BREAKING THE BOTTLENECK

Tanzania 2015 | REAL ESTATE & CONSTRUCTION | REVIEW: REAL ESTATE

The real estate sector in Tanzania holds great potential; however, in order to realize this potential and avoid hampering future growth, an increase in supply is needed in residential, office, and retail space.

As Tanzania's mineral and industrial sectors begin to take off, so to does its real estate sector; however, a number of social issues need to be addressed if the government wishes to continue on its growth path. While Dar es Salaam is not the capital city of Tanzania, it is the most populous, and also the business and economic capital of the country; hence, the majority of major developments take place in and around the city.

RESIDENTIAL

Probably the greatest problem the country is currently facing is its housing deficit, which at present stands at around 3 million units and is increasing by 200,000 units per annum. In monetary terms, the 3 million units are equal to roughly $180 billion, while the 200,000 unit increase is worth around $12 billion according to the UNESCO National Commission's 2014/2015 report on Tanzania. One of the main reasons for this large deficit is the rapid urbanization of the population, which in 2013 stood at approximately 30% and is increasing by 5.7% annually. This increasing urbanization has lead to a deficit in urban areas of around 1.2 million housing units, but with an annual supply of only around 15,000 units. This massive increase in annual demand, substantial annual rise in urban population, and swelling deficit could all possibly lead to a hyper-growth scenario for both the housing industry and the national economy. However, if the country wishes to initiate this growth drive, then it must address the limited formal housing construction and mortgage sectors. Currently, only a small number of houses are bought using mortgages, with 99% being paid for out-of-pocket. In order for the buyer to be able to afford an entire house, it means that generally houses are built in stages over five to 10 years, instead of the usual nine to 12 months. This in turn means that a considerable amount of capital is tied up and immobilized in during the construction process.

According to the UNESCO National Commission, a possible growth boom would provide the country with a number of substantial benefits, including a possible 200,000 direct and 500,000 indirect jobs, TZS150 billion in tax revenues, lower interest rates and a more robust and liquid financial sector, and a substantially larger market for utility providers. A growth rate of 30%-50% per annum is possible provided the financial sector enhances it's mortgage offerings products. In recent years, however, the government has introduced a number of key reforms in the financial sector to help facilitate the ability of banks to provide financing. In 2011, the government formed the Tanzania Mortgage Refinance Company (TMRC) in partnership with the World Bank in an effort to provide long-term funding to commercial banks by providing bonds in the capital market to enhance their ability to offer long-term loans. There are 19 banks so far that have a stake in TMRC and have qualified to offer 10-20 year, low interest loans. As of December 31, 2013, total lending by the banking sector for the purpose of residential housing stood at TZS156.5 billion, which represented a 46% increase on the year before. The number of loans issued also saw a considerable boost of 47% over 2013 from 1,889 in the beginning to 2,784, which provides evidence that the government's initiatives to strengthen the financial sector to allow it to provide more long-term loans may be working.

OFFICE

When it comes to office space, Dar es Salaam is where it is all happening. Tanzania is experiencing a boom in its real estate development and skyscrapers are going up in nearly all of the country's major cities. The average rental price for prime office space in Dar es Salaam is $21 per sqm per month, which is on par with Johannesburg and Cape Town at $20 and $19 per sqm per month, respectively, and lower than that of its southern neighbor Maputo at $30. As with the residential market, demand for office space is higher than the current supply; however, a number of new developments were recently completed in 2013 to help alleviate pressure on the market. Still, due to the fact that any new office space is usually fully booked during the construction phase, an increase in capacity is still needed with annual demand at around 100,000 sqm in Dar es Salaam compared to its current capacity of 25,000 sqm. Apart from Dar es Salaam, the cities of Mwanza and Arusha are developing as emerging office space locations as commercial and economic activity increase; however, limited supply is hampering efforts to transform the areas into more prominent locations.

RETAIL

The retail sector in Tanzania is a blossoming sector that holds great potential in the future. Currently, as with office space, Dar es Salaam has the highest concentration of retail space, with Mlimani City Mall, which is located just outside of the city, being the largest in the country with a gross leasable area (GLA) standing at 18,794 sqm. The Mall contains all the amenities that one would expect in any modern mall, such as a multiplex cinema, international brands, and conference centers, as well as a limited office space offering. Growth in the retail segment is expected to continue with smaller retail developments popping up all over Dar es Salaam, especially in the more upmarket neighborhoods such as Oyster Bay, Msasani, and Mikocheni. One of the most recent entrants to the market is the Quality Plaza, while the completion of Viva Towers and Uhuru will provide retailers with some more much needed GLA.

The government and the private sector have been trying hard to increase the supply and capacity that is on offer in order to meet the ever-growing demand that Tanzania is experiencing. The potential held within the sector could provide the economy a massive boost that would certainly be welcomed by all.