Quality houses still a pipe dream for low income earners

26Feb 2016
Dickson Ng`hily
The Guardian
Quality houses still a pipe dream for low income earners

As mortgage financing seems to target middle and high income earners, it will apparently continue to be a pipe dream for low income earners to own their dream houses.

A part of Manzese suburb in Dar es Salaam.

Property Watch can report that quality and affordable housing in the country is out of reach for most low-income earners, since procuring such property is strongly determined by income.

A survey conducted by this paper recently, has shown that the country's mortgage market is among the smallest in the East African Region (the ratio of outstanding mortgage debt to the GDP being 0.46 percent).

Rwanda is leading with 3.5 per cent followed by Kenya (three percent) and Uganda (0.92 percent).

A 2014 study by Findex compliments to this paper's survey as it indicates that very few Tanzanians, in fact only 4.5 percent of the adults, have managed to secure an outstanding loan for purchasing a home.

The figure shows that many people in Tanzania have to dig into their pockets to construct own houses, meaning that those with no savings would end up living in rented houses for good.

The situation resonates with many and this is what Joyce Malima, a Dar es Salaam resident, told this paper when reached for comment.

"I work as a secretary for a private company; I am 46 years old and divorced. I have been renting two rooms in Manzese area where I live with my children, and since my salary is not even enough to make ends meet,

I don’t dream of owning a decent house," she lamented. A mother of two girls, Malima says everybody deserves a decent life - which includes proper shelter - as one of the basic human needs.

"Without millions of shillings it is hard to acquire a piece of land to put up a house; one needs a lot of money to build a quality house. I have heard about the so called affordable houses but I seriously doubt if they are that affordable,” she says.

"I came to that conclusion because I approached one of the companies that claim to offer affordable houses. According to them, if one doesn’t have enough money they can link you to a bank that they have an understanding with but the cheapest house on offer costs 52m/-, with the interest being as high as22 percent. With such a price tag I don’t see how I can get my dream house,” she adds.

"Those with money can have their dream houses whenever they want as they can use their savings to purchase the houses, but not people from the low income bracket," she explains.

While the real situation on the ground is as noted by Malima, Bank of Tanzania (BoT) reports indicate that the mortgage market in the country has been growing steadily.

According to the bank, total lending by the banking sector for the purposes of residential housing was 248.35bn/- as of last year, which represents an annual growth of 59 percent.

Part of the report reads: "the total number of mortgage loans also grew rapidly, from2, 784 at the beginning of 2014 to 3,598 by end of December 2014, being an increase of 29 percent.

Factors attributed to this increase include increased awareness on mortgage loans among borrowers, public awareness campaigns by banks offering mortgage loan products and a favourable interest rate environment during the year."

The study adds: "with Bank of Africa’s interest rates reduction campaign which ran for six months last year, interest rates on mortgage lending went as low as16 percent (for Bank of Africa) from the common 18 percent to 21 percent range as offered by most lenders.”

The report, on the other hand, detailed the demand for housing and housing loans, saying it remains extremely high but is constrained by inadequate supply of affordable housing and high interest rates.

The current housing deficit in Tanzania is estimated at three million housing units with a 200,000 unit annual demand.

It is said that most lenders offer loans for home purchase and equity release while a few offer loans for self-construction which for the most part continue to be expensive beyond the reach of the average Tanzanian.

High interest rates offered by mortgage lenders also pose as another impediment to the growth of the mortgage market.

Yet, Malima is not the only one who has lost hope for owning a quality house. Sheikh Suleiman Abdullah, who resides in Temeke Municipality, Dar es Salaam Region, finds himself in the same predicament.

"For many years I have been living in a rented house. I failed to secure a mortgage loan because of my limited income.

I am now saving so I can build my own house, it is not going to be that easy but at least I will have what I will proudly call my own home," he says.

Sheikh Abdullah told this reporter that he thinks housing developers focus on people with high income since no one with a low income would manage to have a quality house in a formal settlement. "

With such an approach, we have been categorised as belonging to the informal settlements," he says. Makerere University student Ronald Buye says the money one spends on housing should be at least just a third of one’s income, to help people spend on other family needs.

“Income is a strong determinant of the quality of a house one needs/resides in. Inadequate housing for low income earners is determined by their ability to rent or purchase a particular dwelling unit.

The nature of physical structures of a dwelling unit, the facilities available and the accompanying environment are strong factors for determining the quality of a house," he observes.

According to him, since housing finance is mainly in the hands of the private sector, low-income earners mainly employed in the informal sector are not in a good position to access such loans.

“For this reason when planning, developers need to consider affordability as a factor because housing should be within the means and appropriate for the needs of low to moderate income householders and priced so that low and moderate income earners are able to meet other essential living costs," he says.

The student further notes that a comprehensive affordable housing system is needed, suggesting that the model developed by Zhao Feifei, a Chinese expert in affordable housing, could be taken on board.

"A comprehensive affordable housing system should consist of six major components which include policy, planning, designing, delivery, financial and partnership," he says.

According to him, policy is meant to set up the fundamental framework, which greatly affects all other elements, while planning is the process which determines strategic arrangements such as land use, density and layout while design is to figure out the detailed physical layout and spatial arrangements of the project.

And for delivery, it is the process which allocates the affordable housing product into people’s hands while financing is crucial for affordable housing development; because it pieces together the money to make things happen.

And partnership structure is about how different participants collaborate in each step of the development process. All the elements are interdependent and thus form a dynamic system.

Dr John Ndunguru, an independent economist, is of the view that affordable housing is out of reach for most low-income earners as those who benefit are the middle and high-income earners, as they are the ones with the purchasing power.

"The problem is that developers are doing business so are the lenders (banks) and that is why almost all developers, even the government, are targeting the wealthy and well-connected elites," he observes.

He adds: "Yet many low-income earners are employed in the informal sector." Dr Ndunguru says that the delivery of affordable residential houses is being hampered by lack of affordable home financing solutions, high costs of infrastructure, and rising costs of land.

The economist says that to improve the situation for low-income earners, the government should consider a policy that reflects on housing markets, how resources are allocated to housing, and the impact of government regulations and actions to access to affordable and adequate housing for low income earners.

“Since the quantity and quality of houses in urban areas is part of the challenge, stakeholders must consider the cost of providing residential houses in view of their demand and ability to pay for low income earners.

A good affordable housing system model should focus on policy, planning, design, financing and partnerships," he noted.

In the ‘Africa Housing Finance Yearbook 2015’ published by the Centre for Affordable Housing, it is noted that Tanzania suffers from a shortage of good quality and affordable housing.

That is why in July this year, the government announced its intention to reduce Value Added Tax (VAT) on houses in order to boost investment in real estate and raise living standards.

Besides, the report argues that the demand for new, affordable housing is considerable; a more fundamental problem, however, is the lack of title deeds. BoT data suggests that 75 percent of land in Dar es Salaam is not surveyed.

If that is seen in a big city like Dar es Salaam, what then is likely to be the situation in other smaller cities and towns in the country?

Another hindrance which is to be addressed is the fact that mortgages are regulated by formal law, and land rights must be registered before they can be mortgaged.

It is said that there is a very limited formal land sale market in the country as most land transactions occur in the informal market, and these tend to be leases.

Therefore, with notable inefficiencies, land acquisition has been a hurdle in many respects towards the development of an efficient housing market; along with the limited availability of mortgage financing to support housing development.

This is why Juma Kassim, Samura Real Estate Agency's Managing Director, says in order to spur the private sector into providing housing solutions to low-income earners in the country’s urban areas, the government should implement incentive-based strategies such as tax discounts for developers of middle-class and low-income housing projects.

According to him, this should be encouraged out of the consideration of choosing micro-mortgage options to low-income groups through community groups and non-governmental organisations (NGOs) as it would allow people to become home-owners.

Currently, at least 19 different banking institutions are offering mortgage loans, with the number expected to increase even further as more lenders continue to launch their mortgage loan products.