Mr Maximilian Matala, mutual developersltd chief executive officer
We have noticed a growing interest in real
estate development in Tanzania especially by new entrants. Is this good
for the industry?
The property industry consists of
developers, buyers, intermediaries like financial institutions as well
as the government and general public. Therefore new entrants to the
market affect each group differently. However, taking the industry as a
whole in my view this is beneficial.
New entrants bring
new challenges to existing property developers. These new challenges
prompt them to adjust their prices and product development techniques in
order to survive. Therefore they are pushed hard to adjust to the
market which is flooded with properties, but with a thin and limited
affordability level. However, new entrants bring new property
development methods and collective bargains to the common needs of the
industry. Measuring the pros and cons, existing developers (especially
native ones) are the ones expected to be adversely affected by new
entrants. With the growing competition, only the strongest will survive
and those are multinational companies, Government Business Entities and
large developers.
Competition amongst property
developers is a healthy environment for prospective customers. This is a
rare opportunity for customers due to the competitive property prices
which are prompted by the competition among property developers.
Customers also get high quality products due to new technologies and
developers’ adjustment to competitive markets. With increasing entrants,
potential customers are guaranteed availability of properties as you
can see a lot of advertisements.
Expansion of real
estate industry is beneficial to the banks as they get customers for
their products (mortgage and home loans) as well as credit facilities
for property developers. The dynamics of the industry is also essential
for efficient credit administration and recovery. Also suppliers of
goods and services reap from the expansion of the industry through new
entrants. Insurance business also expands as their products integrate
with properties. The flourishing of industry partners marks its rigorous
expansion.
As for the government and the general
public, expansion of the industry has a significant impact. The
government revenue from taxes and fees from the industry is expected to
increase. Expansion of the industry has a positive contribution to the
Gross Domestic Product (GDP). New entrants provide employment
opportunities. Government initiatives to improve the standard of living
through modernised, properly planned and surveyed cities are well
complemented through public and private developers. Taking into
consideration all of these contributions to the general public, the
industry itself reaps back in terms of supportive laws, regulations and
policies as well as services.
What is the possible immediate outcome that Tanzanians expect in the next five years?
On
a short to medium terms we are expecting to see “new cities” in urban
centres. However, comparing the type of developments taking place with
the income characteristics/level of the majority of Tanzanians, I doubt
the sustainability of this industry if really the target market is
mainly Tanzanians as required by the law. The market is very thin due to
low income levels of the majority of Tanzanians hence the low
affordability level thus the market will be saturated within the near
future thus affecting developers and financial intermediaries
significantly.
We have started smelling the challenges
facing property owners/developers on getting customers at projected
rental rates within the Dar es Salaam Business District (DBD). If this
pace of development increases further, developers are expected to find
it tough to command reasonable rentals for their survival. This is a bad
signal to the industry from the market side. In the meantime there is a
lot of property business operating underground by unofficial
developers.
Therefore the future of this industry is
hinged on the paradox between growing housing needs in urban centres in
relation to affordability/income level of potential customers as well as
property development costs and related house prices.
Despite this development, Tanzania’s housing cost is the highest in the region, what’s wrong?
The
problem of high property prices is partly contributed by the customers,
government and developers. The customers are sceptical to new property
development methods and preferring houses built by costly conventional
methods. We have seen new ideas like light steel technology, low cost
material just to mention a few, have not been widely accepted in favour
of cement blocks.The country tax structure is not friendly to the real
estate industry. Prices of inputs are very high due to exorbitant taxes
charged by the government.
Tax on properties is the
cause for the sky rocketing property prices.Inefficient property
development methods are also an obstacle for efforts to decrease prices
of houses. The challenge of obtaining surveyed and serviced plots with
necessary infrastructure at lower prices causes developers to incur
significant costs on this component or opt for redevelopment of existing
houses. This is an obstacle for developers to push down the price of
houses.
Expensive financing costs for instance taking
the current level of interest, means the house cost is absorbing
approximately 20 per cent as financing cost. Inefficient property
development techniques as well as greedy (high profit margin set by
property developers) are also causes for high housing costs.
The
government is considering waiving VAT on the housing sector amid
growing developers. When do you think Tanzania’s property cost will be
down, looking at the current speed?
Developers have
been unsuccessfully struggling to advise the government to look into the
tax structure on properties. Most recently the government announced to
waive VAT on low cost house schemes developed by the National Housing
Corporation. This move is unfair to private developers considering the
preferential treatment the corporation is getting as opposed to the
former.
This move also does not bring any impact for
the public to enjoy services from this industry. For instance have you
ever seen a low cost house in the market from established private as
well as public property developers? That being the case, tax is waved
from the designated “low cost” properties which in actual fact must not
be low cost rather affordable to limited number of Tanzanians.
In
order for the tax waiver to have a significant impact on property
prices it has to cover a significant part of material used as input in
housing development. Also VAT waiver should cut across all developers
and units.
What is the main challenge to Tanzania’s real estate industry?
The challenges could be summed up into the following:
-Thin market due to Tanzanians’ low level of income.
-Inefficient property development methods leading to high property development costs and unaffordable markets
-An
expensive financing cost charged is also a challenge. Conversely the
high cost of mortgage hinders potential customers to acquire properties.
-Availability of affordable surveyed and serviced plots with necessary infrastructure is also a challenge
-Customer perspectives and mentality towards changing technology
-Unfriendly tax imposed on materials and properties.
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