Mortgage market and its challenges

In last week’s article, I discussed the first of three challenges that affect mortgage financing in our country: Government’s financial role. I have discussed the importance of Government to be clearly defined in supporting the growth of housing finance through developing the secondary housing market. I have mentioned the Government initiative to address that concern by establishing the Tanzania Mortgage Refinance Company Limited (TMRC) in 2010 and discussed its positive impact in our mortgage market. That is where we ended. Let us continue from where we ended last week.

Before we discuss the remaining two challenges that affect our mortgage finance growth, let’s look at the current state of the mortgage market. Two weeks ago, Bank of Tanzania (BOT) and TMRC released the Tanzania Mortgage Market Update for year ended December 31st, 2017. The report highlighted the market growth of only 6 per cent for the 2017 from 2016 (the growth in 2016 was 16 per cent) due to tight liquidity in the banking system.

Even though the market growth increased, the ratio of outstanding mortgage debt to Gross Domestic Product (GDP) decreased from 0.01 per cent to 0.33 per cent in 2017.

In developed countries, the outstanding mortgage debt is equivalent to 50-70 per cent of their GDP which means the opportunities are still there to develop our housing finance market.

The report also highlighted that as of December 31st, 2017, the mortgage market share is dominated by five banks; Stanbic Bank (18 per cent), Bank M (16 per cent), CRDB (11 per cent), Azania bank (8 per cent), and Commercial Bank of Africa (7 per cent).

In this week’s article, I will discuss the remaining two challenges that affect the growth of mortgage finance market and roles of government and private sector to address those challenges.

Issuance of Titles/Collateral Securities - Only ten percent of the Tanzania total land surface is surveyed and only ten percent of applicants for surveyed land are able to get right of land occupancy certificates. It is widely known in financial institution circles that Tanzanians have a culture of defaulting and this is why banks give priority to unmoved collaterals whenever they lend money. This is because of lack of borrowers’ credit risk information that lending institutions could rely on lien of collaterals This is the same with mortgage lenders, they will only lend to people with unmoved properties that are in surveyed land as collaterals. This is hindering the ability of people to qualify for housing finance as mortgage lenders require land to be surveyed and to have a land occupancy certificate as most Tanzanians own properties but in unsurveyed lands.

High Interest Rates – High interest rate is a critical challenge to the growth of housing finance.

Even though the interest rates have improved from levels of 22-24 per cent in 2010 to 15-20 per cent offered today, but they are still relatively high for majority of Tanzanians. High interest increases the cost of housing finance thus making it not affordable to a large number of the population. The Government can play a crucial role in reducing the interest rate further by extending long term funds to local developers of housing – National Housing Corporation (NHC) and Watumishi Housing Corporation (WHC). Subsidies to these developers will help lower their costs of building houses hence enabling them to sell them at prices that most Tanzanians can afford.

Furthermore, this initiative will help facilitate the growth of the housing secondary market which will increase competition among the lenders hence lowering the cost of financing.

Let me wind up by stating this: with a good macroeconomic environment, support from the Government in developing sound policies, reduced interest rates that make housing credit affordable, and a faster process of issuing land titles, housing finance will become affordable in Tanzania and this will accelerate the country’s mortgage finance market.