What it takes to revitalise real estate projects after rough time

Dar es Salaam. The real estate sector has gone through a challenging environment during the past five years.

From political statements that brought some projects to a complete halt to a reduction in consumer spending that retarded the capacity of Tanzanians to purchase constructed buildings, developers have seen it all.

For instance, it was a mere political statement that the National Housing Corporation (NHC) was meant to be building houses that target the poor that saw the government hesitating to grant the corporation a loan approval to complete construction of its multi-billion shilling projects in Dar es Salaam, putting its New Kawe City and Morocco Square projects in jeopardy.

Similarly, a reduction in disposable income saw developers, including the National Social Security Fund (NSSF) fail to sell some of the housing units on which they had spent billions of shillings.

In a desperate move to ensure that the projects were not a completely white elephant, NSSF last year decided to hand over its 32-apartment buildings to university students to be used as hostels, which was against the plan.

NSSF was now open to people who were interested in investing in its projects at Dege, Dungu, Toangoma and Kijichi.

Decisions taken by the government during the past five years, have had a vivid impact on the flow of investment into the sector.

For instance, of the total of 466 investment projects worth $5.89 billion that the Tanzania Investment Centre (TIC) registered in 2015, the real estate sector accounted for $1.12 billion.

But as of 2017, the value of investments dropped to $5.07 billion, with the real estate sector accounting for only $200 million which was equivalent to 3.9 percent of the total amount in investments created.

Experts are now of the view that real estate developers must abide by certain investment guidelines if they are to make the projects sustainable despite a chance in government policy and other unforeseen disruptions.

Those who spoke to The Citizen say the developers need to engage effectively some private-practice real estate professionals, including agents, before breaking the ground.

The experts are also of the view that the developers should not ignore consumer behaviour at any given time when making long-term investment in the real estate sector.

Engaging private dealers, they suggest, would simplify the task of searching for tenants for massive real estate investments.

Some of the building structures would also have to be changed to align them with the existing environment and market demand.

“Some of the challenges that some developers faced during the past few years were due to their (developers) tendency of ignoring consumer behaviour and little involvement of real estate economists before they break the ground,” President of the Association of Real Estate Professionals of Tanzania (Arepta) Mr Andrew Kato, told The Citizen.

With little involvement, he said, some of the projects get designed in a manner that lack attraction to buyers and/or wealthy tenants.

Some of the projects, he said, would require the developer to go for a management contract while others would be ideal for a leasing contract if a return on the investment is to be realised within the shortest possible period.

“In hotel management contracts, the operator assumes the responsibility of managing the property and runs the hotel on behalf of the owner. On the other hand, a lease arrangement shifts risk from the owner to the operator,” he stressed.

For the case of a hotel, he said, a good number of investors will be willing to come with a good number of their own experts.

“The idea is that guests who have been to a hotel of one particular brand elsewhere in the world, would be more than happy to find a similar structure when they get to be accommodated in a hotel of the same brand in Tanzania…These are some of the issues that must be considered,” he said.

Depending on location, certain projects would be meaningful if they come with amusement parks, complete with a place for children’s games, hotel and beach area.

“These could make some projects more attractive than residences alone. The consumer behaviour is a very important aspect,” he said.

He said the NSSF WaterFront building, for instance, should now be changed and turned into a hotel.

With a change in consumer behaviour where most people tend to work digitally, the demand for office space is declining.

“At the moment NSSF should take the advantage of Standard Gauge Railway (SGR) and start transforming the building into a hotel.

“Turned into a budget hotel, the building would offer accommodation services for people waiting for the train or those coming to pick their cargo from the Dar es Salaam port,” he said.

Ame Khatibu from RE/MAX Zanzibar was of the view that upon completion of the projects, developers should only remain as landlords and leave the sales and marketing part to the agents.

“We only need to negotiate on commissions as well as a clear business partnership between the government and private agents,” he said. According to him, agents had a network that would help in marketing the projects comprehensively.

Senior lecturer at the University of Dar es Salaam Abel Kinyondo said the majority of social security fund projects were failing due to poor governance.

“The projects were not well-researched before implementing them. The social security fund investments have no return in investment due to poor governance and a lack of serious engagement of its members, “he said.

According to him, it was imperative that the members who were the sole owners of the contributions made in the Funds be involved before making investment decision.

He said there was a need for principal agency theory to take place that would ensure both parties and the social security fund as well as its members discuss before making any investment,” he said.

He, however, noted that since the construction of the buildings had already started it would be uneconomical not to complete them.

According to him, despite the projects being not viable, huge funds had already been dipped into the investments and it would be unwise to let the money go to waste and therefore it is imperative to complete them.

“The projects that were completed are mostly high fliers and automatically the renting cost is also high and most people would go for what they can afford, they should shift from office let outs to even hotels to ensure investment return,” he said.