Housing Finance in Tanzania

Introduction

Tanzania is a growing economy, straddling the East African and Southern African economic development communities. The country is sixth among the top 10 fasted growing African economies.[1] It is rich in natural resources such as minerals and natural gas.  At least 32.6 percent of the country’s 59 million people live in urban areas, with a population growth rate of 3.11 percent [2]and urbanisation rate of 5.22 percent[3] per annum.

The country has experienced impressive GDP growth rates over the past decade averaging six to seven percent a year. The GDP grew by 7.1 percent in year 2017, broadly matching 2016’s results with the growth rate for years 2018 and 2019 projected at 6.5 percent.[4]

Inflation rates have shown a declining trend in the first five months of 2018, with the rate dropping from 3.8 percent in April to 3.6 percent in the month of May mainly due to the decrease in the price of food, non-alcoholic beverages and clothing and footwear. These movements have gone hand-in-hand with movements in the 182 days Treasury bill rate which continued to experience a downward trend during the first half of 2018, with the weighted average yield reaching 2.68 percent by mid-June 2018. This downward trend on the 182 days Treasury bill rate promotes all forms of long-term debt, including mortgages by making them less expensive. This, coupled with the Bank of Tanzania’s (BOT) move to reduce its discount rate from 16 percent to nine percent in August 2017, has resulted in some of the leading banks lowering their interest rates on personal loans from 21 percent to 17 percent.

The positive developments in the housing industry have attracted substantial multilateral and donor support. In addition to the African Development Bank’s commitment to fund the construction of residential houses and the development of agriculture and other economically viable areas in Tanzania with a total approved assistance package exceeding US$1.1 billion for years 2016-2020, the country has been promised more funding support from the World Bank in various sectors including real estate[5].

[1] Maseko F. (2018). “Top 10 Fastest Growing Economies in Africa 2018.” 4 May 2018..

[2] Worldometers (2018).“Tanzania Population.” 29 June 2018.

[3] Maseko F. (2018). “Top 10 Fastest Growing Economies in Africa 2018.” 4 May 2018.

[4] Focus Economics (2018).“Tanzania Economic Outlook.” 21 August 2018.

[5] The Citizen Reporter (2017).“Tanzania Assured of More World Bank Support.” 5 Dec 2017.

Access to Finance

Tanzania has 58 commercial banks and other private financial institutions. The banking sector in Tanzania is regulated by the BOT. As per the June 2018 Monetary Policy Statement, the banking sector remained stable and profitable with levels of capital and liquidity generally above regulatory requirements. Capital and liquidity ratios for the sector were 18.7 percent and 39.0 percent as at the end of April 2018, above regulatory requirements of 10 percent and 20 percent respectively. However, the quality of the banking sector assets deteriorated, as reflected by the ratio of non-performing loans to gross loans which reached 11.3 percent at the end of April 2018 compared to 10.8 percent at the end of April 2017.

According to FinScope 2017, Tanzania has made remarkable progress in expanding the opportunities for people to use financial services. Formal inclusion has reached 65 percent, growing by 14 percent between 2013 and 2017. Twenty-eight percent of the adult population remained financially excluded in 2017, compared to 55 percent reported in 2009. The take-up of digital financial services remained one of the main drivers of access to financial services in Tanzania, with the rate of mobile phones adoption within households being reported at 86 percent countrywide in 2017.[1] Findex 2017 reports that the use of mobile money (which has been centred in East Africa) has increased to 21 percent of adults in Sub- Saharan Africa, almost twice the number reported in 2014 and the highest of any region in the world.

FinScope 2017 further pointed out that 16.7 percent of adult Tanzanians have or use bank services with 48.6 percent using other formal services (such as mobile money, microfinance or SACCOS). This is an increase compared to 14 percent and nine percent reported in 2013 and 2009 respectively.

In 2010, the BOT issued regulations for a credit reference bureau within the framework of the Bank of Tanzania Act of 2006. To date BOT has registered two credit reference bureaus and has made using credit bureau reports mandatory during a bank’s loan appraisal process. According to the 2018 World Bank Doing Business Report, Tanzania ranked 55th in ease of getting credit which negatively impacts on accessibility to housing finance due to the cumbersome processes involved. Moreover, only 6.2 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 0.33 percent as at 31 March 2018). According to BOT, the mortgage market recorded an annual growth rate in mortgage loan balances of six percent between March 2017 and March 2018. 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) which was established in 2010 under the Housing Finance Project to expand access to affordable housing finance in Tanzania. As part of its strategy to strengthen its funding base and ensure its long-term sustainability, on 25 May 2018TMRC offered the first tranche of a TZS 12 billion (US$5.28 million) five-year corporate bond to the public (out of its total note programme of TZS 120 billion (US$52.8 million).[2]

By 31 March 2018, TMRC had extended TZS 91.1 billion (US$40.08 million) to commercial banks in a bid to facilitate mortgage lending. TMRC lending made 27 percent of the total outstanding mortgage book in the market as at 31 March 2018. Since the creation of the TMRC, mortgage loans’ average duration has increased from five to 10 years to 15 to 20 years, with typical rates offered by lenders for the mortgage product currently varying between 15 percent and 19 percent.

In addition, the International Finance Corporation, in its efforts to support growth of the private sector in Africa through investments and advisory services, injected TZS 2.52 billion (US$1.11 million) equity investment in First Housing Finance (Tanzania) Limited, a greenfield mortgage finance bank set up in partnership with Bank M Tanzania Limited, HDFC India and prominent investors. The company was licensed as the first housing finance company in Tanzania in August 2017 and officially launched its operations on 23 October 2017 with a focus of providing long-term housing solutions for the citizens of Tanzania. As of 31 March 2018, the company had issued loans totalling TZS 315.7 million (US$138 918).

A slowdown in credit growth and rising trends on non-performing loans has been experienced within the banking sector since 2017. As at 31 March 2018, total mortgage debt stood at TZS 340.92 billion (US$150 million) and 4 209 mortgages, compared to 31 December 2017 when the mortgage debt stood at TZS 344.84 billion (US$151.73 million) with 4 714 mortgages. The average loan size as at 31 March 2018 was TZS 81 million (US$35 640), a decrease from 31 December 2017 when the average loan size was TZS 82.2 million (US$36 168). 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. Some of the institutions offering housing microfinance include DCB Commercial Bank, EFC Tanzania Microfinance Bank,Yetu Microfinance Bank and Akiba Commercial Bank. Offered loan amounts usually range between TZS 1 million (US$440) to TZS 50 million (US$22 000) for a term ranging between one to five years at an interest rate of 17 percent with residential licences being mostly used among other collateral. 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. An additional US$15 million was extended for the HMFF (out of the US$60 million extended for the Housing Finance Project) in March 2015 to make a total fund of US$18 million. As of 31 March 2018,TZS 11.5 billion (US$5 million) had been disbursed under the fund to various banking institutions to facilitate issuance of housing microfinance loans to final borrowers.

[1] Mushi, E. et. al. (2017). FinScope Tanzania 2017.The Financial Sector Deepening Trust. Pgs. 27-61.

[2] Masare, A. (2018). “Mortgage Refinance Company TZS12 Billion Bond Exceeds Target by 4.3 Percent.” 24 June 2018.

Affordability

 

According to the Integrated Labour Force Survey of 2014, as carried out by the National Bureau of Statistics (NBS), the working age population in 2014 comprised of 25.8 million people of which 86.7 percent were economically active, mostly in rural areas. In addition, according to the 2015 Formal Sector Employment and Earnings Survey by the NBS, the total number of employees in the formal sector in Tanzania mainland increased to 2.3 million in 2015 from 2.1 million in 2014. The survey also revealed that in 2015 24.7 percent of employees earned monthly wages from TZS 300 001 (US$132) to TZS 500 000 (US$220), with only four percent of employees earning monthly wages above TZS 1.5 million (US$660).

According to a World Bank report, Tanzania’s workforce 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.[1] With almost 66 percent of paid employees earning a mean monthly income of less than TZS 500 000 (US$220), the average mortgage size of TZS 114 million (US$51 454.07) is high, indicating that most clients are high income earners with the majority of households financing their housing through cash sourced from household savings, microcredit loans and personal loans. A number of NGOs[2]cater to the lower income market segments, but their reach is insufficient to meet the scale of demand.

According to a 2018 Cost of Living study by Numbeo, a Dar es Salaam resident pays the largest chunk of his/her earnings (31.1 percent) on house rents than on any other basic commodity that is needed to survive. The study also states that at least 27.6 percent of an average Tanzanian’s earnings is spent on rent – leaving the remaining 72.4 percent for other basic needs.[3]

For building materials, a 50kg bag of cement costs US$6.38 (Grade 42.5R) and is more expensive in rural areas. A standard sheet of surrogated iron for roofing, gauge 28, is US$8.14, gauge 30 is US$7.70 and gauge 32 is US$7.48. The minimum plot size for residential property in urban areas is 400m2. Prices quoted for two to three-bedroom houses (60-121m2) constructed for civil servants under Watumishi Housing Company’s countrywide project (first phase) ranged between TZS 38 million (US$16 705) and TZS 109 million (US$47 960) VAT exclusive.

[1] Morisset, J. and Haji, M. (2014). “When Good Is Not Good Enough for 40 Million Tanzanians.” 9 December 2014.

[2] Such as TRIAS, Belgian Raiffeisen Foundation, Appui au développement autonome, KIVA, and UNITUS.These are working with Mufindi Community Bank.

[3] Numbeo Database (2018). “Cost of Living in Tanzania.” June 2018.

Housing Supply

Tanzania still suffers from a shortage of good quality and affordable housing. The current housing deficit is estimated at three million housing units valued at US$180 billion coupled with a 200 000 unit annual demand with a projected combined cost of US$12 billion.[1] With a rapidly growing urban population, about 83 percent of Dar es Salaam residents still live in informal communities.[2] The latest household budget survey for Tanzania for year 2011/12 published in July 2014 by the NBS revealed that 18 percent of the households had a 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 2011/12.

The survey further revealed that in 2011/12, 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 2011/12 (35 percent in 2007).

For 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 30 June 2017 NHC reported to have a balance sheet worth US$2.1 billion and US$306 million worth of ongoing projects in real estate. NHC’s major ongoing projects in Dar es Salaam include the 711 Kawe, Mwongozo Housing Estate, Morocco Square and Victoria Place. The Kawe project is a satellite city being constructed from a US$2 billion loan secured from Trade Development Bank (the financial arm of COMESA), which will involve 500 buildings and is expected to become the busiest centre in Dar hosting about 50 000 people, operating 20 hours a day. The first phase of the project has already begun with the construction of 262 housing units and other amenities. The Mwongozo Housing Estate is located in Gezaulole Kigamboni and consists of 221 2-3 bedroom town houses priced between TZS44.7 million (US$19 668) and TZS128.9 million (US$56 716) excluding VAT. Construction is at final stages with units almost sold out. The Morocco Square project was launched in October 2015 and consists of four blocks including a shopping mall for different commercial uses. Construction is in progress with the project reported to be selling fast because of its nature and location. The project is targeting the high-end market with three to four-bedroom units sold at prices ranging between TZS 592.8 million (US$260 832) and TZS 921.9 million (US$405 636) VAT inclusive. The Victoria Place located within the Victoria area along the new Bagamoyo road is a mixed- use project at completion stage, with 88 three to four-bedroom duplex apartments priced between TZS 287.7 million (US$126 588) to TZS 456.3 million (US$200 772)VAT inclusive, targeting the high end and commercial space for sale.

In line with the government’s decision to move its administrative functions to the capital city of Dodoma, NHC introduced a mega project of building the Lyumbu Sattelite Centre in Dodoma in December 2016. The project includes the construction of 300 houses on NHC-owned land, located at the Lyumbu area in Dodoma Municipality. The first phase commenced in December 2016 with construction of 300 three-bedroom stand alone housing units (45 units of 79m2, 210 units of 85m2 and 45 units of 115m2) and other associated facilities. The project has been designed to suit the urban living environment targeting middle and low income groups with all important services and amenities. In December 2017 the President of the United Republic of Tanzania inaugurated 150 houses which are part of the 300 houses to be built at the satellite centre. As of 31 March 2018, construction of 151 units had been completed with construction of the remaining 149 units already commenced and in progress.

Likewise Watumishi Housing Company (WHC), a real estate investment trust owned by pension funds continues with the implementation of the Public Servants Housing Scheme, in which 50 000 affordable housing units are expected to be constructed in five phases. Implementation of the first phase started in July 2015 with an expected completion date of September 2018. A total of 760 units will be constructed under phase one. By the end of April 2018 construction of 631 houses in four regions (namely Morogoro, Dodoma, Mwanza and Dar-es-Salaam) priced between TZS 38 million (US$16 720) and TZS 109 million (US$47 960) excluding VAT was nearing completion.

In August 2017 WHC also embarked on the Watumishi Njedengwe Housing Estate project to build 338 units in Njedengwe, Dodoma following the government’s decision to relocate its administrative functions to the capital city of Dodoma over the next five years. Construction of 39 stand-alone units commenced early September 2017 under the first phase of the project and is expected to be completed by September 2018. The units constructed under the project are three-bedroom houses of 78 m2, 87 m2 and 115m2 priced between TZS 58 million (US$25 520) to TZS 84 million (US$36 960) VAT inclusive. In terms of sales the project has been fully booked from the end of 2017.

[1] Zacharia, A. (2018). “Tanzania: Race to End Housing Deficit Hots Up.” 2 April 2018.

[2] Sheuya, S. A.  (2010). Informal Settlements and Finance in Dar-es-Salaam, Tanzania. UN Habitat. Pg. 13.

Property Markets

At 137^th of 190 economies in the World Bank’s 2018 Doing Business Report, Tanzania ranks poorly in ease of doing business, deteriorating from a rating of 132nd out of 190 economies for year 2017. It ranks 142nd in terms of ease of registering property, down from a rank of 132nd in 2017. It takes eight procedures and 67 days to register a property, at a cost of 5.2 percent of the property value– compared to an average of 7.8 percent and 59.3 days for Sub-Saharan African countries.

A fundamental problem, however, is the lack of land titles. Only 15 percent of the Tanzania total land surface is surveyed for various uses. According to FinScope 2017, only three percent of adult Tanzanians have a title deed.

According to the 2018/19 Ministry of Land budget speech, the ministry had released a total of 41 179 title deeds by May 2018 out of the target to release 400 000 title deeds and 3 000 unit titles in year 2017/18. The ministry also reported it was in the final stages of changing from an analogue system of documentation of land issues to the Integrated Land Management Information System (ILMIS). Issuance of electronic title deeds from the ILMIS was scheduled to commence in Ubungo and Kindondoni districts from June 2018.

Although 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 (2012), 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.[1] There is a very limited formal land sale market in Tanzania though this has been gaining momentum in recent years as the real estate sector keeps growing. Real estate agents involved in the formal sale of houses include Knight Frank, Dar Property and Prime Location to mention a few. According to the 2017/18 Africa report by Knight Frank, rental yields for residential and commercial properties range between six percent and 10 percent with higher yields being observed on commercial properties despite an increased supply.

[1] Shelter Afrique (2012). “Study on the Housing Sector – Tanzania for Shelter Afrique.” December 2012.

Policy and Regulations

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 mainly 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 underway to develop a housing policy that will address key issues surrounding the housing sector. As of May 2018, the Ministry of Lands reported that a draft housing policy has already been developed and that views are being collected from various stakeholders to further improve the draft.

Mortgage finance in Tanzania is guided by the Mortgage Finance Act of 2008, and the Banking and Financial Institutions (Mortgage Finance Regulations) of 2015 developed for regulating mortgage finance operations for banks and housing finance companies. The Banking and Financial Institutions (Tanzania Mortgage Refinance Company) Regulations, 2011 was also developed with support from the World Bank to guide the operations of the TMRC. The National Microfinance Policy was adopted by the government in 2000 and revised in 2017 to incorporate new developments, limitations and challenges in the microfinance sub-sector. Prudential norms were created for microfinance institutions (MFIs) in April 2005 intended to increase wholesale funding to MFIs and ensure their financial viability. In 2014, the BOT issued revised regulations to address the shortcomings of the 2005 regulations which excluded some of the MFIs from the Bank’s regulatory ambit.

Opportunities

Despite a number of large-scale real estate development projects that continue to increase the supply of residential housing, industrial and commercial premises, a gap still exists in the supply of affordable housing and affordable housing finance in the country. This presents a key area of opportunity for the government and key stakeholders in the real estate sector to explore ways in which the supply of affordable housing can be enhanced to cater for its ever-increasing demand, and for extensive use of microfinance as a source of affordable housing finance.

Opportunity also exists around the understanding and monitoring of housing needs for delivery of effective solutions, which the government has already begun addressing by embarking on the design of a housing information centre with the purpose of collecting, storing and analysing housing data for forecasting housing demand, supply and price levels in the country.

Websites

http://www.thecitizen.co.tz

https://www.bot.go.tz

http://www.nbs.go.tz

http://lands.go.tz

http://www.tmrc.co.tz

https://www.whctz.org