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Mortgage lending jumps, but home ownership still elusive

Mortgage Lending Surges in Tanzania, Yet Home Ownership Remains a Distant Dream for Many

In Tanzania, the mortgage market has experienced a notable uptick in recent years, signaling growing interest from financial institutions and potential homeowners alike. According to recent data from the Bank of Tanzania (BoT), mortgage lending has jumped significantly, reflecting a broader push towards formal housing finance. However, despite this growth, the dream of owning a home continues to elude a large segment of the population, hampered by economic barriers, high costs, and structural challenges within the real estate sector.

The latest figures paint a picture of expansion in the mortgage sector. As of the end of 2023, the total value of outstanding mortgages in Tanzania stood at approximately TSh 1.2 trillion (around $500 million), marking a substantial increase from previous years. This represents a year-on-year growth of about 20%, driven by increased participation from commercial banks and specialized mortgage lenders. Institutions such as CRDB Bank, NMB Bank, and the Tanzania Mortgage Refinance Company (TMRC) have been at the forefront of this surge, offering products tailored to middle-income earners. The TMRC, established in 2010 with support from the World Bank, has played a pivotal role in providing long-term funding to banks, enabling them to extend mortgage terms and reduce risks associated with lending.

This growth in mortgage lending is not isolated; it aligns with Tanzania's broader economic development trajectory. The country has seen rapid urbanization, with cities like Dar es Salaam, Arusha, and Mwanza experiencing population booms. The demand for housing has skyrocketed as more people migrate from rural areas in search of better opportunities. Government initiatives, such as the National Housing Corporation's (NHC) affordable housing projects, have aimed to address this demand. For instance, the NHC has been involved in constructing thousands of units in urban centers, some of which are financed through mortgage schemes. Additionally, policies like the reduction of property registration fees and incentives for developers have encouraged investment in the sector.

Yet, beneath this veneer of progress lies a stark reality: home ownership rates in Tanzania remain dismally low. Only about 5% of Tanzanians own homes through formal mortgages, a figure that pales in comparison to regional peers like Kenya, where the rate is around 10-15%, or more developed markets in South Africa with rates exceeding 30%. The majority of Tanzanians still rely on self-built homes, often on informally acquired land, or live in rental accommodations. This low penetration of mortgages underscores the elusive nature of home ownership for the average citizen.

Several factors contribute to this disconnect between rising mortgage lending and actual home ownership. High interest rates are a primary culprit. Mortgage rates in Tanzania typically range from 15% to 20% per annum, far higher than in many other countries. These rates are influenced by the overall cost of borrowing in the economy, inflation pressures, and the perceived risk of lending in a market where many potential borrowers lack formal employment or steady income streams. For a typical Tanzanian household earning a median income of around TSh 500,000 ($200) per month, servicing a mortgage on even a modest home priced at TSh 100 million ($40,000) becomes an insurmountable burden. Monthly repayments could easily consume over half of disposable income, leaving little room for other essentials like food, education, and healthcare.

Moreover, the informal nature of Tanzania's economy exacerbates the issue. A significant portion of the workforce—estimated at over 70%—operates in the informal sector, including small-scale farming, street vending, and casual labor. These individuals often lack the documentation required by banks, such as payslips, tax returns, or proof of stable income. Banks, cautious about defaults, impose stringent eligibility criteria, including minimum income thresholds and collateral requirements. This effectively excludes low- and middle-income groups, who form the bulk of the population in need of housing finance.

Land tenure issues further complicate the landscape. In Tanzania, land ownership is governed by a complex system involving customary rights, leaseholds, and freeholds. Many urban dwellers live on land without formal titles, making it difficult to use such properties as collateral for loans. The process of obtaining a title deed can be lengthy and costly, involving bureaucratic hurdles and sometimes corruption. Efforts by the government to digitize land records and streamline registration have shown promise, but implementation has been uneven, particularly in rural and peri-urban areas.

Experts in the field have voiced concerns about these barriers. Dr. Amani Karume, an economist at the University of Dar es Salaam, notes that while mortgage growth is encouraging, it primarily benefits the upper-middle class and salaried employees in formal sectors like banking, government, and multinational corporations. "The real challenge is inclusivity," he explains. "We need innovative products like micro-mortgages or group lending schemes that cater to informal workers." Similarly, representatives from the TMRC highlight the need for subsidies or guarantees to lower interest rates and make mortgages more accessible.

The gender dimension adds another layer of complexity. Women in Tanzania face disproportionate challenges in accessing mortgages due to lower average incomes, limited property rights under customary laws, and cultural biases. Initiatives like women-focused lending programs by some banks aim to bridge this gap, but uptake remains low.

Looking ahead, there are glimmers of hope. The government's push for financial inclusion through digital banking and mobile money platforms could democratize access to credit. Services like M-Pesa and Tigo Pesa have already revolutionized savings and small loans; extending this to mortgages could be transformative. Furthermore, partnerships with international organizations, such as the African Development Bank, are funding affordable housing projects that incorporate mortgage components.

However, without addressing the root causes—high costs, informal employment, and land issues—the surge in mortgage lending risks remaining a statistic rather than a pathway to widespread home ownership. For many Tanzanians, the dream of a secure home continues to be just that—a dream deferred.

To delve deeper, consider the broader implications for Tanzania's economy. A robust housing market could stimulate construction, create jobs, and boost related industries like manufacturing and services. Currently, the construction sector contributes about 13% to GDP, and enhancing mortgage access could amplify this. Yet, if growth remains concentrated among the elite, it may widen inequality, leading to social tensions in overcrowded urban slums.

Case studies from other African nations offer lessons. In Rwanda, government-backed mortgage schemes with subsidized rates have increased home ownership among civil servants. Ethiopia's condominium projects, financed through low-interest loans, have housed thousands. Tanzania could adapt similar models, perhaps by expanding the role of cooperatives or community savings groups in housing finance.

In rural areas, where over 60% of Tanzanians live, the challenges are even more pronounced. Mortgages are virtually non-existent, with most homes built incrementally using personal savings or remittances. Integrating rural housing into the formal mortgage system could involve collateralizing agricultural land or linking loans to crop yields, but this requires legal reforms.

The COVID-19 pandemic has also left its mark, disrupting incomes and delaying projects, yet it has accelerated digital adoption, potentially paving the way for online mortgage applications and virtual property viewings.

Ultimately, while mortgage lending jumps signal progress, true advancement will be measured by how many ordinary Tanzanians can afford to call a place their own. Policymakers, banks, and developers must collaborate to make home ownership not just a privilege for the few, but a reality for the many. As Tanzania strides towards middle-income status, bridging this gap will be crucial for sustainable development and social stability. (Word count: 1,028)

Read the Full The Citizen Article at:
[ https://www.thecitizen.co.tz/tanzania/news/national/mortgage-lending-jumps-but-home-ownership-still-elusive-5133650 ]