ALTHOUGH it is growing rapidly, the Tanzania has a relatively smaller mortgage market compared to the rest in the East African region having about 0.4 per cent of the ratio of mortgage debt outstanding as a proportion to Gross Domestic Product (GDP).
For example, the mortgage debt to GDP for Kenya, Uganda and Rwanda are 2.5 per cent, one per cent and 2.3 per cent respectively. Average mortgage debt outstanding as a proportion of GDP for EU countries which is normally taken as a reference point is 50 per cent.
The National Housing Corporation (NHC) strategic plan for 2010/15 indicates that the housing sector was still contributing less than 1 per cent on the GDP per annum.
During the period under review, NHC intends to increase the housing sector contribution to GDP to 4 per cent to cater for the ever rising demand. Statistics from the Ministry of Lands, Housing and Human Settlements Development, the annual growth in demand for houses is over 200,000 units with a deficit of around three million units.
The Bank of Tanzania (BoT) mortgage market analysis for the fourth quarter last year attributes high interest rates and inadequate supply of affordable houses among major reasons which have been compounding the ever rising demand for houses and housing loans.
According to the report, the recent hike of yields in the treasury bills to over 15 per cent have negatively impacted on affordability of all forms of long term loans, including mortgages. The analysis stated that the typical interest rates offered by lenders range between 18 per cent and 21 per cent.
"Most lenders offer loans for home purchase but increasingly different products are emerging such as loans for self-construction and for equity withdrawal, which continue to be expensive and beyond the reach of the average Tanzanian," stated the report.
Despite the hurdles, the mortgage market has been growing steadily as the pace of housing investment continues to pick up. For example, the year ended December 2013, saw the total lending by the banking sector for the purposes of residential housing going up to 156.5bn/-, equivalent to 46 per cent growth.
According to BoT mortgage market analysis for the fourth quarter last year, the total number of mortgage loans grew 2,784 at the end of the year compared to 1,889 at the beginning of 2013.
The housing supply has greatly been hampered by the long standing problem of near absence of formal mortgage finance.
This problem has led to around 99 per cent of the houses to be built out of pockets. Such houses are built on incremental basis taking 5 to 10 years to complete instead of nine to 12 months. Consequently, colossal amount of capital is immobilised for a long time.
This tied up capital is likely to be greater than total bank deposits in the country. Factors attributed to this increase include favourable interest rate environment during the year and increased awareness on mortgage loans among borrowers.
Also, the public awareness campaign carried by major banks as well as the launch of mortgage loan product by CRDB Bank, Exim Bank and other Tanzania Mortgage Refinance Company Limited (TMRC) member banks that had no such a product.
In the period, 19 different banking institutions were offering mortgage loans, with the number expected to increase even further as more lenders continue to launch mortgage loan products.
The mortgage market was dominated by three top lenders, who amongst themselves command about 67 per cent of the mortgage market.
Azania Bank, with longest presence in the mortgage market, was a market leader commanding 24 per cent of market share, closely followed by Stanbic Bank with about 21 per cent.
The market experienced new entrants and there are prospects that large banking institutions such as NBC and NMB will enter the mortgage market as competition in the traditional banking products continue to intensify.
Also, the construction of new houses by the National Housing Corporation (NHC) over the next three years will have a positive effect on the mortgage market as most of these will likely be priced at affordable levels.
Likewise new measures such as the Civil Servants Housing Scheme which is expected to build 50,000 affordable houses in the next five years have the potential to boost the mortgage market even further.
Most Pensions funds are also actively engaged in advancing mortgage loans to their members, something which will further boost the market in Tanzania.