23 November 2017

Tanzania: Tz High Cost of Mortgage Loans Bites, Reports Shows

Dar es Salaam — Tanzanians and Ugandans pay more when borrowing to fund the purchase or construction of houses than other East Africa member states, the review for Africa housing finance market published by South African based Centre for Affordable Housing Finance in Africa has said.

This indicates that purchasing newly constructed house in Dar es Salaam and Kampala is more expensive than in Nairobi, Bujumbura and Kigali. Data for South Sudan were not available.

The Centre for Affordable Housing Finance in Africa (CAHF) is a not-for-profit company with a vision for an enabled affordable housing finance system in countries throughout Africa, where governments, business, and advocates work together to provide a wide range of housing options accessible to all.

The review has shown that Tanzania has the second highest mortgage interest rate at 18 per cent while Uganda is leading with 19 per cent. Kenya, Burundi and Rwanda have 14 per cent, 16 per cent and 16 per cent respectively.

Tanzania's mortgage market is among the smallest in the East African region (the ratio of outstanding mortgage debt to GDP is 0.46 percent as at March 31, 2017, compared with Uganda, Kenya, Rwanda and Burundi which have shares ranging from two to 2.5 per cent.

According to 2014 reports, very few Tanzanians - only 4.5 per cent of the adults aged 15 years and above report having an outstanding loan to purchase a home.

The review has also shown that the proportion of Tanzanian urban households who might afford the cheapest newly built house by a private developer, given current mortgage financing arrangement was only one per cent, lower than Uganda (3 per cent), Rwanda (3 per cent) and Kenya (8 per cent).

However, Burundi has the lowest proportion of urban households who might afford the cheapest newly built house at zero per cent. The proportion of urban household who might afford a $7,500 (approximately Sg17 million) house in Tanzania was estimated at 11 per cent, lower than Ugandans (27 per cent), Kenyan (61 per cent), while Rwanda and Burundi have the lowest rate of 10 per cent each.

According to Bank of Tanzania, the mortgage market recorded an annual growth rate in mortgage loan balances of 11 percent in June 2017. A key element in the growth of the mortgage market has been the provision of long term funding by the Tanzania Mortgage Refinance Company (TMRC).

By June 30, 2017, TMRC had extended Sh68.1 billion (US$30.74 million) to commercial banks in a bid to facilitate mortgage lending. Mortgage loans' average duration has also increased since the creation of the TMRC, from five to 10 years to 15-20 years with typical rates offered by lenders for the mortgage product currently varying between 16 and 19 percent.

As at June 30, 2017, total mortgage debt stood at Sh446 billion (US$201.3 million) and 3 915 mortgages, compared to 31 March 2017 where the mortgage debt stood at Sh417.94 billion (US$188.6 million) with 3 469 mortgages.

The average loan size as at 30th June 2017 was Sh114 million (US$51 454), a decrease from 31 March 2017 when the average loan size was Sh120 million (US$54 162). The loan to value requirement for mortgage loans currently stands at 90 percent as per the revised Mortgage Finance Regulations issued in 2015.

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