Experts: Why mortgage market growth is slow

Dar es Salaam. Although demand for decent housing is high in Tanzania, mortgage has yet to catch on in the country due to cultural and economic reasons, analysts say.

The Tanzania Mortgage Refinance Company Limited (TMRC) says in its latest report that the mortgage market grew by a measly 1.24 percent in the value of loans during the second quarter of this year.

On a year-to-year basis, however, growth stood at 7.5 percent.

The slow growth rate, according to the report, was triggered by high interest rates, lack of affordable housing, cumbersome processes in issuing titles, and emergence of new products competing with mortgage.

“Demand for housing and housing loans remains extremely high as it is constrained by an inadequate supply of equitable houses and high-interest rates charged on housing loans,” reads the report in part.

Demand for housing in Tanzania is estimated at 3 million units, with an annual increase of 200,000 units, according to National Housing Corporation (NHC) statistics.

“While interest on mortgage loans improved from 22-24 percent in 2010 to 15-19 percent offered today, market interest rates are still relatively high, hence negatively affecting affordability.”

According to the report, the outstanding mortgage debt stood at Sh509.99 billion as of June 30, 2022 from Sh503.74 billion on March 31, 2022.

Most lenders offer loans for home purchases and equity release, while a few offer loans for self-construction which continues to be expensive and beyond the reach of the average Tanzanian.

Additionally, according to the report, cumbersome processes around the issuance of titles (especially unit titles) continue to pose a challenge by affecting borrowers’ eligibility to access mortgage loans.

Analysts say with mortgage loans requiring one to make regular payments, most Tanzanians with modest earnings find themselves locked out.

“In mortgage one needs to make regular payments, which means one has to be a relatively high-income earner,” said a land and real estate consultant, Prof Joseph Kironde.

He added that unlike in developed countries where interest rates stood at between two and three percent, in Tanzania they range from 15 to 19 percent, which also discourages borrowers.

Tanzania Bankers Association (TBA) executive director Tusekelege Joune shared similar sentiments, linking the slow uptake of mortgage loans to low incomes of the majority of Tanzanians.

Other reasons, she said, were largely cultural.

“Most Tanzanians prefer to build their own houses with their own savings and from short-term personal loans to long-term loans,” Ms Joune told The Citizen.

The little savings they have, she added, were also being used to pay rent, while at the same time being spent on building their own houses, thus taking a long time to complete the construction.

She admitted that there was the general perception that banking services in general, and mortgage in particular, were expensive with stringent conditions imposed.

Ms Joune said, however, that the slow uptake of loans could also be attributed to lack of understanding of mortgage lending.

TBA, she stressed, had been at the forefront of attempting to fix the knowledge and awareness gaps.

“The industry plans to conduct mortgage sensitisation campaigns in partnership with relevant stakeholders to advocate more business friendly regulatory and policy frameworks to promote the uptake of mortgage lending in the country,” she said.

Asked why interest rates were high, Ms Joune said: “It’s a perception, but also it depends on the type of product, cost and relationship with the bank.

“Some banks have lowered it to nine percent and efforts are being done to keep on addressing challenges that lead to high interest rates.”

According to TMRC, there were 33 mortgage lenders operating in Tanzania as of June 30, this year.

However, the five top lenders commanded 65 percent of the market during the period under review.

The lenders and their markets shares in brackets included CRDB Bank Plc (38.02 percent), Stanbic Bank (8.11 percent), Azania Bank (7.13 percent), NMB Bank (6.82 percent) and NCBA Bank (4.63 percent).

As of June 30, this year, TMRC had extended loans worth Sh145.20 billion to 16 primary mortgage lenders (PMLs) through refinancing and pre-financing mortgage loans.

The loans advanced by TMRC to PMLs, according to the report, were equivalent to 28 percent of the total outstanding mortgage debt. This presents a significant opportunity for TMRC to continue refinancing the remaining 72 percent of the mortgage market portfolio.

In the 11 years that TMRC has been operational, mortgage repayment periods have increased from the maximum of five to seven years to 25 years banks offer now.