Meeting housing demand proved an uphill struggle

Dar es Salaam. The supply of houses in Tanzania remains far behind as 2022 ends with demand for residential housing units on the rise.

Tanzania has a deficit of three million units, with demand increasing by 200,000 units each year.

A variety of factors contribute to the increasing demand, including changes in the population size, reduction in the mortgage interest rates and better economic prospects that saw a rise in expatriates.

The market stakeholders also associate the low number of housing projects over the past year to economic challenges that came as a result of the pandemic and Ukraine war, which accelerated the housing challenges.

Watumishi Housing Investments (WHI) chief executive Fred Msemwa said this year the market experienced a huge demand in residential houses, the demand for commercial real estate increased slightly but remained stable overall.

“The growth of business activities in 2022 played a crucial role, coupled with the recovery from the pandemic where we have seen a number of expatriates and investors arriving,” he said.

“It is also a challenge that there are a fewer developers, as the majority are state-owned. As a result, supply cannot keep up with demand as it is not feasible for one developer to build 5,000 units a year,” said Dr Msemwa.

The WHI boss said as the government emphases private investment to other key economic sectors, the same should done for real estate as more private developers would improve supply and influence affordability.

According to the Tanzania Investment Center (TIC), there were 24 registered investment projects in 2021, involving the construction of commercial buildings valued at $1.31 billion.

The majority of these projects were implemented in Dar es Salaam (10), seven in the coast region, three in Mwanza, while Shinyanga, Mtwara, Dodoma and Arusha had one project each. Data from the state of the economy 2021 report by the National Bureau of Statistics (NBS) shows that by 2021 market prices the real estate sector contributed Sh4.5 trillion to the Gross Domestic Product (GDP) which is 34 percent higher than the Sh3.16 trillion of five years earlier in 2016.

That is an average of 2.8 percent contribution to the domestic economy.

Demand pushing prices up

Real Estate agent from RE/MAX firm in Zanzibar Mr Ame Khatibu said that prices in the isles have taken off because of demand, and this has been the case for both home and land plots.

“While a beach plot was previously sold at around $150 per square meter, now it is sold for as high as $300 per square meter,” he said.

“For studio apartments that were once a minimum of $350, now they go for as high as $500, although this depends on the quality of the home,” said Mr Khatibu.

In the country’s business hub, Dar es Salaam, renting for business and residential use has become even more expensive in 2022.

This of course has been influenced by the urbanization of suburbs, growth of the city and changes in the population size.

“In posh areas like Oysterbay and Masaki where even a three-bedroom apartment was previously let at $1,500, now it has gone up to above $2,000,” says real estate agent from DsmLink Tanzania, Mr Reginald Peter.

He said, after the end of the pandemic and the change of the state administration there has been a lot of changes in the market influenced by economic prospects and political perceptions.

“The current government has opened the country a lot more. There is more faith in the economy, thus an influx of more foreign investments and an increase in the number of expatriates,” said Mr Peter.

He says the high demand in the market has also led to owners setting their prices higher to maximize their profits.

Mortgage market

One of the key factors to the increasing demand in the market is the improved access to mortgages. The number of lenders in the market has surged, from just three in 2009 to 33 by December 31, 2021 according to the Bank of Tanzania (BoT).

The mortgage interest rates over the past decade have also fallen from 22 percent to 15 percent.

Low interest rates mean that the cost of borrowing is lower and home buyers can afford to borrow more by way of a mortgage and, consequently, can spend more on a home.

BoT reports that by June 30, 2022 the outstanding mortgage debt increased to Sh509.99 billion ($220.23 million) an annual growth of 7.5 percent compared to Sh474.45 billion ($205.36 million) that was recorded by June 2021.

“The 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,” statement of the central bank reads in part.

“Most lenders offer loans for home purchase and equity releases while a few offer loans for self-construction which continue to be expensive and beyond the reach of the average Tanzanians,”

According to BoT, currently the top five lenders command 65 percent of the market.

CRDB Bank Plc is the market leader commanding 38.02 percent of the mortgage market share, followed by Stanbic Bank with 8.11 percent, Azania Bank with 7.13 percent, NMB Bank Plc with 6.82 percent and NCBA Bank with 4.63 percent. However the icon bank highlighted that despite the relief provided in the interest rates over the past decade, the current rate of 15 percent is still high and affects the affordability of mortgages.

Moreover, other challenges in the market include the cumbersome processes around the issuance of titles (especially unit titles), that continue to affect borrowers access to these loans.