master plan encourages old density buildings to be brought down to give way to high rise, an investment which has to be supported by credit from the bank.

Charles Haba, managing director Century Real Estate said equity-debt ratio could increase, meaning the property developers will have to fork out more, if banks are to finance the retail and office space construction.

“Moving forwards we anticipate that for banks to finance commercial properties, we are going to have skin in game so that the bankers have a bit of appetite to finance commercial properties,” said Mr Haba.