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Understanding
Tanzania's
Housing Finance Market
26 April 2016
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Tanzania is a growing economy, straddling the East African and Southern African economic development communities. The country is one of the fastest growing countries on the African continent, and is rich in natural resources. At least 31.6 percent of the country’s 51 million people live in urban areas, with a population growth rate of almost three percent and urbanisation rate of five percent per annum.
The country has experienced impressive GDP growth rates over the past decade averaging almost seven percent per year. This growth is underpinned by rising investment in the natural gas sector, firm growth in private consumption, and growth in the telecommunications, transport, financial services, construction and manufacturing sectors. The construction sector is also expected to grow as further investment is made in the gas, transport, power and urban property development sectors. The growth rate for the country is projected to remain above seven percent in the coming years.
This note covers a broad overview of housing and housing finance markets in Tanzania. In October 2015, CAHF launched the 6th edition of the Housing Finance in Africa Yearbook, this time covering 48 countries and 5 regions across the continent. The full Tanzania profile regional profile can be found here and the SADC profile can be found here.
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Housing Finance in Africa Yearbook 2015: A Country Overview of Housing Finance Markets in Tanzania
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Tanzania has 54 commercial banks and other private financial institutions. The 2014 Global Findex database reported the rate of account penetration to have doubled to 40 percent in Tanzania from year 2011 to 2014 mainly due to people adding a mobile money account rather than a financial institution account.
Tanzania’s mortgage market is among the smallest in the East African region, (the ratio of outstanding mortgage debt to GDP was 0.48 percent as at 30 June 2015. According to the 2014 Global Findex Survey very few Tanzanians – only 4.5 percent of the adults aged 15 years and above - report having an outstanding loan to purchase a home. The mortgage market is growing rapidly however, off this small base, in both value and number. According to the BoT (2014), the mortgage market recorded an annual growth rate in mortgage loan balances of 59 percent and growth in number of 29%. By December 2014, the mortgage market comprised 3 589 mortgages, up from 2 784 the year before. A key element in the growth of the mortgage market has been the provision of long-term funding by the Tanzania Mortgage Refinance Company (TMRC). By 30 June 2015, TMRC had extended loans by TZS 41.1 billion (US$19.28 million) to seven of its member banks. Mortgage loans' average duration has also increased since the creation of the TMRC, from five to 10 years to 15 to 20 years. As at 30 June 2015, 21 lenders were offering mortgage products (from only two in 2011) with more expected to enter the market.
The growth in average mortgage loan size is striking - and illustrates the high income focus of the sector. As at 30 June 2015, total mortgage debt stood at TZS 334 billion (US$152.48 million). Average loan size as at 30th June 2015 was TZS 75 million (US$34 240), an increase from 31 December 2014 when the average loan size was TZS 69 million (US$31 500). Given prevailing mortgage rates, this is affordable to only 0.7% of Tanzania’s urban population, or an estimated 22 329 households – is it possible that this market focus is nearing saturation? Demand for housing and housing loans remains extremely high but is constrained by inadequate supply of affordable housing and high interest rates. Typical rates offered by lenders for the mortgage loan product vary between 18 and 22 percent. Most lenders offer loans for home purchase but increasingly different products are emerging such as loans for self-construction and for equity withdrawal, which continue to be expensive and beyond the reach of the average Tanzanian.
Given affordability levels (According to FinScope Tanzania 2013, 53 percent of all adults in Tanzania earn less than TZS 50 000 - about US$23 - a month) the microfinance sector is especially important in addressing housing supply in Tanzania and is growing steadily. A study commissioned by the Bank of Tanzania found that 41 percent of Tanzanians who borrow microloans planned to use these for housing construction or improvements. Some 22 Microfinance Institutions (MFIs) report to the Mix Market, an online source of microfinance performance data and analysis. Based on the most recent data found, these lenders had a gross loan portfolio of US$1.4 billion, 364 813 active borrowers and 819 959 depositors giving an average loan size of US$3 838. The largest microlender in Tanzania is the National Microfinance Bank Plc (NMB), with a gross loan portfolio of US$1.04 billion.
The need for affordable housing in Tanzania provides enormous potential for growth as large scale production is required. The relatively healthy economic growth and good political management of the country provide an adequate platform for this. There is a great need for affordable housing finance - smaller and better priced mortgages - for the average Tanzanian. Beyond mortgage finance, there are real opportunities for growth in the housing microfinance sector, which is also receiving policy attention and funding support. High levels of self-build coupled with a vibrant microfinance industry with good links to the formal banking sector, and experimentation with housing, mean that housing microfinance has enormous potential to contribute towards housing the majority of the population.
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 While inflation rates have decreased from 2013 to 2015 by 2.8%, there is a slight year on year increase from 2015 to 2016 of 0.5%.
The cost of a standard bag of cement has followed the same trend, decreasing by almost US$6 from US$14 in 2013 to US$7.04 in 2015. The cost of a standard bag of cement in Tanzania is slightly higher than the SADC region average of approximately US$5.6. According to the World Bank's Doing Business Indicators, there are eight procedures to register property. The number of procedures to register a property is more than the SADC region average of six. And at 9, Swaziland has the highest number of procedures in the region. The time taken to register a property in Tanzania is 67 days which is above the region average of 48, with Angola taking the most amount of time at 190 days and Mauritius taking the least amount of time at 14 days. The cost to register a property in Tanzania is 4.5 percent of the property value which is lower than the region average of about 7.3 percent. This data aside, however, the actual practice of land registration is very complicated, and limited to the 25 percent of land that is surveyed, as seen below.
Click the image to see the stats. Visit the Yearbook for sources. |
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Using C-GIDD (Canback Global Income Distribution) 2014 income data for Tanzania and 2015 CAHF survey input, we have explored housing affordability. The following graph suggests the market segments where investors and developers might target their efforts. The number of rural and urban households is illustrated per income bracket defined. Additionally, the graph provides the national average annual urban household income in 2014 and the average annual household income needed to afford the cheapest newly built house by a developer. This was calculated by CAHF and is based on a number of assumptions.
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As with other similar countries, housing affordability, even for the cheapest newly built house is low. Less than one percent of Tanzanians can afford a mortgage to buy an entry level house—non-mortgage housing finance would be much more relevant, given the income distribution of the population and the very high interest rates associated with long-term lending. According to FinScope Tanzania 2013, 53 percent of all adults in Tanzania earn less than TZS 50 000 (about US$23) a month. 4.5 percent of adults are employed in the formal sector, 22.4 percent earn their incomes from running their own business (not farm related), 2.7% earn an income from the informal sector, 20.6 from subsistence farming, 15.8% from agribusiness and the remainder are dependent on others.
The graph below shows the potential mortgage affordability of market segments across urban areas in Tanzania, and illustrates the potential book size that might be achieved if each household in the band were to access the loan they could afford. This is shown using prevailing terms: a mortgage bond term of 15 years, an interest rate of 18 percent and a 25 percent contribution of the household’s income. The 0.7 percent of households that can afford the cheapest newly built house (US$14 820 in 2015) is indicated in the blue shading on the graph. The graph also highlights that the sweet spot for mortgage market opportunity—the affordable and middle income bands–includes households earning an annual income of US$ 6 500 to US$ 11 000 and would involve mortgage loans of between $8 409 - $14 230. This is illustrated by the brown shading indicating that the 5% of the urban household population can contribute to 164 214 unrealised loans which will make up a considerable portion of the potential book size. Broadly, this shows that if the challenges hindering housing supply in this market segment could be solved, housing has the potential to create a book size of over US$ 1.7 billion from only 5 percent of its household population. If GDP was about US$ 48.06 billion in 2014, housing in this market segment would contribute almost 3.5 percent to national GDP. While the graph is based on mortgage data, it is obvious that there is much potential for non-mortgage housing finance lending at the lower end as affordability is strained in terms of getting a formal mortgage.
A survey on home ownership showed that more than 75 percent of households in Tanzania Mainland owned the houses in which they were currently living. Ownership in rural areas, urban areas and Dar-es- salaam was 89.3 percent, 57.9 percent and 37.1 percent respectively. Also, about 17.4 percent of households were living in privately rented houses, mostly in Dar-es-Salaam.
Lenders argue that an inadequate supply of mortgageable units makes it difficult for a vibrant property market to exist. Recent offerings by the NHC have been sold out within days of becoming available. The demand for new, affordable housing is considerable. A more fundamental problem, however, is the lack of land titles. Data from the Bank of Tanzania suggests that 75 percent of land is not surveyed in Dar es Salaam. Again, this highlights the relevance for and opportunity in housing micro finance. On the other hand NHC’s rental portfolio performed better than the sale of houses. During the year ended 30 June 2013, rental revenue increased to TZS 63 billion (US$29.55 million) as compared to TZS 47 billion (US$22.05 million) achieved in June 2012.
WAT-Human Settlements Trust focuses on empowering low and middle income communities by providing adequate and affordable housing with secure tenure for low and middle income households through housing microfinance and housing support services. Working in partnership with Rooftops Canada and others, WAT-Human Settlements Trust provides training and technical support in all aspects of housing development with the aim of promoting women’s equal access to land, property ownership and inheritance. With support from Rooftops Canada, WAT started a Shelter Loan Revolving Fund to provide housing loans. In 1998, WAT set up a Savings and Credit Cooperative Society which has helped hundreds of households with small business and personal loans. In addition, WAT-HST is a partner of Reall and through this partnership launched a large-scale housing programme to provide land, housing, clean water and sanitation for 5 840 people in Dar es Salaam.
Still, the government remains the sole and primary instrument for land delivery. While in principle, rights of occupancy can be bought, sold, leased and mortgaged in Tanzania; in practice the land market is inhibited by many layers of government control. According to Shelter Afrique (2010), the formal market for transfers requires government approval, and land received through grants must be held for three years before the landholder can sell the rights. The transfer of a granted right of occupancy must be approved by the municipality and registered. A holder of a customary right of occupancy can sell the right, subject to the approval of (and subject to any restrictions imposed by) the village council. Mortgages are regulated by formal law, and land rights must be registered before they can be mortgaged. There is a very limited formal land sale market in Tanzania.
Most land transactions occur on the informal market, and these tend to be leases. In rural areas, land sales were historically conducted between members of families or clans. With notable inefficiencies, land acquisition, although improving, has been a hurdle in many respects towards the development of an efficient housing market; along with the limited availability of mortgage financing to support housing development. In recent years, the Ministry of Lands, Housing, and Human Settlements Division has undertaken a drive towards implementing key steps such as improved plot allocation in greenfield areas, land regularisation and titling in existing informal settlements that will enable it to encourage land development.
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The Tanzanian housing market consists of both rural and urban households. Within urban areas, there are low, middle and higher income housing.
Low income housing, for example is found in areas such as Manzese, Kimara, Tegeta, Bunju, Sala Sala, Mwenge, Ubungo and Kawe. These are generally single rooms and rent for between TZS 30 000 and TZS 80 000 (US$13.65 - US$ 36.40). The flooring and walls are generally made up of cement and roofing is made up of iron sheeting. These units are generally financed through microfinance loans.
Middle income housing is generally found in areas on the outskirts of the city e.g. Kijitonyama, Kinondoni and Mbezi Africana. Selling prices range between US$ 30 000 - US$ 150 000 and generally rent for between US$ 140 - US$ 235. Units are financed with mortgage loans from banks. Generally units are made from cement.
High income housing is generally found in suburbs such as Mikocheni, Upanga, Masaki, Oyster Bay, Kijitonyama, Kinondoni and Mbezi Africana. They generally sell for between US$ 200 000 - US$ 3 000 000 and rent for between US$ 1 500 - US$ 8 000 per month. These units are financed using mortgage loans from banks.
These housing types provide a broad understanding of the various types of housing in Tanzania. Images were provided by local consultant, Anna Maria Shija. The data presented is by no means exhaustive and is merely presented as an indication of housing in the country. Data was collected from in country consultants.
Feel free to contact us with any updated information.
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A number of policies and regulations are relevant to housing and housing finance in Tanzania. The government of Tanzania has recognised housing as one of the basic needs for all. The Ministry of Lands, Housing and Human Settlements Development has been mandated to administer land and human settlements in Tanzania on behalf of the President of Tanzania who serves as trustee of all land. Some policies and legislation governing the human settlements and finance environment in Tanzania include;
- National Human Settlements Development Policy of 2000 - The policy was developed from the Government's resolve to address and reverse the deterioration of human settlements conditions in the country and its recognition and commitment to the decision by the United Nations Habitat Agenda II and the Istanbul Declaration on Human Settlements Development. The Government intends to facilitate adequate delivery of shelter and the development of sustainable human settlements in the country. The policy aims at harnessing existing initiatives in shelter delivery and infrastructure investment by the various actors in the public, private, informal and community sectors as well as guide the rapid urban growth and the transformation the settlement pattern.
- The Mortgage Finance Act, 2008 - The Act was issued to provide guiding principles for mortgage financing in Tanzania.
- The Banking and Financial Institutions (Mortgage Finance) Regulations, 2015 - Issued in July 2015 (under the Banking and Financial Institutions Act of 2006) to replace the 2011 regulations, these regulations were developed with the aim of establishing principles to govern mortgage finance operations for persons involved in mortgage lending in Tanzania. Key changes made from the 2011 regulations are on minimum capital requirements for housing finance companies where the limit was increased from TZS7.5 billion (US$3.52 million) to TZS15 billion (US$7.04 million), increase of maximum tenor of mortgage loans from 20 to 25 years, increase of loan to value ratio to 90 percent from 80 percent with exceptions being allowed to a ratio of 100 percent given that the borrower is able to provide additional collateral such as fixed deposits, pension entitlements, collateral replacement indemnity or government securities whose total value shall be at least 10 percent of the value of the property. These changes (especially on the loan to value lending criteria) are expected to enhance mortgagors’ affordability and hence further boost mortgage lending.
- The Banking and Financial Institutions (Tanzania Mortgage Refinance Company) Regulations, 2011 - These are regulations issued to guide/govern the operations of the TMRC which is a secondary market wholesale liquidity facility established under the Housing Finance Program to provide liquidity to mortgage lenders within the country in order to expand access to affordable housing finance.
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The CAHF website collects news updates. Filter by 'country' or 'theme'. Some recent studies available for Tanzania include:
- Case Study 2 | The Role of Mortgage Liquidity Facilities in Housing Finance: Lessons Learned from Egypt, Tanzania, Nigeria and Malaysia - This case study commissioned by CAHF looks at the role of mortgage liquidity facilities with lessons learnt from four countries including Tanzania.
- Tanzania Mortgage Market Update, December 2014 - This paper, prepared by Tanzania Mortgage Refinance Company Limited (TMRC), provides an overview of the mortgage market in Tanzania as of 2014. It looks at recent developments, examines TMRC’s operations, in the market.
- Policy Development in Support of Housing Microfinance: The Tanzanian Case - This presentation was given by Judith Sando from WAT- Human Settlements Trust (an organisation with the mandate to improve living conditions for middle to low income households and secure tenure through affordable housing finance) at the 6th African Microfinance Conference held in Durban from the 12th to the 15th of August 2013. The presentation gives a highlight of the Tanzanian housing market and the challenges that the sector faces.
- Two Years in Piloting Housing Microfinance in Tanzania - Habitat for Humanity Tanzania began its Makazi Bora housing microfinance program in late June 2009 with the aim of establishing an effective housing microfinance product and methodology that would contribute to the growth of the practice in the region. This report covers the first two years of operation. Makazi Bora roughly translates as “better housing” in the Kiswahili language spoken across Tanzania and much of East Africa.
- Overview of the housing finance sector in Tanzania - his report provides an overview of Tanzania’s housing finance sector was written in 2010. It is the 10th report in a series exploring access to housing finance across Africa, with a particular emphasis on how poor and low-moderate income households finance their housing. This report provides an overview of Tanzania’s macro-economy as it relates to housing finance, the legal and policy framework for housing and housing finance, the housing supply and demand factors at play, and how housing finance fits into this space. The report concludes with some recommendations.
- Housing Finance Access frontier in Tanzania - The housing finance access frontier methodology uses FinScope data to understand levels of access to financial products and services. This presentation sets out the data for access to housing finance in Tanzania. The analysis provides a useful starting point for a discussion on enhancing access to housing finance in Tanzania in a sustainable way.
A forthcoming project commissioned by CAHF in 2015 seeks to understand and track housing costs across Africa. The aim is to explore the cost of a basic, entry-level house across different countries in Africa, and to understand what drives cost differences. Tanzania is one of 16 countries that are being investigated. Once the research is complete, it will available on CAHFs website. For more information please contact David Gardner.
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Financial Sector Deepening Tanzania - aims to develop a deeper financial system that can provide greater access to finance to more Tanzanians through developing market infrastructure and support services to financial service providers, improve policy and regulatory frameworks and data gathering and dissemination for delivery of financial services.
WAT Human Settlements Trust - focuses on empowering low and middle income communities by providing adequate and affordable housing with secure tenure for low and middle income households through housing microfinance and housing support services.
Rooftops Canada - Supports WAT-Human Settlement Trust in Tanzania. To date a housing loan fund was established with the support of Rooftops Canada as well as other initiatives to increase access to housing micro finance in Tanzania.
REALL - Reall is supporting ten projects underway in Dar es Salaam to provide land, housing, clean water and sanitation.
CRDB Bank - CRDB Bank offers a comprehensive range of Corporate, Retail, Business, Treasury, Premier, and wholesale microfinance services through a network of over 90 branches, 260 ATMs, 15 Depository ATMs, 12 Mobile branches, 900 Point of Sales (POS) terminals. Similarly, the bank has scores of Microfinance partners and institutions through which pertinent services are rendered to all customers. CRDB Bank is the first to offer Agency Banking services Tanzania at the beginning of 2013. The Bank also operates through Internet and Mobile banking services. CRDB Bank is also a member of the African Union for Housing Finance.
National Housing Corporation Tanzania - The NHC is under the Ministry of Lands, Housing and Settlements Development. The Corporation's portfolios have been divided into income centres which are income generating and self sustaining directorates and cost centres which play a supportive role. the NHC is responsible for construction of houses for sale, property management and related activity. NHC is also a member of the African Union for Housing Finance.
National Microfinance Bank - National Microfinance Bank Plc (NMB) is one of the largest commercial banks in Tanzania, providing banking services to individuals, small to medium sized corporate clients, as well as large businesses. NMB is also a member of the African Union for Housing Finance.
Tanzania Mortgage Refinance Company Ltd - Tanzania Mortgage Refinance Company Limited (TMRC) is a private sector institution owned by the banks with sole purpose of supporting banks to do mortgage lending by refinancing banks’ mortgage portfolios. TMRC is also a member of the African Union for Housing Finance.
Watumishi Housing Company - Watumishi Housing Company (WHC) is a public entity established in 2013. WHC is a property developer and a licensed fund manager for management of the WHC Real Estate Investment Trust (WHC-REIT). Watumishi is also a member of the African Union for Housing Finance.
African Development Bank (AfDB) - Established with the mandate to spur sustainable economic development and reduce poverty in Africa. AfDB mobilises and allocates resources for investment in African countries, while providing policy advice and technical assistance in order to support development efforts.
African Economic Outlook - An excellent yearly publication looking at all aspects of the Tanzanian economy.
Bank of Tanzania - A source of data for mortgage market analysis, information on financial markets in Tanzania etc. BOT is also a member of the African Union for Housing Finance.
Doing Business Indicators - A World Bank publication of quantitative indicators on business regulations and the protection of property rights that can be compared across 189 economies over time.
Making Finance Work for Africa - Tanzania - An initiative to support the development of African financial sectors.
Mix Market - A data hub where microfinance institutions (MFIs) and supporting organisations share institutional data to broaden transparency and market insight.
UN Habitat - A United Nations programme working towards a better urban future, listing the latest news and all its work in Tanzania.
World Bank - For data and research on Tanzania.
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