Tanzanian real estate market is currently experiencing
a huge surge of increased construction and real estate activities. It appears that every investor is constructing
a villa, an apartment complex, office tower, hotel or shopping mall and with
the extremely exciting and promising oil and natural gas market, there are
great expectations in the real estate sector.
But, will these expectations be met? Torrid growth in
real-estate investment in the country is inseparably connected to the country’s
political and economic stability, which has made Tanzania the most preferred
investment destination in East Africa for global investors, developers, agents
and lenders.
Undoubtedly, Tanzania is set to become one of Africa’s
leading economic powerhouses driven by many factors including strong
macroeconomic policies.
With enormous demand for residential housing,
industrial and commercial premises for Tanzania’s 48.2 million inhabitants
(2012 Population and Housing Census) and for its thriving economy, large-scale
real estate developments have been launched in the country.
This is transforming the real estate business into one
of the most profitable sectors in the country. The sector has attracted a flood
of venture capital dollars and diversified sources of funding, including
private equity funds.
To stimulate economic activity and boost the real
estate market, the Tanzanian government fostered a very stable and predictable
fiscal investment regime, signed several double taxation treaties and
multilateral and bilateral agreements, introduced regulations for mortgage
financing, established a framework for Real Estate Investment Trusts (REITs),
and enacted the Unit Titles Act – also referred to as the Condominium law.
Subsequent to this, the funds inflows catalysed and
transformed real estate investment in Tanzania. The real estate market is very
vibrant, and a wall of money coming into the sector is driving a huge amount of
legal work. Part of that work includes wading through the complex maze of legal
rules and regulations associated with property transactions.
It is evident that the real estate sector plays a
pivotal role in the Tanzanian economy, as it contributes to employment
generation and GDP growth of the country. Almost 10.2 per cent of GDP is
contributed by the real estate and business services sector (Financial
Stability Report 2013), and in the coming few years, it is anticipated by
industry experts to rise by up to 13 per cent.
For banks, too, real estate plays a key role, from a
real estate financing perspective: It is estimated that mortgage loans
outstanding amount to 156 billion/- with the average mortgage debt size being
62million/- or USD 38,000 (Mortgage Market Update 2013).
This amount is growing rapidly as new entrants come
into the market. Moreover, the real estate sector has also been responsible for
the development of allied sectors such as steel, paints, cement, bricks, and
timber. A recent report by the Bank of Tanzania shows that industry and
construction ranks third among the major sectors of the Tanzanian economy in
terms of direct and indirect effects.
Being an increasingly capital-intensive industry, the
real estate sector is not immune to liquidity crunches resulting mainly from
banks’ extremely cautious approach to real estate lending – despite the big
improvement in market sentiment in recent years. Isidore Leka Shirima, FK
Econo- Consult’s principal consultant, opines: “Banks remain primarily concerned with the level of
risk they’ll be taking when they lend to the real estate sector and they are
taking an extremely cautious approach.” This approach, he continues, “is
reflected in construction- linked payment plans.”
The good news is that alternative investors including
private equity funds have stepped in to take big bets on the Tanzanian real
estate sector by backing developers with risky shortterm finance, thereby
helping the sector to expand.
According to data from the Tanzania Ministry of Lands,
Housing & Human Settlements Development, the current housing deficit stands
at over 3,000,000 units with an annual growth in demand of 200,000 units. This, coupled with the annual growth in demand for affordable
houses and the urban population growth, offers big hyper-growth market
opportunities for real estate developers who will design affordable housing
options suited to average Tanzanian families whose disposable income is
steadily on the rise.
Some of the public pension funds and the National
Housing Corporation (NHC) have invested directly in housing. The Parastatal
Pension Fund (PPF), for instance, ventured into low cost housing and developed
a project in Kiseke, Mwanza, comprising of 580 houses.
The NHC expects to develop a minimum of 15,000 houses
for sale and lease, of which 5,000 will be affordable houses for low-income
groups by June 2015 (NHC Strategic Plan 2010/11 – 2014/15).
The current scenario has also opened up new locations
for residential development such as Kinyerezi, Mtoni Kijichi, Ukonga, Gongo la
Mboto, which were otherwise not very attractive to house buyers. Remote
suburban areas, where land is relatively inexpensive, are witnessing the launch
of real estate projects.
As far as the commercial segment is concerned, with a
substantial deficit of office space in the port city of Dar es Salaam, demand
for rentals has increased.
Due to the increased scarcity of office space in the
city’s central business district (CBD), some residential flats in prime areas
of the city have been converted into commercial properties. Although this trend
is contrary to regulations, it is a sign of growth in the real estate sector.
The ongoing development of a real estate regulatory
and control bill is expected to establish a regulatory agency and streamline
the real estate sector by introducing various reforms. This is a crucial step in the right direction. If
implemented, the bill should ensure housing for the urban poor by making it
compulsory for developers to provide some portion of project townships for the
lower income group. The bill should also help streamline the approvals process
for all developments so as to reduce or eliminate project delays.
The Capital Markets and Securities Authority (CMSA), the
stock market regulator in Tanzania, should step up its nation-wide campaign for
sensitising the business community about REITs. This will go a long way to building up awareness and
overall confidence and creating an environment conducive for increased private
and public REITs, which help to drive the real estate market because developers
can sell properties to these funds and use the sale proceeds to fund the
building of new projects.
While the government has taken various steps to
develop the whole sector, there is a further need to streamline government
policies and introduce reforms to boost the real estate sector. Industry
experts are advocating a substantial cut in interest rates and greater
simplicity in credit financing.
The government should consider removing VAT on
building materials to further catalyse and allow for affordability of new real
estate developments. These government initiatives will reduce prices further
for properties, increase liquidity in the market, and bring down the interest rates
to a more realistic level.
In support of the initiatives, developers would lower
property prices and more Tanzanians would be interested in buying properties.
With a continued strong and stable central government led by President Jakaya
Kikwete, the real estate market is expected to get a further boost soon, as
improved investment climate sentiment is bringing a lot of confidence into the
country. It is against this backdrop that continued growth in
the real estate sector is predicted with rising real-estate values and improved
credit quality.
Eventually, whether Tanzania’s real estate market can
meet the expectations of foreign and domestic investors and developers will
depend on the rationality of the regulatory regime and how well the laws are
interpreted by courts and tribunals and implemented by the local authorities.
Overall, the real estate market will continue to
present more windows of opportunity for those ready to open them.
Report by: Noah Amri , Freelance Property Investment Analyst.
Email: amry.pie@gmail.com
Mobile: +255 783 084 831 , +255 716 828 150
