Why TZ’s mortgage market is smallest in East African bloc

Dar es Salaam. Tanzania has the second largest economy among member states of the East African Community (EAC) yet the country’s historical background is holding it back, making its mortgage market the smallest in the region.

With Ujamaa (African socialism), the mentality then was to reject exploitation of the many by the few and analysts believe this has had an impact on every aspect of life of a Tanzanian, resulting into a retarded growth of entrepreneurship and indeed, the uptake of loans to undertake productive activities.

In its latest report, the Bank of Tanzania (BoT) said the country has one of the fastest growing mortgage markets in the region, propelled by a high demand and driven by a sustained economic growth.

The mortgage market reached Sh481.63 billion in June 2016, a 29 per cent growth rate from the Sh374.52 billion that was recorded in March 2016.

Nevertheless, the report notes that Tanzania’s mortgage market is still relatively smaller compared to regional peers, specifically, Kenya, Rwanda and Uganda.

“Mortgage debt outstanding as a proportion of Tanzanian Gross Domestic Product (GDP) was around 0.53 per cent as at the end of the second quarter of 2016. This is lower than its East African neighbouring countries but growing at an accelerated pace,” the report reads.

In Rwanda, it stands at around 3.6 per cent of the GDP while in Kenya and Uganda, it is at 3.4 per cent and 0.9 per cent respectively.

Analysts say the trend explains the fact that with Ujamaa background, very few individuals could go for bank loans.

“It starts with an individual, if I tell you to go for a bank loan today, the first impression you will have is that the bank will only turn you broke so it is not only about mortgage but rather, it is about the culture of going for bank loans,” said a real estate expert from Ardhi University, Dr Felician Komu.

He said even when it comes to business loans, very few would have the courage to take them as the first impression they get is that they would lose the money and their properties. “So it is basically a question of literacy and that is why a government report noted in 2013 that we were still very far from realising a meaningful mortgage market,” he said.

When commercial banks officially started issuance of mortgage financing a few years ago, it was still a new thing, coupled with mistrusts between lenders and clients which saw the former raising interest rates and reducing repayments periods.

During all that time, regional peers were building their mortgage facilities.

Interest rates

According to a real estate consultant who also teaches at Ardhi University, Mr Sultan Mundeme, Tanzania’s mortgage market is also bogged down by interest rates which he said are one of the highest in the world.This is despite the fact that average mortgage interest rates have fallen from 22 per cent to 16 per cent.

“Of course I do not blame commercial banks for this because not all Tanzanians are good at repaying their loans and that is why the lenders raise their rates to compensate for the defaults. It is basically a culture of non-repayment which we must strive to defeat,” he said.

Nevertheless, data show that in Kenya, various commercial banks charge between 12.3 and 15.6 per cent on mortgages while in Rwanda and Uganda, they are almost the same as those in Tanzania.

Positive prospects

According to Dr Komu, a recent literacy building project, approved by the government will completely change the situation.

“Through the project, the aim will be to let Tanzanians know that instead of paying Sh300,000 per month as rent for a residential house, one would easily get a mortgage, build a house and be deducted the same amount each month by a commercial bank,” he said.

The project will greatly impact on such positive initiatives as those being undertaken by developers like the National Housing Corporation (NHC), Pension funds, the Watumishi Housing Company (WHC), Tanzania Buildings Agency (TBA) and the International Finance Corporation (IFC) among others.

NHC, which has built thousands of houses during the past few years, is currently undertaking a country-wide project known as ‘My Home My Life’ which seeks to offer 5 000 affordable housing units countrywide with prices quoted for the first and second phases of the project ranging between Sh43.4 million to Sh95.3 million.

Similarly, the WHC is specifically tasked to build 50,000 affordable housing units in 5 phases throughout various regions across the country.

Most Pension funds are also actively involved in housing projects, with the National Social Security Fund (NSSF) currently constructing houses in Kigamboni (the Dege Eco Village satellite city) which will bring to the market a supply of 7,460 housing units by 2017 in a project that will cost a cool $544.5 million.