High lending rates affect housing: BoT

Dar es Salaam. High lending rates of 16-21 per cent are constraining efforts to acquire loans for housing construction, a Bank of Tanzania (BoT) official has said.

It is small wonder that the supply of housing is inadequate, said BoT Microfinance Supervision manager Eliamringi Mandari.

He hopes long-term financing instruments will provide long-term liquidity options for financing of mortgage loans.

To tackle the challenge, BoT underscores the importance of strengthening financial and capital markets to provide long-term funds.

That can be done by using instruments such as private equities and bonds.

Mortgage finance is a debt instrument secured by the collateral of specified real estate property normally known as loan for acquiring improved or constructed residential property.

So, mortgage developers and financiers have to consider housing needs of lower- and middle-income people.

According to him, the public should be educated on the availability of mortgage products and their rights and obligations.

He said although Tanzania’s mortgage market was growing rapidly it was still small compared with those in other East African Community member states.

Mortgage debt to gross domestic product of around 0.45 per cent compared with around 2.5 per cent and more than 70 per cent of Dar es Salaam residents reside in informal settlements

“This is due to lack of access to finance, high cost of construction especially for imported materials and lack of basic services and infrastructure,” he said.

Since independence in 1961, the issues of housing and housing finance have been at the top of the government agenda.

Initially, the government established a policy that made it the universal provider of housing in rural and urban areas.

However, in 1972 this policy was found to be impracticable and in 1973 the government established the Tanzania Housing Bank to encourage self-construction through subsidised credit finance.

In 1991 the financial sector liberalisation was drawn up to give room for private banks to provide loans and encourage the people to own houses.

Under the Banking and Financial Institutions Act, 2006 and Mortgage Finance Regulations, 2015, specialised mortgage finance companies are allowed to provide mortgage loans.

BoT licenses, regulates and supervises such firms.

As of December 31, 2016, total amount of mortgage loans provided by banks and financial institutions was Sh476.54billion and total number of mortgages was 2,686.

A number of initiatives by government to promote mortgage finance include land development and plot allocation and survey of undeveloped land which is ultimately sold to individuals.

Land regularisation and titling, over 90,000 new residential licenses issued and mapping for 268,000 housing units have been completed in Dar es Salaam.