Challenges facing TZ mortgage market

Tanzania is one of the fastest-growing countries in Africa, with a GDP growth average of 6-7 per cent over the past decade.

However, the mortgage market does not meet the demand of the population that can afford mortgage financing.

It has been projected that Tanzania will be the 4thmost populous country in Africa by 2019 with 55.5 million people. The situation will deepen the housing shortage.

Tanzania’s mortgage market is among the smallest in the East Africa (the ratio of outstanding mortgage debt to GDP is 0.33 per cent as at December 31, 2017) with only 4.5 per cent of Tanzanian adults aged 15 and above having a mortgage loan according to 2014 Findex report.

Tanzania has an acute shortage of affordable and quality housing with the current housing deficit of three million units. This implies that the demand for housing is extremely high but is constrained by many challenges such as high cost of borrowing for housing, low levels of income, lack of local long term funding for developers, and inadequate supply of affordable housing. Addressing these challenges is critical to our economic growth as the housing sector can create jobs hence increasing wealth to people in that sector.

It is evident that the middle income class is growing as the incomes are rising in the country but still most people cannot affordmortgage financing and our housing market total debt is only 0.33 per cent of our GDP.

In this article, I will discuss three challenges affecting the mortgage financing in the country and roles of government and private sector to address those challenges:

Government financial role–It is crucial to note that the acceleration of mortgage finance market is dependent on the strength of the overall economy. Thus, the government’s financial role must be clearly defined and should support housing market whereby the balanced risks between government and private sector is in place to accelerate the growth of housing market. One way of doing that is to develop capital markets so theycan support the development of mortgage finance through local currency long-term financing and development of secondary mortgage finance market.

The secondary market will provide the banks with an outlet to adequately manage their exposure to mortgage financing.

One of the main reasons why our mortgage finance market is the smallest in East Africa is lack of local long-term funding to facilitate the provision of mortgages.

The government has realised the importance of its role in advancing the mortgage market thus, it has undertaken various initiatives to respond to the concerns.

The Bank of Tanzania established Tanzania Mortgage Refinance Company (TMRC) in 2010 under the Housing Finance Project (HFP) with the help of $40 million from the World Bank to support the growth of the mortgage market. TMRC was created for the sole purpose of that and even though it has a positive effect in the market, it still has a long way to go to achieve its goal.

As at December 31, 2017, the total loans advanced by TMRC to the banks were equivalent to 24 per cent of the total outstanding mortgage debt (Sh344.84 billion) which implies there is still a significant opportunity for TMRC to refinance the remaining 74 per cent of the mortgage market debt.

There is no denying the significant impact the TMRC has made in the mortgage market – since the establishment of TMRC, banks offering mortgage increased from the to 31, the mortgage repayment period increased from seven to 20 years, and interest rates dropped from 24 per cent to 19 per cent.

So why is the mortgage finance market still not growing? Next week, I will discuss the remaining two challenges that affect the growth of mortgage finance in Tanzania.