Monday, May 28, 2018

Why pace of mortgage financing is still sluggish

 

Dar es Salaam. The number of home buyers in Tanzania has remained low. This is evidenced by the few mortgage accounts that were recorded over the last seven years.

The mortgage market report by the Tanzania Mortgage Refinance Company (TMRC) shows that, as of March 31, this year, only 4,209 home buyers’ accounts were recorded – up from 930 that were recorded during the second quarter of 2012.

The number reached a peak during the third quarter of 2015, when mortgage accounts numbered 5,241.

This is equivalent to 0.33 per cent of the country’s gross domestic product (GDP), compared with 25,000 accounts – close to 3 per cent of GDP – in Kenya; 0.84 per cent in Uganda, and a whopping 42 per cent in South Africa.

At Sh344.84 billion in 2017, Tanzania’s outstanding mortgage debt was also lower compared with Ksh200 billion (Sh4.2 trillion) in neighbouring Kenya.

The slow pace of mortgage financing in Tanzania is principally the result of a lack of awareness of housing finance, whereby Tanzanians build homes using money from their own pockets – albeit doing so over a relatively long period of time.

“Many Tanzanians build houses with the little savings they make. But this does not give you comfort as, when you finish constructing your house, your kids will have already become grown up and moved out of the home,” said Mr Ammish Owusu-Amoah, chairman of the Tanzania Mortgage Refinance Company.

Noting that, traditionally, people build houses by first buying the materials bit by bit until they amass enough of them to start construction in earnest, the TMRC chairman said that this is costly in real terms, compared with buying an already completed house.

And, indeed, buying a house through mortgage financing offers a chance for borrowers to own a house for which they are for all practical purposes paying rent – which is in fact converted into mortgage repayments.

Mr Owusu-Amoah was speaking during the launch of TMRC’s Sh120 billion bond to be floated over the next five years.

The bond sale will start with a first tranche of Sh12 billion to be auctioned from today to June 8th this year. The remaining amount will be floated over the next five years.

“It is our hope that the offer will be fully subscribed – and it will open subsequent issuances of tranches to the public,” he said.

Commenting on this, the chief executive officer of Orbit Securities Limited, Mr Juventus Simon, said he believes that the Sh12 billion bonds will be oversubscribed as a result of the prevailing high market liquidity.

Mortgage is an important tool which enables Tanzanians to own homes, on a repayment period of up to 25 years.

Currently, some 31 commercial banks offer mortgage financing in Tanzania, for which the tenure has been extended from 5-7 years to a maximum of 25 years henceforth.

The TMRC chief executive officer, Mr Oscar Mgaya, said the ongoing reduction of interest rates among the banks, coupled with the government debt instruments (bills and bonds), offer opportunities for future growth of the relatively novel mortgage market in Tanzania.

“The launch of the bond offers us great achievement,” he said during the announcement of the bond floating.

For his part, the TMRC chief finance officer, Mr Oswald Urassa, said the lack of income and awareness, as well as high interest rates, remain the major challenges in extending housing finance in Tanzania, where the mortgage market is still concentrated in Dar es Salaam which accounts for 87 per cent of the overall mortgage refinancing.

The other regions of Arusha, Mwanza, Morogoro, Dodoma and Pwani account for one per cent each.

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