Report Series: Landscape of Housing Investment- Tanzania

Country report

Tanzania’s pension sector has been instrumental in organizing long-term funds for the housing sector. Tanzania has the highest number of banks in the East African region. At 57 banks, the country’s banking industry has been at the forefront in competing for pension assets through attracting highly priced deposits from the registered pension funds. Pension funds account for 6.4% of bank deposits. Only a maximum of 35% of pension assets may be placed with financial institutions as deposits. Additionally, only up to 30% of pension assets may be invested directly in the real estate sector. This limit, however, restricts the amount of long term funding available for mortgage lenders in the sector. in addition, The establishment of TMRC, under the Housing Finance Project, and its subsequent operations has had a constructive 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 (between 19% and 22% in 2010) thereby positively impacting on mortgage affordability in the country. By regional standards, the impact of the TMRC seems marginal, since the interest rate in other Partner States is about the same. On positive note though, the TMRC did not exist, the rates would be as high as 25% and above.

The report presents and in-depth analysis of the landscape of investment in Tanzania. It provides useful data on existing DFI investors, the type of instruments they use to invest and the investment environment they operate in. The report forms part of The Centre for Affordable Housing Finance’s Investor Programme which aims at quantify the breadth of investment activity with respect to housing and housing finance across Africa, and to establish a mechanism to track this on an ongoing basis. This project has collected data and highlights gaps and opportunities in the investment landscape. With the aim of stimulating greater investment in affordable housing and connecting investors with potential investments, the report profiles investors and investment instruments with the greatest impact on the housing finance market within the EAC Region. Growing financial sector experience and increasingly sophisticated financial instruments are driving investor interest in African real estate. This includes new market opportunities related to a rising urban middle class, an increasingly localized construction material industry and innovations in housing finance such the emergence of Real Estate Investment Trusts and mortgage liquidity facilities across Africa. However, a key barrier to this growth remains the chronic lack of rigorous data on the breadth and character of financial infrastructure investment. This is particularly true for the housing sector as stimulating targeted investments requires highly differentiated data that illustrates market segmentation. In providing market intelligence that makes the case for investment in underserved markets (segmenting and quantifying the demand side; and scoping, understanding and tracking the supply side), we can support a better policy environment & increased private sector activity in affordable housing markets. In this way, we catalyse scale interventions. Without this data, targeted interventions become challenging and result in unresponsive housing finance packages, the high occurrence of Non-performing loans (NPLs) and poor uptake of new residential developments.