Opportunities and Challenges of East African Property Markets for Foreign Investors with Emphasis on Tanzania Presented at SAIBPP Convention 4-6 November 2015, Durban South Africa: Advancing Property Practitioners Beyond Borders Moses Kusiluka (PhD) - Tanzania 1
An Overview of East Africa Basic Facts Population: 145.5 million (2014) Size: 1,817.7 sq. km GDP $136.1 billion (2014) Markets: EAC, SADC & COMESA 2
An Overview of East Africa Country comparison Tanzania Kenya Uganda Rwanda Burundi Size: 947,000km 2 Population: 49.5mil. GDP: 36.6 Bn. GDP Growth rate: 6.8% Urbanization level: 30.2% Size: 582,650km 2 Population: 44.4mil. GDP: 62.7 Bn. GDP growth rate: 5.5% Urbanization level: 24.8% Size: 241,551km 2 Population: 37.8mil. GDP: US $ 26.3 Bn GDP Growth rate: 4.5% Urbanization level: 16.0% Size: 26,338km 2 Population: 12.3mil. GDP: 7.8 Bn. GDP Growth rate: 6% Size: 27,800km 2 Population: 9.7mil. GDP: 3.0 Bn. GDP Growth rate: 6.8% Source: EAC Reports, 2015 3
An Overview of East Africa Property Market Maturity Source: Rothacher, 2014 4
An Overview of East Africa Large projects Konza City Tatu City Bagamoyo Port Project Kigamboni City Kawe City Usa River City 5
An Overview of East Africa Property Market Maturity Source: Rothacher, 2014 6
Land and Property Sector in Tanzania 7 #
Tanzania: Access to Land Land Ownership Access to Land All land in Tanzania is public and vested in the President as a trustee on behalf of all citizens Any person legally occupying or using land in Tanzania, does so by way of Right Of Occupancy or its derivatives Foreigners can only gain access to land if the land is used for investment purposes Debate is underway to allow foreigners ( even non-investors) to own sectional/unit properties 8
Tanzania: Access to Land Two routes of accessing land in Tanzania Sub-lease Granted Right of Occupancy Common for both local and foreign investors Derivative right RIGHT OF OCCUPANCY Certificate of Customary Right of Occupancy (CCRO) Customary Right of Occupancy Accessible only to Tanzanians Deemed Right of Occupancy 9
Tanzania: Reforming Property Sector 10
Tanzania: Institutional Reforms Key reforms areas Following years of economic hardships and failure of socialist policies, in the mid 1980s the government embarked on institutional reforms Legislation has been a major instrument of institutional reforms. Some of the enacted/repealed laws which have relevance to housing provision include: Public Corporations Act 1992 (liberalised state owned Corporations) Tanzania Investment Act, 1997 (attract and promote, protect investors) Land Act 1999 and Village Land Act 1999 Capital Markets and Securities Act 1994 Banking and Financial Institutions Act 2006 Mortgage Finance (Special Provisions) Act 2008 Financial Leasing Act 2008 Unit Titles Act 2008 Rent Restriction Act 1984 (REPEALED)! Land Ordinance Cap 113, 1923 (REPEALED)! 11
Tanzania: Institutional Reforms Competitive Advantage Abundance of natural resources including natural gas Political stability Large EAC and SADC Markets Rapid population growth Steady growth rate of the economy Availability of cheap labour Attractive incentives package for local and foreign real estate developers Foreign Investors guarantees: Tanzania has signed a number of international agreements including OPIC, MIGA and ICSID 12
Tanzania: Institutional Reforms Foreign investors protection and incentives Investment guarantee against nationalisation and expropriation Protection of investment under the Multilateral Investments Guarantee Agency (MIGA) Protection of investment under International Centre for Settlement of Investment Disputes (ICSID) Full profits, capital after tax and dividend repatriations by foreign shareholders to home countries Fiscal stability for a period of 5 years i.e. protection against adverse changes in taxation legislation Import duty and VAT exemption on project/capital goods 13
Tanzania: Institutional Reforms Foreign investors protection and incentives Import Duty Draw Back Scheme (refund of duty charged on imported inputs used for producing goods for export and goods sold to foreign institutions like UN and its agencies operating in Tanzania) Automatic permission to employ 5 foreign nationals Unrestricted right to international arbitration in the case of disputes with the government Zero-rated VAT on goods manufactured for export TIC assists foreign investors on acquiring land, getting residence permits, matters relating to taxation and on all matters concerning the implementation of investment projects in the country. As a one-stop investment facilitation agency, TIC helps the investors not to go through the normal bureaucratic procedures by providing all necessary services under one roof 14
Tanzania: Large Projects $ 11 Billion New Port Project - on 9,000 Ha of Land 15
Tanzania: Large Projects Kigamboni City - 6,400 Ha of Land 16
Tanzania: Large Projects Kigamboni City 17
Tanzania: Large Projects Kawe Cty Dar es Salaam 18
Tanzania: Large Projects Usa River Satellite Town- Arusha 19
Tanzania: Large Projects Usa River Satellite Town- Arusha 20
Tanzania: Large Projects (PPP) Oysterbay - Mara Group Government owns land, foreign investor undertakes development and operates the investment for 50 years. Estimated Project Cost - $ 400 million 21
Tanzania: Large Projects (PPP) Mlimani City - Dar es Salaam Public University owns land, foreign investor undertook development and operates the investment for 50 years. Investment worth about 80 million 22
Tanzania: Challenges Very limited funding due to infancy of capital markets High lending rates with short term repayment periods (lending rates >17% for local currency and >8% for $) Poor infrastructure, surveyed and serviced land Lack of market information and transparency Partial/weak enforcement of some land laws Problems associated with land acquisition - land conflicts 23
Tanzania: Challenges High construction costs High dependance on imported construction materials Multiple taxes and fees Corruption and bureaucracy Inflated land and property prices Shortage of skilled manpower 24
Challenges in an institutional perspective Legal constraints Lengthy court procedure for loan recovery More than 80% of land is unsurveyed/untitled making it not mortgageable Slow mortgage registration process Land ownership system i.e. public ownership of land Limited enforceability of mortgage legislation Difficulties in selling collateral property within the confines of the law Social constraints Loan default culture Corruption and forgery (e.g. loan officers taking bribes, property valuation scandals, forgery of salary slips and title deeds) Fear of borrowing Fear of pledging property for bank loans Fear of dealing with banks only 6% of the population has access to banks Fear of disclosing income and property sale records Low respect for law culture Economic constraints Insignificant middle income class i.e. less than 3% Slow annual GDP growth i.e. less than 6% Slow pace of capital market institutions development Existence of less risk and lucrative investment options e.g. 11-12% treasury bonds, 13-13.5% treasury bills, 13% certificates of deposits Limited banking system assets i.e. $ 10 bn. and high lending rates i.e. 18-21% Absence of market transparency enhancing institutions Political constraints Political interference in technical decisions Socialism hangover e.g. state ownership of financial institutions Establishment of politically motivated institutions Politically motivated appointments of executives of key institutions Politically linked corruption scandals Source: Kusiluka, 2013 25
Thank you 26