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Tanzania 2014 | REAL ESTATE & CONSTRUCTION | REVIEW: REAL ESTATE & CONSTRUCTION

The government is trying to slow the rising housing deficit by announcing new partnerships and projects, while huge investments flow into cement production.

Tanzania's economic performance is having numerous effects on the population today, while the real estate sector is rushing to catch up. Tanzanians are on the move; in 1980, only 14.8% of the population lived in urban areas, a figure that rose to 37.5% in 2005 and is expected to increase again to 46.8% by 2015, according to the UN. This is creating a housing deficit, which stood at 3 million units in 2013 and is growing at a rate of 200,000 units per annum. One of the main reasons hindering the housing market is the almost complete absence of a formal mortgage system, meaning that a staggering 99% of houses are bought using cash and up front payments. Currently, the mortgage sector contributes less than 1% to Tanzania's GDP according to the National Housing Corporation (NHC). When you compare this to neighboring Kenya at 7% and South Africa at 25%, the formal lending sector has made significant strides to allow the increasingly mobile population to find homes at an affordable price. Since the vast majority of people can't afford to pay for a house in one lump sum, most houses are built on an incremental basis to spread the cost and tend to take between five and 10 years to complete instead of the usual nine to 12 months.

RENTERS

Even though buying a house is not always an option, renting is also becoming increasingly expensive. Tanzania has some of the highest rental prices for housing in the region. A two-bedroom house in a luxury neighborhood in Dar es Salaam costs an average of $3,000 per month, while the same house would cost around $2,500 in Nairobi, $2,200 in Kampala, or $1,800 in Kigali. For a family house in a luxury suburb in Tanzania, the renter would be looking at an average of $3,500 per month, compared to $2,700 in Nairobi or $2,500 in Kampala. One of the major drawbacks of renting in Tanzania is that landlords can demand a full year's rent up front, whereas in neighboring countries the maximum period of up front payment allowed is three months. And it is not just residential properties that are suffering from high prices. According to the global real estate company Knight Frank, the average cost of office space in high-grade areas is $21 per sqm and $16 for lower quality offices. For the highest quality offices in the best areas, it can cost as much as $38 per sqm, and these prices are continuing to rise. According to the survey, three years ago, lower quality offices cost $10 per sqm, while offices in more prestigious areas cost $15. If you compare this with Tanzania's neighbors, it is a starkly contrasting story. In Kampala, for example, three years ago prices stood at around $20 per sqm in the business district, while in March 2013 this number had fallen to $17 per sqm. And even though the highest quality office space has remained steady at around $25, it is still much lower than Tanzania. These higher prices cannot be attributed to the cost of construction either, as the average in Dar es Salaam is $250 per sqm, while in Nairobi it is $400 and in Kampala $640 per sqm. The higher prices have been largely accredited to the introduction of a new VAT on property renting, which began during the 2012 financial year. The second reason for the increase is that in most properties, clients have to pay between $3 and $4 per sqm for amenities such as water, security, fumigation, and rubbish collection. Due to the lack of office space, residences in Dar es Salaam have been converted to help deal with the increasing demand for affordable, high-quality office space.

DEVELOPMENTS

In an effort to slow the deficit, the NHC has initiated a number of projects to increase the supply of houses. As part of its Strategic Plan 2010/2011-2014/2015, the NHC announced three new projects in Dar es Salaam and the development of 510 houses, which should provide housing for 3,000 people. With the aim of easing demand in Dar es Salaam, the NHC also announced in 2011 that it would build two satellite towns in Meru and Arusha. The NHC bought 430 hectares of land for $5.3 million for a newly established firm called Arusha District Council Trust Company. So far, the project has 242 hectares of land in the Burka region of Arusha and 121 acres of land in the Meru District. The Ministry of Home Affairs, in partnership with Mara Group, has embarked on a new $300 million project by signing a Pre-Development Agreement for a state-of-the-art, mixed-use project. It will combine art, urban, commercial, and residential complexes. It will also include the largest retail mall in East Africa, two international hotels, a convention center, a medical tourism hospital, a business park, and a residential compound on 325,000 sqm of land.Another mixed-use development announced in September 2013 is a joint venture between the Mikano Cultural Heritage and Unit Trust of Tanzania (UTT). The Sanaa Tower will be 20-stories high and consist of office space, conference centers, and a five-star hotel. The building will cover 18,000 sqm and cost $1.9 million to be paid off over 10 years.

PRODUCTION

As Tanzania begins to build more projects, it will also aim to increase its cement production. In 2013, demand stood at around 3 million tons per annum with production of around 2.5 million tons. Over the next four years, production is set to more than double due to a massive rise in investment. In May 2013, Dangote Cement announced plans to build a $500 million cement plant in Mtwara. It is expected to be completed by March 2015 and have a capacity of 3 million tons per annum. In November 2013, Athi River Mining (ARM) also announced that it would be investing over $400 million between Tanzania and Kenya on the construction of new cement plants. The redevelopment of the plant in Tanga would increase its capacity to 1.2 million tons and should be completed by April 2014. ARM believes that this should increase its market share from 17% to 25% by the end of 2014. The massive rise in cement production investment and a large deficit in housing and office space bodes well for the future of the real estate and construction sector as more investors put their trust in Tanzania.