Land hoarding and property speculation is said to be driving the high cost of housing in the country as more people buy land without developing it as they wait for prices to go up.
This is keeping home ownership out of reach for most citizens.
Government officials said the trend is rampant in Bugesera driven by the ongoing construction of the airport, and in parts of the three districts located in the Kigali urban frontier where the cost of property increased by more than five times in three years.
These areas recorded the highest number of land transactions over the past three years.
However, authorities say things will change when local government officials implement the new property tax law that was enacted in January but could not be enforced pending a ministerial order.
A Cabinet meeting recently approved the legislation determining procedures applicable to collection of taxes and fees for decentralised entities, allowing for local administrations to raise both land and building tax rates as they aim for higher revenues in the next fiscal year.
“This is going to translate to losses for those who have been buying land for speculation. Most continue to see it is a good investment yet it doesn’t help the economy,” said Jonathan Nzayikorera, head of fiscal decentralisation unit at the Ministry of Finance and Economic Planning.
The legislation, for instance, allows district councils to adjust land tax rates up to Rwf300 per square metre from a maximum of Rwf80 previously, while the building tax rates have be one per cent for residential buildings, 0.50 per cent for commercial buildings and 0.10 per cent for industrial buildings.
Specifically, vacant plot owners have been slapped with a 200 per cent tax rate as the government seeks to discourage land speculation.
Other categories targeted by the punitive tax include owners of homes and structures like schools, health facilities as well as buildings used for religious or worship activities on land above the standard size determined by the building code.
A 50 per cent higher rate will be applicable on each square metre of the excess land.
“The difference this time is that unlike before when these fees were collected as nontax levies, they are now called land tax and the government has the power to freeze an owners’ immovable or movable properties like bank accounts in case of failure to comply,” said Mr Nzayikorera at a Kigali investment forum held last week.
The law puts the standard plot for a nursery school at 700 square metres, 1.5 hectares for a primary school, 2.4 hectares for a secondary school while a primary and a secondary school combined ought to be on a 2.8ha plot size.
The standard plot for a technical school is 5ha and 6ha for a university.
The standard plot size for a family house now stands at 300 square metres after the government lowered it from the previous 750 square metres.
It is expected that local governments will use the proceeds accrued from the revisions to fund investments lined up in the new fiscal year.
Only properties donated to vulnerable groups as well as land used for agriculture activities not exceeding two hectares will be exempted from the property tax.
Others are immovable properties belonging to foreign diplomatic missions or government institutions.