Tanzania is one of the fastest-growing countries in Africa, with a GDP growth average of 6-7 per cent over the past decade.
However, the mortgage market does not meet the demand of the population that can afford mortgage financing.
It has been
projected that Tanzania will be the 4thmost populous country in Africa
by 2019 with 55.5 million people. The situation will deepen the housing
shortage.
Tanzania's mortgage
market is among the smallest in the East Africa (the ratio of
outstanding mortgage debt to GDP is 0.33 per cent as at December 31,
2017) with only 4.5 per cent of Tanzanian adults aged 15 and above
having a mortgage loan according to 2014 Findex report.
Tanzania has an
acute shortage of affordable and quality housing with the current
housing deficit of three million units. This implies that the demand for
housing is extremely high but is constrained by many challenges such as
high cost of borrowing for housing, low levels of income, lack of local
long term funding for developers, and inadequate supply of affordable
housing. Addressing these challenges is critical to our economic growth
as the housing sector can create jobs hence increasing wealth to people
in that sector.
It is evident that
the middle income class is growing as the incomes are rising in the
country but still most people cannot affordmortgage financing and our
housing market total debt is only 0.33 per cent of our GDP.
In this article, I
will discuss three challenges affecting the mortgage financing in the
country and roles of government and private sector to address those
challenges:
Government
financial role-It is crucial to note that the acceleration of mortgage
finance market is dependent on the strength of the overall economy.
Thus, the government's financial role must be clearly defined and should
support housing market whereby the balanced risks between government
and private sector is in place to accelerate the growth of housing
market. One way of doing that is to develop capital markets so theycan
support the development of mortgage finance through local currency
long-term financing and development of secondary mortgage finance
market.
The secondary market will provide the banks with an outlet to adequately manage their exposure to mortgage financing.
One of the main
reasons why our mortgage finance market is the smallest in East Africa
is lack of local long-term funding to facilitate the provision of
mortgages.
The government has
realised the importance of its role in advancing the mortgage market
thus, it has undertaken various initiatives to respond to the concerns.
The Bank of
Tanzania established Tanzania Mortgage Refinance Company (TMRC) in 2010
under the Housing Finance Project (HFP) with the help of $40 million
from the World Bank to support the growth of the mortgage market. TMRC
was created for the sole purpose of that and even though it has a
positive effect in the market, it still has a long way to go to achieve
its goal.
As at December 31,
2017, the total loans advanced by TMRC to the banks were equivalent to
24 per cent of the total outstanding mortgage debt (Sh344.84 billion)
which implies there is still a significant opportunity for TMRC to
refinance the remaining 74 per cent of the mortgage market debt.
There is no denying
the significant impact the TMRC has made in the mortgage market - since
the establishment of TMRC, banks offering mortgage increased from the
to 31, the mortgage repayment period increased from seven to 20 years,
and interest rates dropped from 24 per cent to 19 per cent.
So why is the
mortgage finance market still not growing? Next week, I will discuss the
remaining two challenges that affect the growth of mortgage finance in
Tanzania.
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