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Tanzania 2014 | REAL ESTATE & CONSTRUCTION | INTERVIEW

TBY talks to Nehemiah Kyando Mchechu, Director General of the National Housing Corporation (NHC), on the housing deficit, management restructuring, and securing financing for potential homeowners.

Nehemiah Kyando Mchechu
BIOGRAPHY
Nehemiah Kyando Mchechu was formerly MD & CEO of Commercial Bank of Africa Tanzania Limited, where at that time he was the youngest CEO within the banking sector in East Africa. Prior to CBA, he worked for Standard Chartered Bank Tanzania Ltd., and in his last role was an Alternate Director and Head of Global and Co-Head of Wholesale Banking. He has worked for Citibank and Barclays Bank Tanzania Ltd. Mchechu sits on several Boards including KCB Tanzania Limited, and is the Chairman of the Rightway Schools Board of Directors. He is also a Director and Founding member of the CEO Roundtable, a policy dialogue forum that brings together the top 50 CEOs in Tanzania.

Tanzania has a housing deficit of around 3 million units, and that is growing by nearly 200,000 units per year. What steps is the National Housing Corporation (NHC) taking to address this?

It is important to appreciate why we have such a deficit today. In 1975, the government stopped subsidizing and supporting the NHC. Inflation was also high, which affected interest rates, and therefore it was expensive for both the NHC and the clients trying to take on obligations. There were also laws in place that favoured tenants over landlords, as well as a law that protected borrowers at the expense of lenders. For nearly three and a half decades, there wasn't much progress in the housing sector from the governmental perspective, which meant that the housing developer was left to intervene. In 2010, the government decided to take a bold step, having realized the challenges it was facing in the housing industry. One step the government took, apart from reforming our laws, was to restructure the NHC. I arrived at the institute in 2010 as part of the restructuring to get the NHC back on track as a more efficient institution, operating as efficiently as possible in the private sector. Over a period of three years, the NHC has been left to operate, work, and deliver with very minimal political intervention. We have a reasonably good balance sheet to operate from and deliver on our agenda. We are an institution with a capital base of nearly $1.4 billion, which makes NHC the largest company in East Africa by capital base. In terms of real estate, we are still among the top three largest companies in Sub-Saharan Africa. The NHC has a number of ongoing projects. Firstly, we think our role should not solely be to develop houses; there are other areas where we can help. For instance, we use our position as a government institution to influence policymakers and bring about the right policies, which will encourage lenders, developers, and all players within the sector to work together and deliver more housing. We will do that through a forthcoming R&D association that will help to bring about a common base from which to influence, lobby, and bring about the right policies, the right changes, and the right practices within the industry. The final thing that we have been doing is engaging the financial institutions. So far, we have signed a memorandum of understanding (MoU) with 12 financial institutions and 12 banks that are willing to lend to our clients. We guarantee that when we build houses, our buyers will be financed at affordable rates.

What has changed within the NHC since the 2010 restructuring?

It was done purely on the government's initiative; we managed the process internally without the help of the IMF or the World Bank. The first step of the restructuring was to scrutinize our environment and vision, whereby we evaluated our entire strategy and to develop a better plan. Secondly, the strategic plan needed the right organizational structure. When we were comfortable that we had devised one, we addressed the most difficult and challenging part of the job, namely finding the right people for the right positions. The institution had been stable for 50 years, having put down strong roots, rendering it rather resistant to change. In a bold move, we replaced 100% of the management team, in pursuit of the right people with the right skills, talent, and motivation to deliver on our agenda. We gave this opportunity to existing candidates and additional people from outside the company; we especially encouraged junior employees to apply. Most importantly for the directors, we ensured that everyone working for them was contracted.

What do the four new MoUs with major banks achieve for the NHC, and what wider effect will they have on the real estate market?

These agreements are critical for us since financing allows people to buy houses. The dream of most people the world over is to own their own home. Because we had been signing with the banks, one of our key criteria was access to long-term loans of a minimum of 15–20 years. Formerly, they had been lending for between eight and 12 years. Tanzania has also recently seen legal reform, which was well received, and not least by the banking community. In the past, banks here actively pursued mortgage lending and were often dragging their feet. In order to entice them we provided an option; those lending to an NHC client were guaranted a buyback option. Accordingly, in the event of a client defaulting within five years we pledged to repurchase that property. We have also gone one step further by working with an insurance firm acting as a guarantor for the bank, and insuring it for the 20% down payment. Therefore, a client is not required to pay that 20% to the bank, but rather, a small amount of money as a premium. For example, if I sell a house for $100,000, the 20% is $20,000. Now, the client has two options. He can find the $20,000 and deposit it at the bank, or else he can go to the insurance firm, which will then pay the premium. The premium amount will come to maybe $500 or $1,000, which is much more affordable for the client than $20,000. In this manner the bank has been guaranteed, and everything is within the maximum value of the house.

“ We guarantee that when we build houses, our buyers will be financed at affordable rates. "