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Currently, investments in office buildings form the bulk of real estate works in the country, and industry players say large opportunities also exist in the areas of retail, industrial and residential houses construction.
According to Knight Frank, a UK- headquartered global property consultancy agency and a large real estate investor in Tanzania, the demand for office, retail and industrial buildings in Dar es Salaam, the commercial capital, remains strong. Developments in construction services, as well as population increases, have also created huge demand for properties, and the real estate sub-sector is, therefore, primed for further investments.
In addition to this trend, players see the passage of a legislation governing estate agencies; the already amended Land Act, establishment of a court to arbitrate land disputes and plans to institutionalize housing financing, as other factors that would further boost interest in the area. Also driving the industry forward, according to the experts, is the pace and complexity of urbanization currently taking place in the country, which is increasingly calling for more investments in real estate development.
But the experts have also cautioned that for the overall industry to prosper, a number of challenges need to be tacked, among them the issues of land registration and acquisition. Mr Anthony Shamangwana, chairman & CEO, Inter capital Group says that, for example, most of the lands in the country do not have value for real estate investment because they lack accessibility, and the issue needs to be addressed in order to attract more real estate investors.
According to him, most of the land in Tanzania is not surveyed, making it difficult to determine its value for investment, especially in real estate development. He says real estate is an area of investment that needs long-term planning, and lack of unity in pricing in Tanzania is another obstacle to the development of the sub- sector.
Mr Shamangwana, who is a professional banker, also notes that currently the land value is overprices in Tanzania, where half an acre sells at about $ 1000, or more. “The government should ease the procedures of land acquisition and registration, for the sector is increasingly growing,” he says.
“Horizontal” versus “vertical” expansion
According to him, even by international standards, land and property prices in Dar es Salaam still high, as the cost of an apartment in the city could easily purchase two or three apartments in Cairo, a three-bedroom house in Chicago, or a two-bedroom house in the leafy suburbs of Derbyshire in England. Specialists in urban planning attribute this trend partly to the way in which most houses are designed, or the so-called “horizontal expansion”.
They observe that with increasing population growth, people need to live in multi-story apartments, which are types of “vertical expansion” designs, which make life much easier in terms of transport, property prices, maintenance and security. But in Dar es Salaam, to the contrary, there is still huge interest in residential apartment complexes that are “gated communities” spread around the city.
Currently, a handful of these residential complexes are spread throughout the city’s exquisite outskirts, such as Oysterbay, Masaki, Mikocheni and Ada Estate, among others. Nonetheless, the experts say opportunities for entrepreneurship in the real estate sub-sector is still huge, as demand for tenancy and ownership moves to the peak. The huge demand is reflected in part by the high rents in the city paid by the business community, foreign embassies and international organizations, such as UN agencies.
As a result, a two-bedroom apartment that used to cost $300 to $450 rent now leased for more than $1000 or $15000 a month; while the market price of a three-bedrooms house averages $65,000. Ms Mary Mwakitwange, a consultant at Bahari Beach Satellite City project, says there are many factors undermining the development of real estate market in Tanzania, including the government’s policies.
She says currently, land prices in strategic areas are increasing annually by an average of 20 to 25 per cent, because of the new class of investors who have entered the market, and Tanzania’s effort to become one of the attractive East African financial markets.
Such areas have gradually become popular with the middle-class, who pays as much as $200,000 for three-bedroom houses. However, the expatriate market in Dar es Salaam is relatively small, and dominated by employees of donor agencies and other multilateral institutions. The small upper market is concentrated along the coastal areas of Oysterbay, Masaki and Mikocheni. According to Mwakitwange, the supply of good quality housing is extremely limited; and expansion or contraction of an embassy or donor institution directly influences demand and pricing in the short run.
The supply of upper and middle level residential units is said to be between 6,000 and 8,000 units, according to Knight Frank, and new constructions and developments are expected to put a further squeeze on rents. But Ms Mwakitwange says real estate developers in the country, specifically in Dar es Salaam, need to focus on high-profile projects to suit the increasing needs of the ‘elite’ group.
Other factors behind high rents
However, other players in the market argue that the main factor behind high property prices in the country is the involvement of brokers in the business.
They say as many land brokers and speculators entered into the property market, corruption and money laundering reached unprecedented levels. Many were tempted to enter the business by the huge income that could be generated by acting as intermediaries in selling or buying properties in the country.
“Real estate developers need to be creative and provide services basing on the social, economic and cultural trends in the market,” Ms Mwakitwange observed.
According to her, the reason behind many people investing in real estate in Dar es Salaam and other cities in the country is that they find it the safest form of investment so far in Tanzania.
“It generates high returns; the expected profit is double and sometime triples the actual investment cost and all that is achieved in a short period of time,” she says.
However, many observers agree that land speculation is, at best, a high-risk, high-return investment. At its worst, it is the playground of scam artists and rife with high-level corruption. However, Dr Byabato Kamugisha, Ardhi University’s School of Architect Lecturer, is against the trend to provide high class estates in a few places, saying it is an element of segregation.
For him, current trends in real estate depicts social exclusion, where there are certain classes of people in the society benefiting from the new developments in the property industry, while the rest cannot afford the high rents, or the cost of owning modern residential buildings in high-class suburbs.
According to the lecturer, the beneficiaries of real estate income are a minority property-owning social class who play no productive role in the economy themselves, but monopolize the access to physical assets, financial assets and technologies. He argues that they make money not from producing anything new themselves, but purely from their ownership of property.
However, the general consensus among players in the real estate sub-sector is that the future of the industry is bright. To realize its full potential, the government is being challenged to promote its sustainable growth and development by creating the necessary institutions needed to support the property and construction sectors, and to facilitate infrastructure delivery.
The above article has been adapted from The Citizen Newspaper dated April 2, 2011.