Housing Finance in Tanzania

Introduction

Tanzania is a growing economy, straddling the East African and Southern African economic development communities. The country is one of the fastest growing countries on the African continent, and is rich in natural resources. At least 31.6 percent of the country’s 53.47 million people live in urban areas, with a population growth rate of almost three percent and urbanisation rate of five and a half percent per annum.

The country has experienced impressive GDP growth rates over the past decade averaging almost seven percent per year.   The GDP grew by 7.1 percent in year 2015, higher than the growth of seven percent in 2014, with the rate is projected to remain at approximately seven percent through year 2020[1]. The strong and sustained economic growth, coupled with a fast growing population (expected to more than double by 2050) have greatly contributed to the fast growing housing sector demand. The housing demand has also been boosted by easier access to mortgages, with the number of mortgage lenders in the market increasing from 3 in 2009 to 28 by June 2016, and the average mortgage interest rate falling from 22 percent to 16 percent.

Inflation rates have portrayed a decreasing trend in the first four months of 2016 with the rate picking up to reach 5.5 percent in the month of June mainly due to rising food cost. These movements have gone hand in hand with movements in the 182 days Treasury bill rate which experienced an upward trend during the first quarter and towards the end of the second quarter of 2016.  The rising trend on the 182 days Treasury bill rate negatively affects all forms of long term debt, including mortgages by making them more expensive. The government has however expressed its commitment to ensure loan interest rates are reduced in order to enable many Tanzanians to acquire loans.

The positive developments in the housing industry have attracted substantial multilateral and donor support. The African Development Bank (AfDB) which has been supporting the country’s various development agenda since 1971 has recently expressed its commitment to focus on funding the construction of residential houses, development of agriculture and other economically viable areas in Tanzania during 2017, having already approved an assistance package of more than US$1.1 billion for year 2016-2020 to support the country’s transport and energy sectors.

Access to Finance

After two decades of economic liberalisation, Tanzania has 54 commercial banks and other private financial institutions,. Competition among foreign commercial banks has resulted in significant improvements in the efficiency and quality of financial services, though generally interest rates are still relatively high. The banking sector in Tanzania is regulated by the Bank of Tanzania (BoT). The sector performed remarkably well in 2015. According to the BoT Financial Stability Report of September 2015, the banking sector continued to grow in terms of deposits and assets recording an annual growth of 12.4 percent in total assets and 6.7 percent in deposits to September 2015[2]. Furthermore, an analysis done by the Tanzania Bankers Association (TBA) on 41 banks as at 30 June 2016 revealed an average non-performing loan to total gross loans ratio of 9.1 percent within the banking sector.

According to the Tanzania National Financial Inclusion Framework 2014-2016, financial inclusion in Tanzania is still low. By 2012 only 17 percent of adults (about 3.7 million) had access to bank accounts (22 percent if unregulated providers are included according to World Bank statistics). However the greatest growth was experienced in mobile telephone technology with 30 million subscribers which significantly enabled 43 percent of the adult population (9.8 million) to have active mobile payment accounts by September 2013.   The 2014 Global Findex database reported the rate of account penetration to have doubled to 40 percent in Tanzania from year 2011 to 2014 mainly due to people adding a mobile money account rather than a financial institution account.  According to Findex, while 37 percent of adults with an account at a financial institution reported having made no deposit in the past year, 62 percent of this group reported having made financial transactions using a mobile phone over that period.

Building on the country’s successful experience with mobile money services, the National Framework for Financial Inclusion (2014-2016) sets out an action plan to increase financial inclusion by achieving 50 percent formal access and usage, 25 percent of adult population with two weeks’ worth of income in formal savings and 25 percent of adult population with electronic information records on personal profile, collateral and credit history by 2016..

In 2010, the Bank of Tanzania issued regulations for a credit reference bureau within the framework of the Bank of Tanzania Act of 2006. To date Bank of Tanzania has registered two credit reference bureaus namely Dun & Bradstreet and Creditinfo Tanzania Limited. A large room for improvement still exists in credit granting processes. According to the 2016 World Bank Doing Business Report, Tanzania ranked 152^nd in terms of ease of getting credit.  Moreover, only five percent of the adult population is covered by credit bureaus.

Tanzania’s mortgage market is among the smallest in the East African region (the ratio of outstanding mortgage debt to GDP is 0.53 percent as at 30 June 2016). According to 2014 Findex very few Tanzanians – only 4.5 percent of the adults aged 15 years and above report having an outstanding loan to purchase a home.

According to Bank of Tanzania, the mortgage market recorded an annual growth rate in mortgage loan balances of 45 percent in 2015. A key element in the growth of the mortgage market has been the provision of long term funding by the Tanzania Mortgage Refinance Company (TMRC). The TMRC was established in 2010 under the Housing Finance Project (HFP) which was created with US$40 million initial funding support from the World Bank to expand access to affordable housing finance in Tanzania. In March 2015 the World Bank extended an additional funding of US$60 million (with US$40 million being allocated for TMRC) to further sustain the project’s positive impact in the market. Additionally in May 2016, the AfDB approved a Partial Credit Guarantee of up to US$4 million (in Tanzanian Shillings) to support TMRC’s Medium Term Note program to mobilize long term funding from the local currency bond markets which is part of the company’s strategy of ensuring its continued sustainability. The TMRC currently has 12 borrowing members (banks) all offering mortgage loans, as well as two non-borrowing members. In July 2016, the company opened up lending to non-member banks as part of its strategy to expand its customer base in order to ensure it continues to effectively fulfil its role of being a catalyst for mortgage lending in the country.

By 30 June 2016, TMRC had extended loans by TZS 45.9 billion (US$20.94 million) to eight of its member banks in a bid to facilitate mortgage lending.  Mortgage loans’ average duration has also increased since the creation of the TMRC, from five to 10 years to 15-20 years with typical rates offered by lenders for the mortgage product currently varying between 16 and 19 percent.

As at 30 June 2016, total mortgage debt stood at TZS 481.63 billion (US$219.75 million) and 3 627 mortgages, compared to 31 December 2015 where the mortgage debt stood at TZS359.45 billion (US$164 million.) with 3 390 mortgages. The average loan size as at 30 June 2016 was TZS 133 million (US$60 586.93), an increase from 31 December 2015 when the average loan size was TZS 106 million (US$48 364.06). The loan to value requirement for mortgage loans currently stands at 90 percent as per the revised Mortgage Finance Regulations issued in 2015.

Given affordability levels, the microfinance sector is especially important in addressing housing supply in Tanzania and is growing steadily.  A study commissioned by the Bank of Tanzania found that 41 percent of Tanzanians who borrow microloans planned to use these for housing construction or improvements. In 2011, a Housing Microfinance Fund (HMFF) was established as one of the components of the Housing Finance Project with a US$3 million contribution from the World Bank. Progress has been slow as no loans were extended up to March 2015 where an additional US$ 15 million was extended for the HMFF (out of the US$60 million extended for the Housing Finance Project) to make a total fund of US$18 million.  The first disbursement of TZS 1 billion (US$456 264.74) was made on 31 July 2015 under the microfinance fund to DCB Commercial Bank Plc with the total credit line to the bank being TZS 3 billion (US$1.37million). This has marked the first step towards significant progress of the microfinance sector.

Housing Affordability

According to the Integrated Labour Force Survey (ILFS) of 2014 as carried out by the National Bureau of Statistics (NBS), the working age population in 2014 comprised of 25.8 million persons of whom 86.7 percent were economically active, mostly in rural areas. The survey also revealed that two-thirds (67.8 percent) of paid employees earn less than TZS 300 000 (US$136.88) mean monthly income, with less than five percent of paid employees earning a mean monthly income above TZS 900 000 (US$410.64). According to a World Bank report, Tanzania’s work force is expected to grow to 40 million workers who will need productive jobs by 2030. The share of the population employed in emerging sectors is expected to increase to 22 percent whereas the average income per worker is expected to only increase to US$1 900 by 2030[3].

With almost 70 percent of paid employees earning a mean monthly income of less than TZS 300 000 (US$136.88), , the  average mortgage size of TZS 133 million (US$60 586.93) is on the high side indicating that most clients are high income earners with majority of the households financing their housing through cash sourced from household savings, micro credit loans and personal loans. A number of NGOs cater for the lower income market segments, but their reach is insufficient to meet the scale of demand.

According to a 2015 Cost of Living study by Numbeo, a Dar es Salaam resident pays the largest chunk of his/her earnings on house rents than on any other basic commodity that a human being must get to survive. The study also states that at least 34.1 percent of earnings are spent on rents – leaving the remaining 65.9 percent to cater for other basic needs[4].

TMRC intervention has however had a positive impact on interest rates. TMRC member banks can currently borrow from the TMRC at 11.5 percent and are therefore able to extend mortgage loans to their customers at lower mortgage interest rates than those prevailing in the market which positively impacts on affordability.

In terms of building materials, a 50kg bag of cement costs US$5.93, but is more expensive in rural areas. A standard sheet of surrogated iron for roofing, gauge 28 is US$9.12, gauge 30 is US$8.21 and gauge 32 is US$6.61. The minimum plot size for residential property in urban areas is 400m². Prices quoted for houses constructed under the first and second phases of ‘My Home My life’ (a National Housing Corporation countrywide affordable housing project) for two bedroom (56m² ) and three bedroom (70m² and 85m²) in the various regions of the country ranged between TZS43.4 million (US$19 801.89) to TZS95.3 milion (US$43 482.03) VAT Inclusive[5].

Housing Supply

Tanzania suffers from a shortage of good quality and affordable housing.  The current housing deficit is estimated at three million housing units coupled with a 200 000 unit annual demand. In December 2015, the National Housing Corporation announced its commitment of delivering not less than 1 500 units each year for the coming 10 years in an attempt to address acute shortage of housing in the country[6]. With a rapidly growing urban population, about 70 percent of city residents today live in informal communities.[7]  A Household Budget Survey for year 2011/2012 published in July 2014 by the National Bureau of Statistics (NBS) revealed that 18 percent of the households had connection to the electricity grid (up from 12 percent reported in 2007). Coverage by the grid continued to be concentrated in Dar-es-Salaam (68.1 percent) and other urban areas (34.7 percent) with rural areas having coverage of only 3.8 percent in 2011/2012.

The survey further revealed that in 2011/2012, nearly 68 percent of the households lived in houses with modern roofs (55 percent in 2007). Similarly, 46 percent of households lived in houses with modern walls in 2011/2012 (35 percent in 2007).

Regarding home ownership, the survey showed that more than 75 percent of households in Tanzania Mainland owned the houses in which they were currently living. Ownership in rural areas, urban areas and Dar-es- salaam was 89.3 percent, 57.9 percent and 37.1 percent respectively. Also, about 17.4 percent of households were living in privately rented houses, mostly in Dar-es-Salaam where more than half of the households were living in privately rented dwellings.

The National Housing Corporation (NHC) announced in 2011 that it was raising its budget from US$23 million to US$230 million to increase the scale of delivery in the country.  By December 2015 NHC reported to have a balance sheet worth US$2 billion and US$400 million worth of ongoing projects in real estate (expected to reach US$800 million in the coming five years)[8]. Alternative building materials are being explored as a way to deliver these houses on a rapid scale. The Corporation’s major recently completed projects in Dar-es-Salaam include Victoria Place (consisting of 16 flats and 88 two to four bedroom apartments, kids playing area, swimming pool, gymnasium and shopping mall)[9] and Eco Residence (consisting of 120 three bedroom housing units with prices ranging from TZS 213 million (US$97 184.39) to TZS 254 million (US$115 891.24) VAT exclusive).[10] Major ongoing projects in Dar-es-Salaam include 711 @ Kawe (consisting of two to four bedroom apartments with prices ranging from TZS 297 million (US$135 510.63) to TZS 672 million (US$306 609.91) VAT exclusive)[11], Mwongozo Estate (consisting of 216 two to three bedroom and town houses sold between TZS 44.7 million (US$20 395.03) to TZS 128 million (US$58 401.89) VAT exclusive) and Morocco Square.  The Morocco Square project was launched in October 2015 and is the biggest project in East and Central Africa region, which is comprised of two office towers, residential tower and hotel tower. The project construction cost is estimated to be over TZS150 billion (US$68.4 million). Morocco square consist of four blocks including a shopping mall with a total of 28 827 square metres which will accommodate banks, chain of stores, supermarkets and shops, movie theatres, kids’ grounds and food courts, among others.

NHC has also launched an ongoing country-wide project known as ‘My Home My Life’ to offer affordable housing to Tanzanians across the country. The project is aimed at building 5 000 affordable housing units countrywide with prices quoted for the first and second phases of the project ranging between TZS 43.4 (US$19 801.89) million to TZS 95.3 million (US$43 482.03).[12]

Likewise, the Public Servants Housing Scheme which is being administered by Watumishi Housing Company (WHC) and specifically tasked to build 50 000 affordable housing units in various phases in the next five years has continued with implementation of its projects in various regions of the country. In November 2015 WHC launched a construction drive of 800 houses in four regions namely Tanga at Pongwe area (40), Mwanza at Kisesa Township (59) and Dar es Salaam which will receive the bulk of the houses to be built in Kigamboni (369), Bunju (71) and Magomeni Usalama (104).

Most pension funds are also actively involved in housing projects. The National Social Security Fund (NSSF) is in the middle of constructing its housing development in Kigamboni (the Dege Eco Village satellite city) which will bring to the market a supply of 7 460 housing units by 2017. Total project costs are estimated at around US$544.5 million[13].

On the side of private developers,   Avic International has continued with implementation of the Avic Town project in Kigamboni with plans to build 5 000 housing units in the next three years. This is a large scale luxury villas and bungalows project, with target customers being the social elite. The project is scheduled to deliver its first phase of 160 villas and bungalows by October 2016. The developer has already partnered with six banks namely CBA, CRDB, NMB, Stanbic, Exim and BOA to provide loans for purchase of houses.

Additionally, the International Finance Corporation (IFC) in its efforts to support growth of the private sector in Africa through investments and advisory services has injected equity investment in M Mortgage Finance, a greenfield mortgage finance bank being set up in partnership with Bank M Tanzania Limited, HFDC India and prominent investors. The company will be the first specialized mortgage lender in Tanzania.

Property Markets

At 139^th of 189 economies on the World Bank’s 2016 Doing Business Report, Tanzania ranks poorly in terms of ease of doing business although this is an improvement from a comparative rating for year 2015 where it ranked 140^th out of 189 economies.  It ranks 133^rd in terms of ease of registering property, up from a comparative rank of 132^nd in 2015. It takes eight procedures and 67 days to register a property, at a cost of 4.4 percent of the property value – close to Kenya and Malawi but almost three times longer than the time it takes in other Sub-Saharan countries such as Botswana and South Africa.

Still, lenders argue that an inadequate supply of mortgageable units makes it difficult for a vibrant property market to exist.  The demand for new, affordable housing remains considerable. A more fundamental problem, however, is the lack of land titles.  Only ten percent of the Tanzania total land surface is surveyed for various uses but only ten percent of applicants for surveyed land are able to get right of land occupancy certificates. According to a Land Registry Report presented in a Workshop on Unit Titles held in Dar-es-Salaam in June 2016, the registry has since independence released 650 000 title deeds and plans to release 400 000 title deeds in year 2016/2017 as part of the government’s express commitment to resolve land title issues.

The Government is the sole and primary instrument for land delivery.  While in principle, rights of occupancy can be bought, sold, leased and mortgaged in Tanzania; in practice the land market is inhibited by many layers of Government control.  According to Shelter Afrique (2010), the formal market for transfers requires Government approval, and land received through grants must be held for three years before the landholder can sell the rights. The transfer of a granted right of occupancy must be approved by the municipality and registered. A holder of a customary right of occupancy can sell the right, subject to the approval of (and subject to any restrictions imposed by) the village council. Mortgages are regulated by formal law, and land rights must be registered before they can be mortgaged.  There is a very limited formal land sale market in Tanzania. Most land transactions occur on the informal market, and these tend to be leases. In rural areas, land sales were historically conducted between members of families or clans.

Housing Policy and Regulations

Since the time of independence in 1961, the Government has recognised housing as one of the basic needs for all. The Ministry of Lands, Housing and Human Settlements Development has been mandated to administer land and human settlements in Tanzania on behalf of the President of Tanzania who serves as the trustee of all land.

While housing development in Tanzania is guided by the National Human Settlements Development Policy of 2000, the policy’s objectives largely cater towards the provision of adequate shelter, an efficient land delivery system, service provision and better rural housing without specifically addressing the problems within the housing sector. Efforts are currently underway towards developing a housing policy that will aim to address key issues surrounding the housing sector.

Mortgage Finance in Tanzania is guided by the Mortgage Finance Act of 2008, and the Banking and Financial Institutions (Mortgage Finance Regulations), 2015 developed for regulating mortgage finance operations for banks and housing finance companies. The Banking and Financial Institutions (Tanzania Mortgage Refinance Company) Regulations, 2011 were also developed with support from World Bank to guide the operations of the TMRC. The National Microfinance Policy was adopted by the Government in 2000. Prudential norms were created for microfinance institutions in April 2005 intended to increase wholesale funding to MFIs and ensure their financial viability. In 2014, the Bank of Tanzania issued revised regulations to address the shortcomings of the 2005 regulations which excluded some of the microfinance institutions from the Bank’s regulatory ambit.

Housing Sector Opportunities

 As in other countries in the region, the public sector of Tanzania has not been successful at delivering affordable and sufficient housing for the urban poor.  The use of alternative and lower-cost technologies and materials is a key area of opportunity which complemented by the government’s initiatives to address housing gaps, has the potential to reduce costs associated with building and housing.

Beyond mortgage finance, significant opportunities for growth in housing microfinance still exist. It is very encouraging to see that the sector is receiving policy attention and funding support. With the existing over 5 500 savings and credit cooperative societies and over 170 credit related Non-Government Organisations, there is an enormous potential for housing microfinance to contribute towards housing the majority of the population.