Focus: Construction & Real Estate

Real Deal

Real Deal

Dec. 20, 2016

Tanzania is redoubling efforts to ensure that its construction and real estate sectors are vital and forward looking.

With large projects in the works, Tanzania's construction industry is preparing to shift into high gear. The Tanzanian government has recently announced extensive plans to strengthen infrastructure along its main trade corridors, bringing badly needed upgrades to the most important sections of its transportation network. According to government figures, roughly USD2.2 billion will be invested in infrastructure projects during the 2016/17 fiscal year. Since they are the major routes of trade in Tanzania, the road systems connecting Dar es Salaam, Chalinze, Sumbawanga, and Nakanazi will receive the bulk of investment.

Guo Zhijian, Chief Representative of China Henan International Cooperation Group Co. Ltd. (CHICO), echoed this sentiment in an exclusive interview with TBY. “There is an old Chinese saying that if you want to become rich you must first construct the road," said Guo. In order to achieve the level of wealth Tanzania hopes to attain, “people must be able to move freely from one place to another to facilitate material, products, human resources, and so on," according to Guo. With nearly 109,000 road networks and counting, according to the Tanzanian National Bureau of Statistics, Tanzania has apparently seen the wisdom in this advice. CHICO is doing its part, too, and the firm has built over 1,400km of roads in Tanzania and currently employs more than 4,000 people.

Road systems are not the only transportation networks due for upgrades and investment, however, and the Tanzanian railroad is due to receive more than USD7.6 billion in reconstruction and upgrades, according to East African Business Week. The new rail line, which will stretch from Morogoro to Mwanza, is broken into four phases. Tenders for design and construction were recently announced for four main sections, which together account for more than 1,000km of new track. The project will be mainly financed through a USD7.6 billion loan from the Chinese Export-Import Bank, according to the Tanzania Daily News. The line will more efficiently connect Tanzania and its neighbors, such as Uganda, Rwanda, Burundi, and the Democratic Republic of Congo, to the coast, thereby facilitating greater trade volumes and, it is hoped, economic prosperity. These projects are all part of a larger initiative aimed at propelling Tanzania into the ranks of middle-income nations.

Construction firms across Tanzania are excited about the opportunities these investments will bring. In an exclusive interview with TBY, Dhruv Jog, Director of Advent Construction Limited, discussed both the government's infrastructure goals and the ways Advent has been able to help Tanzania achieve these goals. “The government is keen to push infrastructure projects through road construction, bridge construction, interchanges, ports, irrigation systems, and water distribution systems," said Jog. “We pre-empted this about a year ago because Advent has always been strong in the civil works sector and we began seeing more enquiries arising in this sector. We are local partners to various global firms that specialize in heavy civil and infrastructure projects, and within this partnership our strong civil works history means that we can be at the forefront of the up swing in industrial and infrastructure works." Firms all across Tanzania are as optimistic as Advent, and they are eager to capitalize on this opportunity.

Other infrastructure projects are also in the works, and a new stadium and sports complex estimated to cost between USD80 and 100 million is planned for Dodoma, Tanzania's capital. The complex will be a joint venture between a collection of Moroccan firms and local Tanzanian interests, and upon completion will be the largest stadium in Tanzania. The stadium is part of an effort to more evenly distribute people and resources across the country, and officials hope that it will play a role in attracting settlement away from highly congested areas, especially Dar es Salaam.

In 2015, the construction sector constituted around 13.6% of Tanzania's GDP, totaling almost USD6 billion. Though there are some signs that growth in construction might be slowing down in 2016, rates are still robust and expectations are high. According to the Bank of Tanzania, construction contributed 8.3% to GDP in Q12016, down from a whopping 37.4% in 1Q2015. In the first half of 2016, the bank's lending activities to the building and construction industry grew by 10% and in the same period building and construction accounted for 4.5% of the bank's credit activities. According to the most recently available statistics, between 2010 and 2015 cement manufacturing increased from 2,323,000 metric tons to 3,135,000 metric tons.

Housin

In recent years, Dar es Salaam has begun attracting huge amounts of migrants, taxing the city's housing and real estate infrastructure. In an effort to cope with this influx and resulting shortage, the government has tried to incentivize projects that will have large positive social impacts. Many firms see this period as one of opportunity. Jog told TBY that he believes “it is the correct time in Tanzania's residential property growth cycle for the private sector to maximize their contribution and make the most of the high growth potential." By capitalizing on demographic changes, private-public partnerships can create wealth and social well being in a sustainable way.

According to the National Housing Corporation (NHC), Tanzania's annual housing demand exceeds 200,000 units, and there is already a shortage totaling more than 3 million units. As people continue to move to already densely populated areas, the pressure will become more acute, hence the efforts to incentivize more even distribution.

In an effort to allow Tanzania's poorest to capitalize on the wealth potential of their lands, the Tanzanian government has begun formalizing unplanned settlements. This five-year program is intended to give all Tanzanians currently living in unplanned settlements—roughly 70% of the population—the legal protections and privileges that come with having official documents for their homes and land. According to government officials, the first phase of this project will formalize 6000 properties while the second phase will formalize 299,000.

Dar es Salaam remains the most important market for real estate activity. With a variety of projects under construction and recently finished, office space in the city has been attracting businesses from across Tanzania and the region. According to the Real Estate Consultancy Knight Frank, prime office space averages USD21 per sqm per month, which is on par with Johannesburg and Nairobi at USD22 per sqm per month and USD21 per sqm per month, respectively. Retail space is largely focused on smaller sites in and around residential areas, and rents average USD30 per sqm per month for prime areas. This is substantially less than Nairobi, at USD48 per sqm per month, and half of Johannesburg, at USD60 per sqm per month. The majority of industrial real estate is again concentrated in Dar es Salaam, but other cities, particularly those near major infrastructure installations, also have a growing supply. According to Knight Frank, the cost of industrial space in prime areas averages USD5 per sqm per month. As the government continues to focus on bringing housing to its citizens, residential housing availability has improved, but more still needs to be done. The rate for prime residential space in Dar es Salaam for a four-bedroom home is USD5,000 a month, but most housing options cost significantly less than that.

According to the Bank of Tanzania, the housing sector grew by roughly 4.2% in the first quarter of 2016, but demand has still far outstripped supply, pushing prices higher. Borrowing also remains expensive, and in the same period the average mortgage rate hovered between 16 and 19%. Increased competition among lenders in the last five years or so has succeeded in reducing the average rate by nearly 6%. The mortgage market has been rapidly expanding recently, and in the 2Q2016 it recorded growth of 29%, and 28 lenders offered mortgage products. Outstanding mortgage debt totaled USD220 million and the average mortgage debt was USD60,634. As Tanzania continues to cope with its housing shortage, a number of programs have already begun to ease the pressure.

The Public Servants Housing Scheme, and its program administrator the Watumishi Housing Company (WHC), have been given the responsibility of building 50,000 new and affordable homes for Tanzanians. The program, which is will be completed in a number of stages over the next five years, will provide living space for residents of a number of different regions. The project allows public servants access to relatively cheap mortgages, 10-15%, and gives them 25 years to repay the loan. The project is expected to cost around USD544 million by the time it is completed.

The NHC has also broken ground and completed on a number of projects across Tanzania. The most high profile are the Victoria Place project (104 flats), Eco Residence (120 units), and the Kawe Project (714 flats).

Fun in the Sun

British company Pennyroyal Gibraltar recently announced plans to construct a new luxury resort on the island of Zanzibar. This USD1 billion dollar project, christened the Zanzibar Amber Resort, is expected to take eight years to complete and will create more than 1,500 jobs for local workers. The complex will include five five-star hotels, an equestrian center, a private airport, fully equipped medical facilities, and an international school, according to The Citizen. In addition to its hospitality amenities, the resort will include a number of residential options, bringing a sustainable economic foundation to an area of Tanzania that has traditionally lacked development. According to The Citizen, locals will receive a wide variety of targeted employment opportunities aimed at generating skills and wealth.

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