Tanzania

Tanzania has continued to experience impressive growth rates over the past decade. After a brief dip due to the global downturn in 2010, Tanzania recovered and growth for 2012 is forecast at 6.8 percent, rising to 7.1 percent in 2013. The main driver has been performance in the services sector.  The construction sector also performed well, with annual growth estimated at 9.2 percent, mainly driven by increases in residential and non-residential buildings, roads and bridges, and land improvement activities.  The construction sector is projected to grow to 9.8 percent in 2013. Tanzania has suffered high inflation rates over the past two years, peaking in December 2012 at 19.8 percent.  According to African Economic Outlook, inflation is expected to ease to single digits in 2012 (nine percent) and 2013 (8.3 percent).

These positive economic indicators and reforms, as well as stable political leadership, have resulted in substantial multilateral and donor support for the country’s development agenda. Some of this support is specifically targeted at developing the housing finance sector.

Access to finance

After two decades of economic liberalisation, there are 45 commercial banks and many other private financial institutions in the country. This has resulted in credit to the private sector expanding by 30-40 percent. Nevertheless, an indication of a shallow financial system is the gross domestic savings rate, which was estimated at 20 percent of the country’s GDP in 2010.  Access to credit is low by comparable standards across the continent and worldwide. Sixteen MFIs report to the MixMarket.  In 2011, these lenders had a gross loan portfolio of US$950.4 million and 276 302 active borrowers.  Almost 400 000 depositors had deposited a total 1.3 billion in the MFIs.

In 2012, the World Bank launched the Global Financial Inclusion (Global Findex) Database, exploring levels of financial inclusion around the world.  According to Findex, 14.2 percent of rural and 40.6 percent of urban Tanzanians over 15 years of age have an account with a formal financial institution. While 43.6 percent of Tanzanians over the age of 25 report that they have saved in the past year, this appears to be mainly informal: only 13.3 percent have saved at a financial institution and 9.7 percent through a savings club.  Credit is not widely used.  Only 6.6 percent of adults over 25 years of age reported having a loan from a private lender; 8.1 percent said they had a loan from a financial institution in the past year. Very few Tanzanians report having an outstanding loan to purchase a home: 6.7 percent of the top 60 percent of income earners and one percent of the bottom 40 percent of income earners.  Loans for home construction are slightly more prevalent, however, with 10.8 percent of the top 60 percent of income earners and 3.1 percent of the bottom 40 percent of income earners having home construction loans currently outstanding.  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.

Mortgage lending began in 1972 with the establishment of the state-owned Tanzania Housing Bank.  By the time the bank collapsed in 1995, it had provided about 14 000 mortgages – this was the extent of Tanzania’s mortgage industry.  To address the challenges in the housing finance sector, the Tanzanian government established a Housing Finance Project with the support of the World Bank.  The Mortgage Finance Act of 2008 was a product of this initiative, and led to the establishment of the Tanzania Mortgage Refinance Company (TMRC) in early 2010.  The TMRC is a mortgage liquidity facility created as a private sector institution owned by the banks with the sole purpose of supporting banks to do mortgage lending by refinancing banks’ mortgage portfolios – similar to the Egyptian Mortgage Refinance Company.  Licensed by the Bank of Tanzania as a non-deposit taking financial institution for the purpose of conducting its business, the TMRC will also be licensed by the Capital Markets and Securities Authority for the purpose of bond issuance.  The initiative offers important opportunities for growth in Tanzania’s mortgage sector: the TMRC serves as a secure source of long-term funding at attractive rates, while ensuring sound lending habits and best practice among the banks.  Initially, the TMRC will use a World Bank loan to refinance the portfolio of member banks.  Once this is exhausted, the TMRC will raise funds from the capital markets by issuing bonds, acting as an efficient way of connecting long-term investors with the institutions generating long-term assets.  Over time, the TMRC will lead to the establishment of specialised housing finance companies in the private sector.

With the prospects for mortgage lending looking brighter, TMRC has 11 shareholding banks, all of which plan to offer mortgages: Azania Bank, Bank of Africa Tanzania, National Bank of Commerce, CRDB Bank, Exim Bank, National Microfinance Bank, BancABC, NIC Bank Tanzania, Dar es Salaam Community Bank, Tanzania Investment Bank and The People’s Bank of Zanzibar.  In 2012, TMRC issued a loan of TZS4.2 billion (US$2 666 642.12) to its member banks to facilitate mortgage lending.

Given affordability levels, the microfinance sector is especially important in addressing housing supply in Tanzania. Tanzania’s microfinance sector is growing steadily, and the formation of a Tanzanian Housing Microfinance Working Group is highlighting the opportunities and challenges of this product in the housing space. Akiba Commercial Bank piloted a home improvement loan in May 2012, with loan amounts ranging from TZS2 million (US$ 1269) to TZS50 million (US$31 745), repayable over 24 months at an incentivised interest rate of 19 percent compared to 20-22 percent for regular business loans. Other lenders offering housing microfinance are Habitat for Humanity, Victoria SACCO, WAT SACCO, and Dar es Salaam Community Bank.  The largest microlending bank in the country, National Microfinance Bank, has no housing microloan product but recognises that up to 40 percent of the consumer loans it grants are used for housing purposes.  Similarly, Entrepreneurs Financial Centre, an MFI that has been operating for a year estimates that 25percent of its loans are used for housing purposes.  In 2011, the Tanzanian government announced its plan to establish a Housing Microfinance Fund, receiving a US$3 million contribution from the World Bank for this.  Research on the housing microfinance industry was undertaken in 2012 with results expected this year.

In 2010, the Bank of Tanzania issued regulations for a Credit Reference Bureau, within the framework of the Bank of Tanzania Act of 2006.  The intention is to have a state-owned, central databank that is managed by the Bank of Tanzania, from which licensed private credit bureaus can access data.  Banks and other regulated financial institutions must report to the register, while reporting by non-bank financial institutions is voluntary.  While the Bank of Tanzania invited applications for credit reference bureau licences from the private sector in 2011, there are still no public or private credit registries operating in the country.

Affordability

According to FinScope Tanzania 2009, 53 percent of all adults in Tanzania earn less than TZS 50 000 (about US$30) a month.  Only nine percent of urban adults are employed in the formal sector, and another 22 percent earn their incomes from running their own business (not farm related).  Forty-one percent of all urban adults in Tanzania rely on two or more sources of income.

Mortgage financing institutions offer loan terms that range from five to 15 years, with an interest rate of between 18-21 percent. The TMRC intervention has had a positive impact on interest rates. Funding raised through the TMRC is charged at 10 percent interest.  This translates into 13 percent interest on mortgages supported with the TMRC, while other lenders who do not have a stake in the TMRC charge 19-20 percent.

The average mortgage size is between TZS50 million and TZS350 million (about US$31 000 and US$215 000), and so most clients are high-income earners.  One bank requires a deposit of three instalment payments, a savings account with the bank, and title deed indicating remaining leasehold of not less than 12 years. In another bank, to qualify for a typical mortgage product, a salary of TZS800 000 a month (US$525) is needed. In perspective, more than 70 percent of Tanzanians have incomes of less than US$150 a month.

A number of NGOs cater for the lower-income categories. These include the Tanzania Women’s Trust, which benefited from a guarantee from UN-Habitat for US$100 000 deposited with a local commercial bank, intended to incentivise issuing of loans. Tanzania’s well-developed microfinance sector suggests high potential for housing microfinance. WAT SACCO, for example, is expanding to include housing microfinance by piloting a project in Dar es Salaam’s informal settlements with technical support from Rooftops Canada and the Co-operative Housing Federation of Norway. The WAT SACCO is meeting the costs of this technical assistance in addition to availing guarantees. Another player is Habitat for Humanity with the Makazi Bora home improvement loan targeting urban and peri-urban household with incomes of US$1-US$5 a day, at interest rates of 2.5 percent per month. By June 2011, Makazi Bora had issued 848 loans at an average loan size of US$542. The portfolio at risk (30 days) was 5.76 percent and 1.8 percent of loans had been written off.  The Presidential Trust Fund is a microfinance institution established by the Office of the President with 19 branches, 23 000 clients, and a loan portfolio of US$3.3 million. It is intended to operate commercially.

Housing supply

Tanzania has an estimated housing backlog of three million units.  Most Tanzanians self-build rather than relying on formal housing suppliers. Even this, however, has been hampered by a shortage of serviced land. Between 1990 and 2001, a mere five percent of applications for plots received were allocated. To address this challenge, the government implemented a 20 000 residential plot programme, which was rolled out first in Dar es Salaam and later in Mwanza and Mbeya. The programme seeks to parcel out, survey and allocate plots to individuals. Anecdotal evidence suggests that building on the plots has been slower than expected because of limited infrastructure (which will only be provided when there is a certain number of people), lack of finance, and the remoteness of the plots. There is limited formal housing delivery.

Renewed energy is coming from the National Housing Corporation (NHC), which was originally established under an Act of Parliament in 1962.  In 2010, the NHC was given a new strategic directions and it has ambitious plans for housing delivery as part of the broader housing finance and development strategy that also led to the establishment of the TMRC. Early in 2011, the NHC announced that it would raise its budget from US$23 million to US$230 million in the 2011/2012 financial year, so that it could dramatically increase the scale of delivery. To achieve this rapid scale, the NHC is investigating various technology solutions.  New housing development will complement urban renewals and slum clearance initiatives, and are likely to contribute to the development of new, satellite cities. The NHC is working under a five-year strategic plan until 2015, with the overall vision of becoming a leading real estate development and management firm in Tanzania.  As part of this, the NHC plans to build a minimum of 15 000 units (including 5 000 affordable houses) for both sale (70 percent) and rental (30 percent), assuming the role of a master developer.  The NHC has raised a US$14.5 million loan from Shelter Afrique for this purpose.  The NHC is also working towards becoming an efficient real estate management firm.  The NHC’s stock comprises 2 389 buildings which have 17 111 rental units, valued at US$1.1 billion. These properties are mainly in prime areas of major urban centres.  The NHC also has plans to address the regulatory framework for housing development in Tanzania, fast-tracking legislative amendments and preparing the necessary regulations to streamline housing development.

The NHC has developed an investment policy for partnerships with private players.  Three models are available: (i) Land as equity contribution model in ventures involving development of prime commercial and residential rental properties; (ii) Land and finance contribution model in ventures also involving development of prime commercial and mixed-use rental properties; and (iii) revenue sharing model in ventures involving development of residential properties for sale.

The NHC has been successful in real estate management over the past two years, raising low rentals charged on its properties from an average of 30 percent of the market rates, to 60 percent. The ultimate goal is to reach an average of 85 percent of the market rates by June 2015. Equally, it has succeeded in increasing the annual rent collections from 85 percent to almost 100 percent in 2012. The corporation has completed the restructuring, rightsizing, training and recruitment of staff. It was also able to increase efficiency in its delivery system by putting in place control and compliance mechanisms aimed at safeguarding its assets as well as redressing the legal frame and contracts. Finally, NHC’s construction unit has been upgraded from Contractor Class 2 to Class 1.

The NHC is building a land bank and has already acquired 1 372.1 acres. Part of this land (862.2 acres) located in Arusha will be pivotal towards executing its master developer role. The corporation is also in the process of acquiring 26 887.9 additional acres in difference parts of Tanzania.  Besides these efforts, the NHC also completed the preparation of several projects consisting of 9 000 residential and commercial units. During the financial year 2011/2012, it started to implement seven projects consisting of 737 housing units that are located in various areas of the country. These include Arusha, Dodoma, Dar es Salaam and Morogoro. These projects are at different levels of execution. During 2012/2013 the NHC is expecting to complete them and has already started 38 new ones consisting of 4 140 housing units as well as 14 commercial projects.

To finance the projects, the NHC secured government permission to borrow a total of TZS300 billion (US$190.5 million). So far, the NHC has entered into agreements with eight local banks for loans amounting to TZS165.4 billion (US$105 million). The corporation has already drawn down an amount of TZS68.5 billion (US$ 42.5 million) to finance the ongoing projects.

The corporation is also playing an important role in ensuring that the mortgage system in Tanzania works. In October 2011, the NHC signed agreements with nine banks that are committed to providing mortgage loans to buyers of its houses. As an extra security to both the lender and borrower, under these agreements, the NHC agreed to buy back properties from borrowers who are unable to complete loan repayments.

NGO efforts are supporting housing for the poorest people.  The Centre for Community Initiatives (CCI) supports the Tanzania Federation of the Urban Poor, a network of slum dwellers that are members of Shack Dwellers International.  UK-based NGO Homeless International has supported the work of CCI since 2007, mobilising 7 000 federation members in six cities, piloting water supply rehabilitation and toilet construction projects in Dodoma and Arusha, piloting a resettlement project for 500 families in Dar es Salaam, and negotiating for upgrading in another.

Property markets

Lenders argue that a lack of an adequate supply of mortgageable units makes it difficult for a vibrant property market to exist. As an illustration, 75-80 percent of Dar es Salaam is considered a slum. This severely limits the amount of mortgageable stock in urban areas.  A more fundamental problem, however, is the lack of land titles.  Data from the Bank of Tanzania suggests that 75 percent of land is not surveyed in Dar es Salaam.

Tanzania ranked 127th out of 183 economies in the World Bank’s Doing Business 2012 report, decreasing its ranking by two units since 2011.  Its rank in the Registering Property index has also declined, from 155 in 2011 to 158 in 2012.  With nine procedures, it takes 73 days to register property and costs 4.4 percent of the property value.  This is three times the time it takes in OECD countries, but comparable in terms of cost.

The foreclosure process in Tanzania needs reform. All foreclosures require court action and there is a reported cautiousness by banks to lend because of difficulties with this process. These include long delays because of the backlog of cases in the courts as well confusion over which courts hold jurisdiction, allowing for forum shopping by litigants. One bank has said that as a result, mortgage lending is more like “relationship banking” in which the lender relies on its knowledge of the client rather than solely on the collateral value of the property being financed.

Policy and regulation

The Tanzanian government has been working hard to put all the necessary policies and laws in place to enable a vibrant housing market.  That said, there are still very real challenges.

Reforms to property law, including the Mortgage Financing (Special Provisions) Act 2008, which repeals certain sections of the Land Act, are an effort to ease the use of land as collateral. The ICF is also supporting a programme to modernise the judiciary. Prudential norms were created for microfinance institutions in April 2005. These reforms, among others, were intended to increase wholesale funding to MFIs and ensure their financial viability. Broader finance reform has also been initiated by the Bank of Tanzania through the Banking and Financial Institutions Act, Bank of Tanzania Act, and Companies Ordinance.

Opportunities

The housing market in Tanzania provides enormous potential for growth, enhanced by the recent Housing Finance Project of the Bank of Tanzania and the various regulatory and policy reforms being implemented. The relatively healthy economic growth and good political management of the country provide an adequate platform for this. The World Bank’s focus on expanding housing finance markets suggests important opportunities for growth in future. Beyond mortgage finance, there are real opportunities for growth in the housing microfinance sector, which is also receiving policy attention and funding support.  High levels of self-build coupled with a vibrant microfinance industry with good links to the formal banking sector, and experimentation with housing, mean that housing microfinance has enormous potential to contribute towards housing the majority.

 Source:  Housing Finance Yearbook 2012

Sources

1. AfDB, OECD, UNDP and UNECA (2012). African Economic Outlook 2012.
2. Bade, Rished (2011). The Emergence and Work of the Tanzania Mortgage Refinance Company.  Presentation to the African Union for Housing Finance Annual Conference. September 2011.
3. Bank of Tanzania (2012). Annual Report.
4. Demirguc-Kunt, Asli and Klapper, Leora (2012). Measuring Financial Inclusion: The Global Findex. World Bank Policy Research WP 6025.
5. Heymans, Marlene (unpublished, 2011). Credit Bureau Activity in SADC countries. Report commissioned by the FinMark Trust.
6. Melzer, Illana (2011). An access frontier for housing finance in Tanzania.  Prepared for the FinMark Trust and presented to the AUHF Conference.
7. Mutero, James (2010). Access to housing finance in Africa: Exploring the issues (No. 10) Tanzania. Report commissioned by the FinMark Trust.
8. WAT Human Settlements Trust and Rooftops Canada (undated). Impact of Housing Microfinance Programs in Tanzania: Three Case Studies from Kupongezana Upatu Group.
9. World Bank (2011). Doing Business 2012:  Tanzania Country Profile.

Websites

www.allafrica.com

www.africaneconomicoutlook.org

www.finscope.co.za

www.mfw4a.org

www.mixmarket.org

www.thecitizen.co.tz

www.unhabitat.org

www.worldbank.org