Dar firm gets $40m to roll out mortgages

Tanzanians who have long dreamed of owning their own homes could soon benefit from an initiative to make mortgages widely available as a way of financing broad home ownership in the country.

The Tanzania Mortgage Refinancing Company, which was recently incorporated, will soon start offering mortgages.

Prof Benno Ndullu, Governor of the Bank of Tanzania, told The EastAfrican from Arusha that the government is negotiating with the World Bank for a line of credit worth $40 million to cater for development of the mortgage market; development of housing microfinance; and expansion of affordable housing supply.

Prof Ndulu said progress has been made on the first component, whereby three banks have committed to be founder shareholders of Tanzania Mortgage Refinancing Company, while other banks that have shown interest are in the process of getting their boards’ approval.

Developing access to housing finance will help improve affordability and construction standards, and encourage the private sector to take a greater role in the provision of housing.

The majority of aspiring homeowners pay for the construction of their houses either from expensive short-term loans or construct them over many years using savings from their monthly salaries.

The lack of a robust real estate development market that is supported by a home loan market widely accessible to the middle class has hamstrung the country’s ability to build enough houses to meeting growing market demand both for middle and lower-income families and individuals.

Rents continue to rise due to this under-supply.

However, the enactment of the Mortgage Financing (Special provisions) Act by the Parliament in October 2008 paved the way for private sector solutions to financing of home ownership.

The Act strengthened the ability of creditors to enforce collateral.

The previous legislation had led to a system that could be exploited through the use of delaying tactics and repeated court appeals that were reflected in higher interest rates.

Incorporation

Joseph Massawe, Director of Strategic Planning at BoT, told The EastAfrican that the Tanzania Mortgage Refinancing Company has already been incorporated and is now a legal entity, while a business plan is in the process of being drafted.

Mr Massawe said the firm has been formed with capital from three initial shareholding banks of CRDB, Exim Bank and Tanzania Investment Bank.

“The main objective is to expand access to affordable housing finance for the purchase, construction or upgrading of residential housing, whose absence has made it difficult for many to access housing loans,” he said.

Mr Massawe said the project appraisal document prepared by the World Bank, BoT and Housing Ministry, puts the initial minimum capital for the mortgage at $4.4 million.

The three banks have raised about 50 per cent of this amount, while more banks are expected to join the board.

The Tanzania Mortgage Refinancing Company will get a further $30 million from BoT and will be able to access credits from multilateral lenders.

The central bank is now in the process of forming a legal regulatory framework for mortgage financing.

It is estimated that mortgage loans outstanding in Tanzania currently amount to around $100 million, split between around 2,000 loans, making the average loan size around $50,000.

This amount is growing relatively rapidly as new entrants come into the market.