Prepared By:

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Cover Page DetailsAerial Photograph of Kariakoo

www.greatmirror.comMAP OF TANZANIA

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Source: CIA World Factbook

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Table of ContentsHOUSING STUDY - TANZANIA............................................21.0 CONTEXT ANALYSIS....................................................3

1.1 POLITICAL STRUCTURE.................................................................31.2 THE ECONOMY...........................................................................51.6 POPULATION DEMOGRAPHICS (INCLUDE GROWTH AND AGEING POPULATION) 71.7 LABOR MARKET.........................................................................7SOURCE: WORLD BANK....................................................................71.8 CAPITAL MARKETS......................................................................8

2.0 SITUATIONAL ANALYSIS OF HOUSING IN TANZANIA......93.0 INSTITUTIONAL AND POLITICAL CONTEXT OF HOUSING IN TANZANIA 11

3.1 INSTITUTIONAL ORGANIZATIONS..................................................113.2 NATIONAL HOUSING CORPORATION..............................................113.3 HOUSING POLICY......................................................................11

4.0 LEGAL AND REGULATORY FRAMEWORK ON LAND.......134.1 LEGAL ENVIRONMENT GOVERNING LAND.......................................144.2 LAND DELIVERY MECHANISMS.....................................................164.3 PLOT SIZE AND DISTRIBUTION OF LAND........................................174.5 OWNERSHIP OF LAND................................................................194.6 FORCED ACQUISITION OF LAND BY THE GOVERNMENT.....................194.7 WOMEN’S RIGHTS TO LAND.......................................................204.8 FOREIGN OWNERSHIP OF LAND...................................................204.9 PRIMARY CONSTRAINTS TO THE DEVELOPMENT OF A FORMAL LAND MARKET 21

5.0 LEGAL ENVIRONMENT GOVERNING HOUSING..............226.0 JUDICIAL CONTEXT OF THE HOUSING SECTOR WITH RESPECT TO MORTGAGES 266.1 JUDICIAL CONTEXT OF THE HOUSING SECTOR WITH RESPECT TO LAND 287.0 BANKING AND FINANCIAL SYSTEM WITH REFERENCE TO THE HOUSING SECTOR 29

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7.1 THE MORTGAGE MARKET IN TANZANIA..........................................327.3 TANZANIA MORTGAGE REFINANCING COMPANY..............................347.4 CREDIT REFERENCE BUREAU......................................................35

8.0 THE REAL ESTATE MARKET IN TANZANIA....................358.1 HOUSING DEMAND...................................................................358.2 MAIN ACTORS AND PLAYERS IN THE REAL ESTATE MARKET IN TANZANIA35SOURCE: TANZANIA DEMOGRAPHIC AND HEALTH SURVEY 2010............37

8.7 TAXATION REGIME....................................................399.0 RATIONALE FOR SHELTER AFRIQUE INVOLVEMENT IN TANZANIA 40

APPENDIX 1 DISTRIBUTION OF HOUSEHOLD BY CONSTRUCTION MATERIALS41APPENDIX 2: PROCEDURE FOR REGISTERING PROPERTY........................42APPENDIX 3: DEALING WITH CONSTRUCTION PERMITS..........................43

BIBLIOGRAPHY...............................................................44

HOUSING STUDY - TANZANIA

Tanzania suffers from a terrible shortage of good quality and affordable housing. So dire is this shortage that the

nation currently carries a 3 million housing deficit coupled with a 200,000 unit annual demand. Over seventy

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percent of its urban residents live in unplanned and unserviced informal settlements. Only 15 percent of household in Tanzania have electricity, with a very large disparity between urban and rural households in Mainland Tanzania (45 percent and 3 percent respectively). Two in three households in Tanzania (67 percent) live in dwelling with earth, sand or dung flooring. Cement flooring only accounts for 30 percent of households. With an ever increasing urban population, 5.7 percent to 22.6 percent over the period 1967-2002, based on 2002 census data, it is inevitable that this shortage, which is compounded by lack of long-term housing finance and a lack of a formal residential housing construction sector, needs to be addressed in a timely manner. Over 80 percent of urban residents are tenants, living under a pro-landlord legislation that forces people to pay annual rent upfront in the wake of a limited supply of good houses and ever increasing cost of living. That’s the bad news!

The good news is Tanzania continues to rise from a centrally planned economy into a market driven economy registering on average above 6 percent growth consistently over the past five years. The Government through the Bank of Tanzania has began the process of initiating the Housing Finance Project (HFP) that will see the development of a vibrant mortgage market accompanied by housing microfinance instruments that will allow the markets to cater for different segments of income distribution. Steps have already been made towards paving the way through legislation that support

the planned initiatives with the passing of the Mortgage Finance (Special Provisions) Act 2008 that brought about key changes to Chapter X of the Land (Amendment) Act 2004 the principal legislation that oversees the governance of mortgages. Duly supporting this move is the passing of the Unit Titles Act 2008, that effectively brought into existence the Condominium law for managing sectional properties etc. Deepening reforms towards better financial services are being carried out primarily through the National Strategy for Growth and Reduction of Poverty (NSGRP) or MKUKUTA to ensure security of tenure for land and property.

This document aims to provide a broad picture of the current situation of the housing market in Tanzania. However, information is scarce and largely non-existent. With no established mortgage market, no existing housing policy, no private developer association and a previously lackadaisical National Housing Corporation, statistics on housing are hard to come by. However, effort has been made to disseminate information from different parts, departments and people to ensure that the detail is relevant and a such informative and thoughtful enough to merit a decision on the way forward for Shelter Afrique.

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1.0 Context Analysis1.1 Political Structure1

The Government of the United Republic of Tanzania (GOT) is a unitary republic based on multiparty parliamentary democracy. All state authority in the United Republic is exercised and controlled by the Government of the United Republic of Tanzania and the Revolutionary Government of Zanzibar. Each Central Government has three organs namely the Executive, the Judiciary and the Legislature that have powers over the conduct of public affairs and duly supported by Local Government authorities. Authority over all Union and Mainland Tanzania matters is held with the Government of the United Republic of Tanzania while the Revolutionary Government of Zanzibar maintains authority over all matters, which are not Union matters, and are exclusive to Zanzibar. The President of the United Republic serves as the leader of the Executive organ which comprises the President, the Vice-President, the President of Zanzibar and the Prime Minister (day to day head of government) and the Cabinet Ministers of the Union government. The Judiciary consists of three organs namely the Court of Appeal of the United Republic of Tanzania, the High Courts for Mainland Tanzania2 and

Tanzania Zanzibar and the Judicial Service Commission for Tanzania Mainland supported by both Magistrates Courts and Primary Courts. The Judicial Service Commission for Tanzania Mainland consists of the Chief Justice of the Court of Appeal of Tanzania (Chairman), the Justice of the Court of Appeal of Tanzania, the Principal Judge of the High Court and two members appointed by the President. The Tanzania Law Reform Commission is responsible for the review of the country’s laws.3 The

Constitution enacted in 1977 under Article 4 (chapters two, three and five) provides for legislative supremacy of Parliament (consisting of the President and the National Assembly) and independence of the Judiciary while embracing the principles of rule of law, separation of powers and a pluralistic political system. To this end, the President assents laws while the National Assembly maintains the authority to oversee and advise the Government and all its organs in the discharge of their respective duties. The President of Tanzania and the members of the National Assembly are elected concurrently by direct popular vote for five-year terms with the Constitution empowering the President to appoint an Attorney General and nominate ten non-elected members of Parliament who can become cabinet members. Traditionally, women contribute not less than fifteen percent of Parliamentary members. The Parliament is headed by the Speaker who is assisted by the Deputy

1 (Public Administration, 2011)2 As a passing note, a commercial court was established in September 1999 as a division of the High Court.3 Based on English Common Law

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Speaker and the Clerk to the National Assembly as Head of the Secretariat of the National Assembly supported by various Standing Committees.

Apart from sharing the Court of Appeal with the United Republic with Mainland Tanzania, Zanzibar has a distinct and separate legal system where the High Court of Zanzibar is constitutionally recognized as not being a Union matter4 and is supported by Kadhi and Magistrates Courts. Similarly, the Attorney General’s Chambers of Zanzibar fall outside the purview of Union matters, and it is a department of Revolutionary Government of Zanzibar.

Local Government Authorities, classified broadly either as urban or rural, exist to provide law and order while consolidating and giving more power to the people to competently participate in the planning and implementation of development initiatives and programmes within their respective areas. Tanzania is thus divided into 26 regions (mkoa), 21 on the mainland and 5 in Zanzibar (3 on Unguja, 2 on Pemba); Ninety-nine (99) districts (wilaya), each with at least one council. 114 councils operate within these 99 districts of which 22 are urban and 92 rural. The 22 urban units are further classified as city councils (Dar es Salaam and Mwanza), municipal councils (Arusha, Dodoma, Iringa, Kilimanjaro, Mbeya, Morogoro, Shinyanga, Tabora, and Tanga) or town councils (the remaining eleven communities).

Regional Map of Tanzania

4 Article 114, Constitution of United Republic of Tanzania, 1977

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Source: http://mapsof.net/tanzania/static-maps/png/regions-of-tanzania

1.2 The EconomyThe mid 1980s saw the Tanzanian economy in severe distress following several years of a centrally planned economy. However, transformation has been radical since. Robust economic growth has been evident hovering around 7 percent per year since 2000. Sound macroeconomic policies, market-oriented reforms, debt relief and, until recently, a favourable global environment have been the main drivers o f Tanzania’s steady growth. The International Monetary Fund (IMF) distinguishes three broad phases of this transformation: 1970-1985 which was characterised by Ujamaa (socialism) and economic decline; 1986-1995, a period of liberalization and partial reforms; and 1996-2006, marked by macroeconomic stabilization and structural reforms. These reforms have continued to the present (Mutero 2010).

Following fifteen years of Ujamaa policy, the economy was gradually liberalized from 1986 to 1995 to remove state domination in production and to promote private enterprise. Thus, prices were allowed to adjust to market levels, interest rates and the exchange rate were freed and restrictions on economic activities were phased out. Specific reforms included: (a) restructuring the financial sector and licensing foreign banks thus expanding private access to finance for investment; (b) liberalizing trade, a move that triggered an export boom and restored the country’s foreign exchange reserves; and (c) denying credit to poorly performing public corporations and subjecting public finance to greater scrutiny and discipline. One of the country’s main

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challenges remains to translate these successes into significant improvement in employment and poverty reduction. The 2007 Household Budget Survey shows that poverty incidence fell slightly from 35.7 percent in 2001 to 33.3 percent in 2007, implying an increase in the total number of the poor, given high

population growth. The population currently estimated at 42 million5 people has been growing at a pace of slightly above 2 percent per annum supported by a rapid rate of urbanization (roughly 4.7 percent (est. 2011) that has seen the urban population grow to 26 percent of total population6. Reforms within the housing sector saw the winding up of a bankrupt Tanzania Housing Bank in 1995, which had been created in 1972 as a part of government’s interventionist economic policy. The IMF points out that a committed ownership of the reform process has been key to success, symbolized by Mkukuta, mainland Tanzania’s own growth and poverty reduction strategy7.

Prior to the mentioned reforms, Tanzania had one of the smallest banking systems in Africa, dominated by a single commercial bank and other state-owned financial institutions. After two and a half decades of liberalization,

three dozen commercial banks and many other private financial institutions are in operation, offering a broad range of financial services. Since 2000, credit to the private sector has expanded at 30-40 per cent a year, supported by growing customer deposits, and bank performance has improved8. In spite of these reforms, household access to credit is appallingly low with a mere 9 per cent of the population reported as having access to financial services from the formal sector in 20069. The second generation of financial reforms, now underway, seeks to broaden the reach of financial services.

Tanzania has been able to hold itself well despite the recent global economic crisis, although a decline in exports particularly in the tourism, commodities and textiles markets that saw growth reduce to approximately 6 percent in 2009 (see figure 1). A slight recovery was registered in 2010 as the global economy improved. Strong economic growth has mainly been driven by tight control over public spending and structural reforms that have included the reform of the taxation system and revenue collection, expenditure control and land ownership. Debt relief under the Heavily Indebted Poor Country (HIPC) and the Multilateral Debt Relief Initiative also helped reduce the country’s external public debt burden significantly. Recent banking reforms have also helped increase private sector growth and investment. Overall, the

5 (CIA, 2011)6 (CIA, 2011)7 IMF (2009); 8 IMF (2009)9 Financial Sector Deepening Trust (2007) Finscope E-book Tanzania

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economy remains heavily reliant on agriculture which accounts for slightly more than 40% of the GDP, provides 85% of the exports and employs 80% of the workforce. The industrial sector which accounts for less than 10% of the GDP and primarily constitutes the processing of agricultural products and light consumer goods is among the smallest in Africa. Mineral production with the extraction of gold reserves is steadily growing to account for a significant part of Tanzania’s export.

Following a monetary policy that had a clear inflation target over the past decade, inflation was managed down to single digit levels although it had been on the rise since 2005, with the latest figures showing double digit growth10, primarily as a result of consumer goods price hikes driven by drought, power rationing and increasing international oil and fuel prices and transportation costs (see figure 1). The shilling continues to depreciate against a strengthening dollar as inflationary pressure continues to haunt the domestic scene coupled with demand for foreign currency by businesses. While the central bank has managed to control the growth of broad money supply, this has been done against a backdrop of strong real GDP growth and expansion of credit growth to the private sector. Nevertheless, the country is currentlyFigure 1: Tanzania GDP Growth 1998 - 2010

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

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GDP Growth InflationSOURCE: IMF WORLD ECONOMIC OUTLOOK DATABASE, OCTOBER 2010feeling the pressure on the shilling precipitated by last year’s presidential and parliamentary elections. Traditionally, exchange rates are customarily weaker during the first half of the year strengthening, primarily as a result of dollar demand, during the second half of the year as exports from cash crops dominate the economic landscape. Pressure to address corruption has led to the market seeing a reduction on foreign exchange as foreign donors have cut back on funding putting more pressure on the demand for foreign exchange.With respect to interest rates, Tanzania has made considerable progress in the development of its financial sector but financial markets are still at a comparatively

10 Culminated to 13.5 percent at the end of 2008 from an average 5.8 percent from 2003-07

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nascent stage. Robust growth, as mentioned, along with prudent macroeconomic management has facilitated a strong expansion of credit by the commercial banks to the private sector over the last five years. Credit to the private sector increased from 7.4 percent of GDP in 2003 to 16.2 percent at the end of 2008. Nevertheless, interest rates remain fairly high with normal lending conducted around 18 – 20% on average. Business remains concentrated with the larger banks who dominate the market through foreign-exchange trading, trade finance and involvement in government securities. In addition, there has been a decline in interest rates effectively demonstrating a drive towards a more substantial deepening and better performance of the financial sector. 1.6 Population Demographics (include growth and ageing population)Tanzania’s population is currently estimated at 42.7 million. With a population growth rate of 2 percent per annum, the urban population now makes up 26% of the general population and is currently growing at 4.7 percent annually. A staggering 47 percent of the population is below the age of 30 with females constituting 52 percent of the total (males 48 percent).11 Life expectancy currently averages approximately 53 years and the literacy rate hovers at approximately 70 percent with government expense on education making up 6.7 percent of GDP. The population is 63% Christian and 35% Muslim, with the balance holding traditional animist beliefs. Ninety-five percent of Zanzibar’s

population is Muslim. Tanzania is also home to about 130 tribal groups. 1.7 Labor MarketThe labor market continues to grow in the wake of continued foreign direct investment (FDI) particularly in the mining and agricultural sectors. Agriculture employs 80% of the labor force, which is dominated by smallholder farming, with manufacturing and services employing a substantial portion of the balance. Historical recorded trends show the increase of graduates from Higher Learning Institutions (HLI) rising from 22,437 in 2002 to 38,774 in 2005 with a doubling of employed persons from 10,889,205 in 1990/91 to 20,536,000 in 2005/06 (annual averaging of roughly 48,000 new jobs). (Tanzania Investment Centre, 2008) Many jobs, which are usually low paying and uncertain, are held within the informal sector as private corporate companies in various modern sectors such as manufacturing, finance and tourism demand and practice hand picking of employees based on the strength of skills and work experience. Such practice has traditionally made it difficult for new graduates to get jobs. As such, the inability of the formal sector to absorb increasing numbers of young people looking for employment has increased the importance of the informal sector as a source of self-employment. Table 1: Labor force and employment in Tanzania

Labor Force and Employment Year Latest data

Population ages 15-64, total 20

23,250,0

11 (CIA, 2011)

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08

33

Unemployment, total (% of total labor force)

2008

11.3

Labor force, female (% of total labor force)

2008

31.2

Labor force, total 2008

14,478,825.3

Labor force with primary education (% of total)

2004

50.4

Employees, agriculture, female (% of female employment)

2004

22.3

Employees, agriculture, male (% of male employment)

2004

20.4

Source: World BankThe lack of finance or start up capital coupled with minimal technical and entrepreneurial skills has resulted in overall lowered productivity and earning power. Trading, in the form of buying and selling goods, has been the preferred choice of entry into the self employment market. This has historically made the informal sector risky due to lack of

safety and security limiting credible market opportunities. Overall, there exists a lack of effective implementation of public policies as applies to the labor market. 1.8 Capital MarketsAs a strategy to help Tanzanians mobilise savings and direct them into investing, the capital market was established in 1994 through the establishment of the Capital Markets and Securities Authority (CMSA) that was created to promote and regulate the securities business in Tanzania. However, marginal progress has been made with the listing of only 16 firms (five of which are cross listings) on the Dar es Salaam Stock Exchange (DSE) over the last 15 years. With 7 corporate bonds valued at TZS 77.7 billion12 and 73 Treasury bonds (valued at TZS 1.62 trillion)13 currently being traded, market capitalization still remains very low at TZS TZS 4.895 trillion14 (USD 3.19 billion). Overall, the market has seen foreign investor participation in the equity secondary market grow from the previous 3.4% of revenue contribution in 2009 to 22.7% in 2010.

Steps continue to be taken towards integration with the rest of the stock exchanges of the member countries of the East African Community (EAC) evidenced by continued cross listings (now five) and integration of procedures and processes in the wake to the emerging EAC financial framework through the establishment of a common market. Efforts are also being made to ensure that the capital

12 (The Dar es Salaam Stock Exchange, 2010)13 (The Dar es Salaam Stock Exchange, 2010)14 (The Dar es Salaam Stock Exchange, 2010)

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account restrictions are lifted in the next year or two to allow for the acquisition of shares from citizens of partner states and vice versa along with the establishment of a rating system for all listed companies to ease and facilitate cross border trading and sale of shares.

Overall, portfolio inflows remain fairly negligible despite government’s move to establish the stock exchange to foreign investors. With a lack of a reasonable number of shares to trade and the limited liquidity, it is not surprising that the Capital Market still has a long way to go before it can make a serious impact on the mobilization of savings and investments. 2.0 Situational Analysis of Housing in Tanzania

To understand the housing situation in Tanzania, one must first understand that the supply of land is perhaps the most crucial component in the production of shelter. One of the objectives of this report is to outline the elements involved in land acquisition in the country, which notably is owned by the State. The government remains the sole and primary instrument for land delivery. With notable inefficiencies, land acquisition, although improving, has been a hurdle in many aspects towards the development of an efficient housing market along with the limited availability of mortgage financing to support housing development. In recent years, the GOT through Ministry of Lands, Housing, and Human Settlements Division has undertaken a drive towards implementing key steps such as improved plot allocation in greenfield areas, land regularization and titling in existing informal settlements, that will enable it to encourage land development.

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Presently, the total housing deficit is estimated at 3 million units up from 2.2 million in 2000. Rural to urban migration has been a key driver in creating this deficit as the urban population increased from a low base of 5.7 percent to 22.6 percent over the period 1967-2002, based on census data. Annual demand for formal land was 150,000 plots between 1991 and 2001 while supply averaged roughly 8,000 surveyed plots annually, in essence creating an annual shortfall of 95 percent. Between 1990 and 2001 however, the average annual demand for plots in Dar es Salaam was 20,000 units while average annual supply was a dismal 700 units (Ministry of Lands, 2007). To this end, with few or hardly any housing options available in the formal sector, over 70 percent of all urban residents, reside in informal settlements. In this regard, housing development, as practised in Tanzania, has historically meant that individuals undertake construction over a period of years. As one would note from a visit to Dar es Salaam, the uncompleted/unfinished residential housing stock is substantial with the typical form of tenure being rental. A study undertaken in 1990 indicated that tenants make up 73 percent of households (Hoek-Smit 1991) and this extends to include a substantial proportion of low and lower middle income households. A young girl on her way to school from her apartment

in Zanzibar15. In the case of Dar es Salaam, the number of informal settlements has grown from 40 in 1990 to 54 major unplanned and unserviced settlements in 2007 with over 100

15 www.oikocredit.org

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settlements when peri-urban areas are included.16 The formal housing construction sector remains very small and is largely being undertaken by the public sector either through the NHC or the Tanzania Building Agency (TBA), who develop housing for civil servants or through the pension funds. The private property developer market is virtually absent with the existing development aimed at luxury developments catering to expatriates, wealth individuals or the Tanzanian diaspora overseas.

Typical Semi-Modern Swahili House (UN HABITAT, 2010)

16 (HABITAT, 2007)

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3.0 Institutional and Political Context of Housing In Tanzania3.1 Institutional OrganizationsThe Ministry of Lands, Housing and Human Settlements Development (MLHHSD) has been mandated to administer land and human settlement in Tanzania on behalf of the President of Tanzania who serves as the trustee of all land. The Ministry currently has four major Departments namely Land Administration, Survey and Mapping, Physical Planning and Housing. Within the Ministry also lie four core sector units namely the Registration of Titles Agency, Property Valuation, and the District Land and Housing Tribunal. The Ministry also has an agency dealing with Housing and Building materials research (the National Housing Building Research Agency), a commission dealing with Land Use Planning (National Land Use Planning Commission) and the National Housing Corporation.17

3.2 National Housing CorporationEstablished by Act of Parliament No. 45 of 1962, the National Housing Corporation (NHC) was for a long time the main property developer in the country having constructed 14,145 housing units between 1962 and 1974 before registering significant decline in the construction of housing stock as a result of limited government budget, increased construction costs and high inflation rates. Many of the properties which were constructed during the mentioned period were under

slum clearance, rental and tenant purchase (TP) schemes and were funded largely from Donor funding. Between 1975 and 1989, the Corporation constructed 1,894 units at a cost of about TZS 360 million. Subsequently thereafter, NHC constructed a mere 762 units between 1990 and 2007.18 NHC has equally been responsible for managing its rental housing stock aside from building houses. However due to rent control being a government institution and limited ability to access longer term finance, the company was largely unsuccessful in delivering its mandate. A major overhaul of the National Housing Corporation was carried out last year and included the recruitment of a new board and executive team to spearhead the Corporation’s effort to become a master estate developer by 2015 through a strategy that would incorporate the acquisition and development of key land parcels. According to the company’s five year strategic plan, which envisages increasing the housing sector GDP contribution to 4 per cent (currently at 1 per cent)19, the organization expects to develop a minimum of 15,000 houses for sale and lease by June 2015. This would encompass the construction of 10,000 medium and high class homes and an additional 5,000 homes aimed at low income bracket buyers.

3.3 Housing PolicyHaving inherited no housing policy from its colonial master, Tanzania has struggled to develop its own Housing policy. Despite government’s continued confirmation that housing is a priority, insufficient attention towards the establishment of

17 (Background: Ministry of Lands, Housing and Human Settlements Development)

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a proper housing directorate that would support and facilitate the creation of a national and comprehensive housing policy, has been historically been found wanting. A policy was previously formulated in 1981 with the intention of creating the much needed framework for the housing sector development but it was neither approved nor implemented due to government budgetary constraints and a change in the country’s economic policy from a central to market driven economy.20 While housing development in Tanzania is guided by the National Human Settlements Development Policy of 2000, the policy’s objectives largely caters towards the provision of adequate shelter, an efficient land delivery system, service provision and better rural housing without specifically addressing the problems within the housing sector. Efforts are currently underway towards developing a housing policy that will aim to the address key issues surrounding the housing sector.

Table 2: Summary Evolution of the Housing Department since inceptionYears Ministry

1964 - 1965 Ministry of Local Government and Housing1965 - 1969 Ministry of Health and Housing1970 - 1984 Ministry of Lands, Housing and Urban

Development

1984 - 1992 Was housed in various ministries including:Local GovernmentCommunity DevelopmentCooperatives and MarketingThe Prime Minister’s OfficeLocal Government and CooperativesLands, Water, Housing and Urban DevelopmentNatural Resources and Tourism

Presently Ministry of Lands, Housing and Human Settlements Development

Table 2 above demonstrates the level of priority that has been granted to housing. Despite these shortcomings however, the Government in its efforts to intervene on the housing situation, has prompted various initiatives to spur housing development. Some of the initiatives have in the past included:-

The creation of the Registrar of Buildings (RoB) which was created by Act of Parliament No. 13 of 1971 and was later dissolved into the present NHC in 1990. The institution turned out to be grossly underperforming having constructed a total of 530 housing units in its 18 years of operation between 1971 and 1989 .

The Better Rural Housing Campaign – Launched in 1974, this campaign was geared towards getting rural inhabitants to construct better housing through a system that comprised

18 (The Ministry of Lands, Housing and Human Settlements Development, 2007)19 (Luhwago, 2010)20 (Ministry of Lands, 2007)

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the creation of a Village Management Training Programme (VMTP) and Rural and Urban Construction Units (RUCU). 84 RUCUs in 84 districts across the country were set up but eventually, due to lack of proper management and poor training in the use of equipment, the programme was equally dissolved.

The creation of the present day University College of Lands and Architectural Studies (UCLAS) to train and build capacity for housing research and development has been largely successful in churning out professional for the industry.

These efforts also included other initiatives such as encouraging parastatals and other public institutions to construct employer based housing but failed following economic difficulties. Housing cooperatives whom, given their strong influence back in the 60s and 70s, received government support through various subsidies but eventually fell victim to mismanagement and administrative weaknesses.

4.0 Legal and Regulatory Framework on Land

Following independence in 1961 from Great Britain, Tanzania adopted “African socialism” that one would argue completely redefined the property rights regime in the country. As such, the current legal framework governing land is best understood in relation to the post-independence history of Tanzania. Due to the adoption of the African socialism ideology, all land was considered public land with the President serving as trustee for the people, largely abolishing the chieftain and individual rights held under customary law. With all previous customary land rights abolished, the district and village governance systems (village councils) were established to administer both land allocation and management. Operation Vijiji, which effectively operationalized the ujamaa system, went into effect in 1973 with the intention of bringing together rural and scattered residents into communal villages serving between 2000 and 4000 people. A large cross section of society (roughly 75% of the total population) was affected by this policy which aimed at bringing about better efficiency in the delivery of public services while creating large scale collective farms that would ensure a balanced approach to the creation of improved standards of living for the rural communities and the nation at large.

With the change in government in 1985, a reversal of this policy was put into place having recognized as a Ujamaa as a failure in many aspects. When the villagization project was abandoned, many people opted to settle back in their original homeland, only to find other people had settled there, effectively creating confusion over land tenure issues

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with many disputes all over the country. The government swiftly moved to institute major changes that led to the formation of a Land Commission to review existing laws, gather input from key stakeholders and to provide its recommendations to government on a proposed new legal framework. After three years of work, the Commission issued a report in 1994 with recommendations that brought about changes that are still being put in place today. Customary law and individual rights were once again reinstituted. In 1995, the government adopted a Land Policy that set out the fundamental principles guiding land rights and management. Members of the Land Commission and civil society challenged the policy for failing to take into account all the recommendations of the Commission and the interests of civil-society groups such as the Gender Task Force. Central control of land was maintained by the Government which reaffirmed that all land in Tanzania is considered public land vested in the President as trustee on behalf of all citizens. Observers also criticized the policy as supporting foreign and commercial interests by providing for broad land acquisition rights and failing to adequately recognize and address the need for affirmative measures to change patrimonial and male-dominated practices that prevented women from realizing equal land rights.21

Presently however, the principles set forth in the Land Policy (and again in the Land Act enacted four years later) are as follows:-

1. The law shall recognize existing rights to land and longstanding occupation or use of land. 2. Land legislation shall facilitate an equitable distribution of and access to land by all citizens. 3. Land legislation shall encourage productive and sustainable use of land. 4. Each interest in land has value that should be taken into consideration in any transaction affecting that interest. 5. Citizens shall participate in decision-making on matters connected with their occupation or use of land. 6. A land market shall be facilitated in such a manner that rural and urban small-holders and pastoralists are not disadvantaged. 7. A system of land dispute resolution shall be established that is independent, expeditious and just; 8. Land information shall be accessible to the population. 9. Women shall have the same rights as men have to acquire, hold, use, deal with, and transfer land. (GOT Land Policy 1995)

4.1 Legal Environment Governing LandTanzania’s Land Act adopted from the Land Policy in 1999 classifies land as: (1) reserved land; (2) village land, which falls under the Village Land Act; and (3) general land. Reserved land includes land protected by law or designated land such as national parks, land for public utilities (i.e highways and those under the Town and Country Planning Ordinance), wildlife reserves and land classified as hazardous, which designates land whose development would

21 (United States Agency for International Development (USAID), 2010)

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pose a hazard to the environment (e.g., river banks, mangrove swamps). Village land, on the other hand, includes registered village land (i.e. land that belongs to registered villages), land demarcated and agreed to as village land by relevant village councils, and land (other than reserved land) that villages have been occupying and using as village land for 12 or more years (including pastoral uses) under customary law. It is important to note that the village councils do not own the land, they only manage it. A village is an administrative unit in the local government system and usually has a population between two and four thousand. All other land is classified as general land, that is to say all land that is not reserved land or Village Land. However, the act opens up for ambiguity: “‘general land’ means all public land which is not reserved land or village land and includes unoccupied or unused village land” (Sundet, 2005). The definition of General Land in the Village Land Act does not include the last part of the sentence.

KEY LEGISLATION GOVERNING LAND

Along with policy, legislation has been enacted to set legal a framework for implementing the policy objectives. The land development related legislations already in place are:-

1. The Land Act, No. 4 of 1999 which provides for the basic law in relation to land other than the village land and sets the legal framework for implementing the objectives of the National Land Policy for granted Right of Occupancy. The Land Act as amended in 2004 created the platform for review of the legal framework for

mortgage finance in Tanzania for the purpose of redressing the balance between the interests of the mortgagor (borrower) and those of the mortgagee (lender). 2. The Village Land Act, No.5 of 1999 provides a legal framework for the management and administration of land in the village and other related matters (i.e. the formalisation of customary land rights).3. The Land Disputes Act No. 2 of 2002 which creates a conflict resolution mechanism for issues concerning land 4. The Urban Planning Act No. 8 of 2007 which replaced the Town and Country Planning Ordinance, Cap 378 of 1956 as amended in 1961. This Act provides for the orderly and sustainable development of land in urban areas. 5. The Land Use Planning Act No. 6 of 2007 provides for procedure for the preparation, administration and enforcement of land use plans in rural areas. 6. The Town Planners Registration Act No. 7 of 2007 oversees the practice of the Town Planning Profession.7. The Unit Titles Act no. 16 of 2008 sets out the rules and procedures for the management and regulation of divisions of buildings into units, clusters, blocks and sections, owned individually or in common use for the purpose of promoting efficient and effective use of landed property in Tanzania. In other territories, it would be referred to as the Condominium Law.8. Mortgage Finance Act No. 17 of 2008 provides for amendments to the Land Act, the Land Registration Act and Civil Procedure Act to make needed provisions to allow for development, promotion and more efficient management of the mortgage financial market. With a surface area of 94.3 million ha, Tanzania only has 5 percent (approximately 5.1 million ha) cultivated. An area twice this size, (10 million ha.), is arable land that is not

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cultivated, but to a large degree used as pasture, first of all by pastoralists. Almost a quarter of the surface area, 23%, is reserves, a larger share than any other country in Sub-Saharan Africa (Lange, 2008). The Village Land Act 1999, which governs village land, falls into one of three categories: (1) communal land (e.g., public markets and meeting areas, grazing land, burial grounds); (2) occupied land, which is usually an individualized holding or grazing land held by a group; and (3) vacant land, which is available for future use as individualized or communal land (specifically encompassing unoccupied land within the ambit of village land, as opposed to general land). The Act does not recognize grazing land as a separate category, but pastoralists can assert customary rights of occupancy to grazing land (United States Agency for InternationalDevelopment (USAID), 2010)

Each village has a Village Government. Village land is administered by the Village Council on behalf of the Village Assembly (all members of a village 18+ years). Members of the village government are hamlet/sub-village chairpersons, a Village Chairperson, and a hired Village Executive Table 3: Land Use in TanzaniaLand use Million haForest Reserves 10.1Arable land, not cultivated 10.0Game Reserves 7.7Cultivated Land 5.1

National Parks 4.2Source: (Lange, 2008)Officer. Three to four villages make up a ward although there remains a lot of uncertainty concerning the borders and size of village land.. At the ward level, there is a Ward Development Committee, and a hired Ward Executive Officer. During local elections, citizens elect a councillor who represents the ward in the Full Council meetings at the District Council. In elections up to 1980’s traditional leaders were often elected sub-village leaders and councillors, and in some areas former chiefs became Village Council Chairmen. Over the two last decades this trend has changed, since communities increasingly elect educated, younger persons (United States Agency for International Development(USAID), 2010). Land GovernanceTanzania’s 26 regions (21 Mainland and 5 Zanzibar) are divided into ninety nine (99) districts and further subdivided into divisions. On the mainland, urban authorities consist of city councils, municipal councils and town councils while district councils, township councils and village councils make up the rural authorities. In Zanzibar, the framework consists of town councils, municipalities and district councils. District councils coordinate the activities of the township authorities while village councils, approve village council bylaws and coordinate land use planning district-wide. The village and township councils have the responsibility for formulating plans for their respective areas which extends to managing village forest reserves and collecting revenue. Village

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councils are elected by the village assembly made up of adult residents above the legal age. One-quarter of the council must be female. The urban and district councils are comprised of members elected from each ward, plus women appointed by the National Electoral Commission in proportion to the number of elected positions held on the council (not less than one-third.

Village land use and allocations are the responsibility of the village council. A village adjudication committee marks land boundaries, sets aside land for rights-of-way and settles boundary disputes between villagers. The village assembly serves as the main authority on all matters with respect to policy making for the affairs of the village. To such end, approval for the allocation of land must be sought from the village assembly following identification of land by the village council. The village council’s authority is also circumscribed by the district council, which will hear appeals from decisions of the village council, and by the Land Commissioner (URT,Village Land Act, 1999).

4.2 Land Delivery MechanismsLand purchase, informal land transactions, municipal land allocations, inheritance are some of the more common avenues of obtaining formal and informal land. Historically, squatting has led to the creation of many informal sectors and was particularly prevalent particularly in urban areas. However, Government, over the past decade, has been carrying out best efforts to try and formalize where possible. Historically also, where land is abundant, an occupier could very easily take possession by clearing and cultivating the

land particularly in areas where inhabitants are few. Generally, companies do obtain land use rights through the central or local government when seeking land for either commercial or industrial development opportunities.In urban areas, a business wishing to register rights to purchased land must pay a fee equal to 4.4% of the property value. The registration process takes an average of 73 days and requires nine steps: (1) conduct an official search at the Land Registry; (2) obtain documentation from the Ministry of Lands verifying payment of land tax for 10 years; (3) obtain a property tax clearance from the municipality for the 10-year period; (4) obtain a valuation report; (5) arrange for inspection of the property by a government valuer to determine its value; (6) draft the land- sales agreement and have it notarized; (7) obtain approval for the transfer from the relevant municipal authority; (8) obtain a capital-gain tax certificate; and (9) deliver the transfer deed to the Land Officer for its recording under the buyer’s name in the land registry. (The World Bank, 2011) The Land Act recognizes the validity of customary rights of occupancy without the need to issue and register a formal certificate. In theory, however, certificates are required to mortgage the land right to secure a loan.

As a passing remark, the Village Land Act provides a process for village councils to issue certificates for customary rights of occupancy. According to the Act, the steps for obtaining a certificate of customary right of occupancy to village land are: (1) application for a certificate to the village council by the landholder; (2) council review of the application; (3)

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issuance of a letter of offer stipulating development conditions, yearly rent and other conditions; (4) the landowner’s written agreement to these conditions on a prescribed form; and (5) issuance of the certificate. Nevertheless, the validity of many certificates should be discounted given that issuance is usually precipitated by personal ties and connections and hence it does not form for good collateral for a lending arrangement. In both cases, spouses registering land must co-register. The registrar is required to register both spouses as occupiers in common, which grants each spouse rights to half of the undivided whole of the property. Even if land is registered in the name of one spouse, the other spouse has a legal interest in the land.

Overall, a lack of resources and capacity within government and local authorities with respect to land administration and delivery has caused inefficiencies in the creation of a formal land market. Rapid urbanization has equally allowed for an informal land market, through the creation of unplanned and unserviced settlements, to blossom. Although progress has been made to ensure better procedures are in place for acquisition and registration of land, transfer and disposition of such land still remains a hurdle.

4.3 Plot Size and Distribution of LandThe existing standards for urban residential plots at 400-800m2, 801-1,200m2 and above 1,201m2 for high, medium and low density plots respectively have also created challenges in overall planning standards.

Based on the 2002 Population and Housing Census, the average household size was estimated at 4.9 while the population density was estimated to be 39 persons per sq. km overall (National Bureau of Statistics). It is estimated that approximately 10.5 million people live in urban areas, and of those, between 70% and 80% of urban residents live in informal settlements.

4.4 Security of TenureAll land in Tanzania is considered public land. As such, there is no freehold land. The President of the country serves as the trustee of the land as prescribed in the Land Act. Legally, there are two main types of land tenure systems in the country: statutory and customary. Statutory tenure rights can further be subdivided into three categories, namely granted right of occupancy; occupancy under Letter of Offer; and derivative right while under customary tenure, classification can categorically be subdivided into quasi-customary and informal tenure. Granted right of occupancyGranted rights of occupancy are available for general and reserved land, and may be subject to any statutory restrictions outlined in the terms of the grant. The Government grants its citizens renewable rights of occupancy on land that has been surveyed of up to 99 years (or with periodic grants of fixed terms such as 33 or 66 years) at a premium and revisable annual land rent. To be valid, the right has to be registered under the Land Registration Ordinance Chapter 334. This is what is

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recognized as a proper title deed. Holders of registered granted rights of

Figure 2: Existing Land Tenure Systems in Tanzania

Source: (UN HABITAT, 2010)occupancy may lease that right of occupancy or part of it to any person for a definite or indefinite period, provided that the maximum term must be at least ten days less than the term of the granted right of occupancy. Leases shall be in writing and registered. Short-term leases are defined as leases for one year or less; they may be written or oral and need not be registered.

Occupancy under Letter of Offer Once a citizen is issued with and accepts a letter of offer, he/she can register the duly signed and sealed letter of offer under Registration of documents Ordinance Chapter 117 which becomes a valid document that creates notice of ownership. The premiums, survey fees and the land rent fees under the Granted right of occupancy and Occupancy under Letter of Offer, differ from one place to another within the

same city or municipality depending on a number of factors including location (for example, prime areas are priced highly; size of the plot; use to which the land is put; availability of basic infrastructure and services; etc). (UNHABITAT, 2010)

Derivative right Under the Land Act (1999) the government offers a “residential licence”, which is a right derivative of a granted right of occupancy on general or reserved land. According to the Act, a residential licence is a right conferred upon the licensee to occupy land in urban and peri-urban non-hazardous land, land reserved for public utilities and surveyed land for a term not less than six months and not more than two years. The term can, however, be renewed for the same period. Like occupancy under letter of offer, the residential residence is issued under Registration of documents Ordinance Chapter 117.

Customary tenure This is acquired by virtue of being a member of a community and is based on traditional acceptance. The system has no formal documents and no land transfer takes place without the blessings of the clan/community members. This land belongs to registered villages although the councils do not own the land but only manage it on behalf of the village assembly (all members of a village of adult age (18 years and above). To this end, villages can demarcate the land, register ownership rights and issue certificates to support

Existing Tenure

Systems

Statutory

Granted Right of

OccupancyOccupancy

under Letter of Offer

Derivative Right

Customary

Customary Quasi-Customary Informal

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such ownership.22 23 Holders of customary rights of occupancy may lease and rent their land, subject to any restrictions imposed by the village council.

Quasi-customary tenureAs the name suggests, the influence of the clan/community in land transfer is, among other things, diminished. While local leaders and adjoining landowners are consulted when the need to transfer land arises, the right to sell lies mainly with the individual right holder. Customary and quasi customary forms of tenure are commonly found in peri-urban unplanned areas of the city of Dar es Salaam (UN HABITAT,2010)

Informal tenure In the case of informal tenure, land transfer is not guided by customary or quasi-customary norms and rules. It can take place between any person seeking land and the respective owner of the land. Buyer interests are protected, albeit in informal ways, through a system that is set in such manner that the ownership is deemed to be authentic.

The above Government’s approach to upgrading settlements in lieu of clearing entire settlements for redevelopment has helped encourage greater security of tenure in urban centres. Urban growth, peri-urban expansion and

commercial development have created tenure insecurity given the lack of proper planning and service provision of key infrastructure support systems like water and waste management in certain areas. Occasional land acquisition by Government for infrastructure-development has also created a sense of tenure insecurity although prudence in observing road leeways and a grasp of possible future developments within an area can help mitigate that insecurity.

4.5 Ownership of LandWhile in principle, rights of occupancy can be bought, sold, leased and mortgaged in Tanzania, the land market is inhibited by many layers of government control, in practise. The formal market for transfers requires government approval, and land received through grants must be held for three years before the landholder can sell the rights. The transfer of a granted right of occupancy must be approved by the municipality and registered. A holder of a customary right of occupancy can sell the right, subject to the approval of (and subject to any restrictions imposed by) the village council. Mortgages are regulated by formal law, and land rights must be registered before they can be mortgaged (URT, Land (Amendment) Act, 2004). There is a very limited formal land sale market in Tanzania, and little information is available concerning its operation. Only a small percentage of land is registered, and most of what is registered is in urban areas. Most land transactions occur on the informal

22 Government of Tanzania 1999, Village Land Act No. 523 (United States Agency for International Development (USAID), 2010; Sundet, 2005)

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market, and these tend to be leases. In rural areas, land sales were historically conducted between members of families or clans; landholders tended not to sell rights to

Inscription on house wall stating “Hapauzwi, ogopa matapeli” which in English reads, “Not for sale, Beware of conmen”24

buyers from outside the village. Since the end of the villagization project, and in keeping with the growing commoditization of land, the informal market has expanded; there is increasing demand for land in productive areas and areas with high potential for commercial development. In some cases investors and land speculators follow formal procedures to obtain land rights, but in many cases buyers proceed informally, negotiating with traditional village authorities and government bodies, with the transaction evidenced by an informal deed signed by representatives of

the official or traditional village authorities (United StatesAgency for International Development (USAID), 2010)

4.6 Forced Acquisition of Land by the GovernmentForced acquisition of land by Government is usually carried out where Government wishes to pave way for infrastructure development or in some cases, the redistribution of land. The legislation governing land acquisitions provide for notice to be provided at least six weeks prior to acquisition. The President is provided with the mandate to shorten that period if necessary. The government is required to promptly pay landholders fair compensation, which includes an annual interest of 6% for any delay in payment. Historically however, Government has on many occasions been unfair in its compensation especially where village land has been converted into general land. The Land Act identifies seven factors to be considered in determining fair compensation: (1) the market value of the property; (2) disturbance allowance; (3) transport allowance; (4) loss of profits or accommodation; (5) cost of acquiring the subject land; and (7) any other cost loss or capital expenditure incurred in the development of the subject land. The government can offer landholders alternate land in lieu of or in addition to monetary compensation (GOT Village Land Act 1999b; GOT Land Act 1999a). In some cases, investors have circumvented the requirement for government land expropriation and dealt directly with villages. Village councils may be incentivized to negotiate directly with investors rather than wait for government

24 Photograph from www.greatmirror.com

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intervention because the councils have an opportunity to set annual rent and request premium payments from the investors (United States Agency for InternationalDevelopment (USAID), 2010)

4.7 Women’s Rights to LandThe Constitution and formal law provide for equal rights to property and prohibit discrimination on the basis of sex. Furthermore, the Land Act is clear that women shall have the same rights as men have to acquire, hold, use, deal with, and transfer land while stating that customary law cannot be used to discriminate against women. Women’s representation is duly required and is mandatory in the various administrative institutions governing land as in the case of village councils. Tanzania’s Marriage Act (1971) requires registration of both monogamous and polygamous marriages. Married women are permitted to hold property individually, and polygamous wives have individual rights to hold property. Married couples are presumed to hold land jointly in the case of a marital property which is co-registered with spousal consent being required where marital property is transferred or mortgaged. Where Shari’a law applies, as in the case of muslims, that women would generally receive one-half the share of men, and a widow with children receives a one-eighth share of her deceased husband’s estate (one-fourth if there are no children).

4.8 Foreign Ownership of Land

Under the Tanzania Investment Act 1997, non-citizens are legally permitted to own land solely for the purpose of investment and have to do it through the Tanzania Investment Centre or where an interest in land under a partial transfer of interest by a citizen for purposes of investment, as in the case of a joint venture, seek approval from the Tanzania Investment Centre. In principle this is done through the Tanzania Investment Centre which plays the role of a broker. The 2004 Land (Amendment) Act permits the sale of bare land and allows

The Constitution and formal law provide for equal rights to property and prohibits discrimination on the basis of sex.25

25 Photograph from www.greatmirror.com

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mortgage financing as a means of encouraging domestic and foreign investment. It should be noted however, that only 50,000 hectares were transferred to foreign investors for the five year period between 2004 and 2009 despite the government holding 2.5 million hectares under the Tanzania Land Bank Scheme which was created under the Investment Act. The underlying problem has been the inability of the government to provide sizeable tracts of land that is not scattered effectively making it a disincentive for foreign investors.

4.9 Primary Constraints to the Development of a Formal Land MarketIn summary, the key constraints to development of the formal land market include: (1) the requirement for pre-sale notification to the Land Commissioner about the intended transaction; (2) the requirement that the Commissioner acknowledge such notification as a condition for registering the transaction; (3) prohibition of sale of land rights held for less than three years; and (4) the ability of the Land Commissioner to void a land transaction anytime within two years of the transaction, if the Commissioner has reasonable cause to believe there has been fraud, undue influence or lack of good faith in the transaction (URT, Land Act, 1999), (URT, Village Land Act, 1999)

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New commercial development in a Dar es Salaam suburb.26

5.0 Legal Environment governing housing

The following policy and legal instruments provide guidance for acquisition of land and associated properties coupled with necessary compensation and resettlement procedures, when required, in Tanzania. (Juma & Abdul, 2009)

Constitution of the United Republic of Tanzania (1977 - as amended)The Constitution provides for the protection of the rights and interest of citizens in matters concerning their property and acquisition. Under article 24 (1), every person is entitled to own property, and has a right to the protection of his property held in accordance with the law. Sub article (2) prescribes that it is unlawful for any person to be deprived of property for any purposes without the authority of law, which makes provision for fair and adequate compensation.

The National Human Settlements Development Policy (2000)The policy promotes the development of sustainable human settlements with a remit to make serviced land available for shelter and human settlements development to all sections of the communities through the improvement and provision of infrastructure and social services. Although it does not cover housing adequately, it remains the principal legislation governing housing in Tanzania. A Tanzania Housing Policy, currently in final draft, will be enacted with specific reference to the housing situation in Tanzania albeit in parity with this prevailing policy.

26 Photograph from www.greatmirror.com

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National Land Policy (1996)The overall aim of the National Land Policy among other things is to promote and ensure a secure land tenure system in Tanzania that protects the rights in land for all its citizens. The policy provides that a dual system of tenure, which recognizes both customary and statutory rights of occupancy as being equal in law be established. The Land Policy directs that land be graded as a Constitutional category. That compensation should be paid to any person whose right of occupancy or recognized longstanding occupation or customary use of land is revoked or otherwise interfered with to their detriment by the state and the Acts or is acquired under the Land Acquisition Act Cap 118. In principle the Minister responsible for land matters is the sole authority in land issues. To address the problem of multiple land allocations, and its resultant disputes, the Commissioner for lands is the delegated sole authority for administration of land. However, the policy stipulates involvement of the public and private institutions whose functions are associated with land i.e. local authorities, communities, non-governmental organizations and community based development organizations – to participate and cooperate with the Minister at different levels during the implementation of the policy and utilization of land. According to the policy, land in towns is governed by the City, Municipal or Town Councils. The administration of village land is vested in the village councils the councils have to consent before any alienation of village land is affected. In case of land allocations, the village councils should report to respective village assemblies.

The Land Act, 1999 (Act No 4/1999)/ Land (Amendment) Act 2004The Land Act is the principle land legislation on all land matters and covers the underlying legislation surrounding mortgages in Tanzania under Chapter X of the Act. The Land Act signifies that land in Tanzania is public land and remain vested in the President as trustee for and on behalf of all citizens of Tanzania. For the purposes of the management of land under the Land Act and all other laws applicable to land, public land is in the following categories: (1) general land; (2) village land and (3) reserved land. The transfer of land from one category to another is provided in the Act. The Act specifies that an interest in land has a value and that value is taken into consideration in any transaction affecting that interest. The recognized land ownership is the granted right of occupancy and customary ownership. The act states that where persons with a right of occupancy (including land which is occupied by persons under customary law) are to be moved or relocated, they must be compensated for loss of interest in the land and for other losses. They also have the right to reap crops that are sown before any notice for vacating that land is given. Assessment of compensation on land acquired shall be based on the following: i) Market value of the real property; ii) Disturbance allowance; iii) Transport allowance; iii) Loss of profit or accommodation; iv) Cost of acquiring or getting the subject land;v) Any other cost loss or capital expenditure incurred to the

development of the subject land

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vi) Interest shall be charged at market rate.

Mortgage Finance (Special Provisions) Act, 2008The passing of this act has created a lot of momentum in government for the development of housing finance. The act amended certain written laws with a view to providing further provisions for mortgage financing and enables Estate Developers to access long term loans from the banks to build houses and sell to buyers. The act also intended to help to provide funds for acquisition of low cost housing and not just for mansions and skyscrapers. Formerly the procedure for transfer of mortgaged property was long and cumbersome. Under this act, this process involves only three parties, the mortgagor, the Bank and the Registrar of Titles. All other interested parties, including the Commissioner for Lands are notified by the Registrar after the completion of the mortgage process. Under this act, the bank and the borrower enter into a contract and if the borrower breaches the contract, they are given a notice of 60 days to pay, after which his/her property are sold (to pay back the loan) without involving the court.

The Unit Titles Act, 2008 (Act No. 16 /2008)The enactment of this act has significantly improved the prospects for mass housing production and the demand for mortgages. The act enables, Estate Developers to construct high rise and buildings and multi-face structures with a big number of flats (or units) and sell each unit to as many buyers; and each unit buyer is eligible to get a title deed after completing the sales agreement. This act provide for

the management of the division of buildings into units, clusters, blocks and sections owned individually of co-owned and use of designated areas; to provide for issuance of certificate of unit titles for the individual ownership of the units, clusters or sections of the building, management and resolution of disputes arising from the use of common property; to provide for use of common property by occupiers other than owners and to provide for related matters.

The Village Land Act, 1999 (Act No.5/1999)The act provides that the Village Council, the organ upon which the President has delegated powers to manage village land is obliged to ensure that the village prepare an appropriate village land use plan for sustainable development, to enter into agreement with neighbouring villages, to ensure that joint Village Land use plans are prepared for areas which are used jointly. Preparation of such plans among other things includes setting aside areas for community uses including areas for schools, dispensaries, water catchments, water supply utilities, market places, burial areas, offices etc.

The Urban Planning Act, 2007 (Act No. 8/2007)The Urban Planning Act No 8 of 2007 provides power for creating plans in advance of development and a comprehensive system of development control. It provides for the declaration of planning urban areas by the Minister

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responsible for Urban Planning in consultation with Local Authorities and constituting area Urban Planning committees and procedures for preparation of schemes and the approval by the Minister. The general planning schemes which came to be known popularly as master plans continued to be the primary planning and management tool for guiding urban development in Tanzania for more than forty years. These provided for overall planning of planning are facilitating preparation of detailed schemes and project plans.

The Land Acquisition Act, 1967 (Act No 47/1967)The Land Acquisition Act of 1967 stipulates the power and procedures for acquiring land and the required degree of compensation. Section 3 and 4 of the Act gives the President of Tanzania powers to acquire any land for any estate or term where such land is required for public purpose such as exclusive government use, general public use, any government scheme, development of social services or commercial development of any kind including declamation. The act makes provision for the procedures and method of compulsory acquisition of land for public purposes whether for temporary or permanent use. The Minister responsible for land may authorize any person to enter upon the land and survey the land to determine its suitability for a public purpose. The Government of Tanzania is supposed to pay compensation to any person who suffers damage as a result of any action. Any dispute as to compensation payable is to be referred to the Attorney General or court for decision. The Land Acquisition Act does not go beyond compensation. It is not required under the Act to provide alternative land for

the affected people by the project. Each affected person entitled to be compensated; on receipt of his/her compensation is expected to move and has no further claim. Once they are promptly and adequately compensated, then the obligations stop there. This act also sets out the legal process for payment of compensation.

Land (Assessment of the Value of Land for Compensation) Regulations, 2001Land (Assessment of the Value of Compensation) Regulations, 2001 were made under section 179 of Land Act no. 4 of 1999. Regulation 3 of the Land (Assessment of the Value of Land for Compensation) Regulations, 2001 and Part III of the Village Land Regulations, 2002 provide for practical guidelines on assessment of compensation. The full and fair compensation is assessed by including all components of land quality and the market value should be used as basis for valuation of land and properties. Presently in assessing the value of the unexhausted improvements for compensation purposes, the law emphasizes that the value should be the price that which the said improvements can fetch if sold in the open market. But this in normal circumstances is lower than the replacement value but higher than the initial construction cost of the said improvements. According to the regulation, the valuation of the affected properties must be done by a qualified and authorized Valuer.

The Land (Compensation Claims) Regulations, 2001

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The regulations apply to all application or claims for compensation against the government or Local authority or any public body or Institution and they also cover compensation which may be claimed by occupier.

The Land (Schemes Of Regularization) Regulation, 2001Under the Land Act, 1999 Section 60(1) an area can be declared to be a regularization area. Regularization of an area involves the following:a) Arrangements for the survey, adjudication and recording of interests in land claimed by those persons occupying land in the regularization area.b) Arrangements for the readjustment of boundaries of plots of land.c) Better planning and layout of the land including pooling, sharing and redistribution of rights in land.d) Arrangements for the involvement of the local authorities having jurisdiction in the regularization area in the implementation of the scheme.e) Arrangement for involvement of the people whose land is the subject of the scheme of regularization in the implementation of the scheme.f) Arrangement for the assessment and payment of any compensation that may be payable in connection with the implementation of the scheme.Section 60(3) emphasizes that “For avoidance of doubt, no scheme or regularization shall be implemented until occupation and use of land by those persons living and working in the area have been recorded, adjudicated, classified and registered.”

The Land Disputes Court Act. 2002 (Act No.2/2002)This act provides the respective courts and their functions. Before implementation of sub projects, any land conflicts existing in the areas shall be resolved through the appropriate land courts to ensure that harmony prevails in the intended undertaking. Project beneficiaries will therefore be bound by these Acts.

The Land Use Planning Act, 2007 (Act No.6/2007)The Act provides for the procedures for preparation, administration and enforcement of land use plans; to repeal the National Land Use Planning Commission and to provide for related matters. The Act has distinctive authorities of land use planning in Tanzania laid down with their functions and powers. The power vested to authorities which give them teeth to bite is to enforce approved land use plans including taking defaulters to court of law.

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6.0 Judicial context of the housing sector with respect to mortgagesThe most important laws governing the mortgage market are Chapter X of the Land Act, as amended in 2004, and the Mortgage Financing (Special Provisions) Act No. 17 of 2008 (which is read in conjuction with the Land Act which remains the principal act).

Civil ProcedureIn Tanzania, all mortgage foreclosures of a family residence require court intervention. Historically, in view of the inefficiencies and biases of the legal system, this has prompted the widespread perception among lending institutions that the legal and institutional framework does

not adequately allow for the creation and enforcement of mortgages, especially bearing in mind that in the past, the law had been heavily weighted in favour of the rights of the borrower. That perception created by not having non-judicial foreclosure to obtain possession of a mortgaged property, has been, along with other key issues such as spousal consent, at the core of lending institutions choosing to stay away from the mortgage market save those institutions that were willing to take the risk. The perception however was not necessarily unfounded, as there are known cases where lenders experienced difficulties in their rights to obtain possession of and or to sell a mortgaged property as a result of injuctions or court interventions based on baseless extra-legal claims. However, in the wake of the amendments to the Land Act, by way of the enactment of the Mortgage Financing (Special Provision) Act, which has addressed some of the key concerns for lenders, lending institutions are now positioning themselves for market entry to what is largely a nascent mortgage market with a substantial housing deficit in excess of three million homes.

It should be noted that many knowledgeable people believe that there is no such thing as foreclosure in Tanzania. While there was foreclosure by power of sale in effect before the adoption of amendments to Chapter X of the Land Act in 2004, Chapter X provides that court action is necessary for foreclosure of a family home and, in Section 125, states that “any rule of law, written or unwritten, entitling a mortgagee to foreclose the equity of redemption in mortgage land is abolished.” In fact, the law allows for foreclosure through

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repossession and/or sale of the property. “Foreclosure” is simply the termination of the debtor’s rights to pay what he owes, reinstate good standing under the loan, and retain ownership of the property used to secure the loan, which ends upon sale of the property to a third party. What Tanzania does not have is "strict foreclosure," under which a court may deliver possession of a property free of the debtor's right of redemption prior to execution sale, or “non-judicial foreclosure.” (Rabenhorst & Butler, 2007)

It should be noted that the exclusion of family homes from non-judicial foreclosure apparently was included in the law in an effort to protect individual borrowers and their families from banks that might be over-eager to take away their property. This is clearly an element adopted from the socialist past of the country since experience around the world shows that lenders examine the law to determine if execution procedures are efficient and predictable when they are deciding whether to enter the market. The availability of non-judicial foreclosure thus results in a more competitive market. Ease of enforcement is also a factor in determining credit risk, so that a strong system results in lower interest rates, longer terms, lower down payments, and willingness to lend to persons other than the wealthy. So an enforcement system that requires long and expensive litigation before a lender can get access to the collateral securing a bad loan results in a smaller, less competitive market and less favorable terms for borrowers. (Rabenhorst& Butler, 2007)

Court JurisdictionsOverall, there is a need to establish what court actually holds jurisdiction over mortgage-related claims. Under the procedural provisions outlined in Chapter X of the Land (Amendment) Act 2004 which is further amended by way of the Mortgage Financing (Special Provisions) Act 2008, it is states under Section 140 (1) that:-

“All proceedings instituted in court in relation to the exercise by the mortgagee of powers to sell or enter in possession of the mortgaged land shall be brought in accordance with the provisions of the Civil Procedure Act,1966 and tried by way of summary proceedings”.

Subsequently thereafter, under subsection (2) it states “Notwithstanding any other provisions of this Act an action for exercise of a power of sale or for possession of a mortgaged property may be brought in the Land Division of the High Court.”

It would appear, as in the case above, that there are parts of the legislation that create an element of doubt over jurisdiction issues. There are experts who believe, however, that the procedural provisions of Chapter X are detailed enough to evidence the legislature’s intention that mortgage enforcement would take place under Chapter X itself rather than the Civil Procedure Act, and that the procedures in the Civil Procedure Act are no longer in effect. Moreover, it is not clear whether the summary procedures are in effect; in any

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case, they are often ignored in practice (Rabenhorst &Butler, 2007). The spirit of the law however, seems to move away from its previous past. Amendments incorporated under the Mortgage Financing (Special Provisions) Act seem to be trying to address principal matters that ensure that the rights of both the mortgagor and the mortgagee are preserved.

Third Party InterestsKey changes have been implemented in the revised legislation surrounding what was previously a major hurdle to the issuance of mortgages in the market. Previously, although spousal consent was required, one could easily, by non disclosure, especially where polygamous marriage was the case, create the space for a spouse to request for an injunction from the courts particularly where no initial assent was provided by one spouse over the use of their matrimonial home as collateral for a mortgage. In effect, the Act recognized the rights of a spouse under the Law of Marriages Act, 1971 without providing total clarity on whether say, as in the case of polygamous marriages, spousal consent was required from all spouses. The law was also silent on deemed marriages where a person may have been cohabiting with a woman over a long enough duration to customarily be regarded as husband and wife. Furthermore, the law also made it difficult for the lender to verify and ascertain the truth especially where a borrower deliberately hid the fact about having a spouse.

Under the Mortgage Finance (Special Provisions) Act, 2008, the law now states under Section 114(2) that it shall be the responsibility of the mortgagor to disclose whether they have a spouse or not and it shall be the responsibility of a mortgagee to take reasonable steps to ascertain whether the applicant for a mortgage has a spouse or spouses. As such the law provides that on the strength of an affidavit or written and witnessed document declaring as such, which also applies to any other third party holding interest in the said property, the Mortgagee is deemed to have taken all reasonable measures. Should the applicant commit the offense of non-disclosure or knowing provide false information to the mortgagee they are liable for a fine not less than 50 percent of the loan value or to imprisonment of not less than twelve months. Under the previous legislation, delaying tactics and unnecessary appeals were prevalent and with the institution of the Mortgage Finance (Special Provisions) Act No. 17, the strengthening of the creditor’s ability to enforce collateral has been made possible. The provisions of the Act now clearly stipulate that the only reasons for a court to throw out a foreclosure claim are if (i) a mortgage loan was never taken, or (ii) the loan has already been fully repaid.

It should be noted that the Act contains a consumer protection section requiring clear disclosure of pre-contractual information such as interest rate, early repayment penalties, and full disclosure of costs.

6.1 Judicial context of the housing sector with respect to land

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The formal court system has a more adjudicatory approach and includes district-level land courts, housing tribunals in urban areas, the land divisions of the high courts and the courts of appeal. Regardless of the tribunal, customary law will be applied to resolve disputes over land held under a right of customary occupancy. In addition to the informal and formal tribunals, the Commissioner of Lands can operate as an independent adjudicator given that the Commissioner has authority to commission an inquiry on land matters, conduct proceedings and reach determinations. The proceedings do not require adherence to rules of evidence, and the procedure is distrusted by many rural communities, which prefer to find local solutions to conflicts (United StatesAgency for International Development (USAID), 2010).

7.0 Banking and Financial System with reference to the housing sectorThe financial sector in Tanzania has undergone substantial structural change since the liberalization of the sector in 1991. The financial landscape in Tanzania is comprised of mainly banks, pension funds, insurance companies, and other financial intermediaries. However, the sector is dominated by banking institutions which account for about 75 percent of the total assets of the financial system,

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followed by pension funds whose assets account for about 21 percent while the insurance sector and remaining financial intermediaries hold about 2 percent each (Bank of Tanzania,2010). Foreign owned banks in Tanzania account for about 48 percent of the banking industry’s total assets.

Chart 1: Financial Sector Asset-Based Composition – June 2010

Pension Funds21%

In-suran

ce 2%Micro-finance Institu-tions1%

Mutual Funds

1%Banks75%

Composition

Source: Bank of Tanzania

Financial sector assets have expanded rapidly in the past decade from a total of TZS 1,637 billion at end of December 2001 to TZS 15,376 billion in December 2010 (SerengetiAdvisers Limited, 2011). More considerably, the banking sector total assets have expanded 2.8 times since 2006 precipitated by increased lending to the private sector with

loans expanding almost 3½ times over the same period to TZS 5.9 trillion from TZS 1.7 trillion. Equally investments in government securities doubled from TZS 1.2 trillion in 2006 to 2.37 trillion in 2010 (Serengeti Advisers Limited, 2011). The results are a demonstration of the efforts that the government has been taking to strengthen the banking system to maintain financial sector stability. However, based on the end-June 2009 banking sector review carried out by the BOT, four banks fell below the capital adequacy ratio (CAR) threshold of 12 percent. Non-performing loans (NPLs) averaged 7.67 percent across the banking sector, compared with 6.33 percent at the end-June 2008. Fourteen banks had NPLs above the average, in part due to their exposure to the agricultural sector, which has accumulated a NPL ratio of almost 27 percent (Bank of Tanzania, 2010).

By end of June 2010, the banking sector was made up of 41 banking institutions, out of which 19 were foreign owned. The banking system showed a high concentration of total assets - 57 percent - being held by four big banks, while 43 percent were accounted for by the remaining 37 banks. It should be noted that 3 of the four big banks are either shareholders or have made applications to acquire equity in TMRC. This to a measure may be indicative of their intended strategy to equally dominate the mortgage market. Investment in TMRC is viewed to be within the core objective of delivering banking services to the general public, although it should be made clear that the existing banking laws in Tanzania restrict banks from engaging in non-banking financial services. Banks which intend to diversify into other

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financial services are required to establish separate subsidiaries. As such, the separation of banking services from other financial services provides some cushion against the transmission of shocks across different sectors in the financial system

Pension funds deposits in the top ten banks in Tanzania represented about 10 percent of total private sector deposits in the banking system as at end June 2010. Equally pension funds along with insurance companies hold between 30 percent and 20 percent of the total amount of outstanding government debt securities. Pension funds’ assets account for 21 percent of total assets of the financial system, while the investment portfolios of these pension funds are concentrated mainly in two areas, namely: government securities and in the illiquid commercial real estate. This stance of investment poses substantial threat to financial stability in the event government debt market experiences a significant shock and/or the bust of the growing bubble in the commercial real estate sector. As with banks, a similar trend of asset concentration is also observed in pension funds. The three largest pension funds hold about 85 percent of the sector’s total assets.On the real estate front, some of the public pension funds have invested directly in housing. In 2003, NSSF developed 194 houses in Kinyerezi, Dar es Salaam and started the development of another 300 residential houses in Mtoni Kijichi, Dar es Salaam. Recent low income housing development projects27 include:

a) Housing project for the Tanzania Peoples Defense Forces (TPDF) comprising accommodation for 242 families in Dar es Salaam and Arusha

b) A similar residential project in Pemba, Unguja (Zanzibar) and Dar es Salaam for the Tanzania Police Force Phase I comprising of 120 flats

c) Planned projects include Tanzania Police Force residential houses Phase II – 120 flats

d) Affordable housing in Mtoni Kijichi area in Dar es Salaam.Where construction is not directly to government, first priority is normally given to its pensioners and where the uptake is slow the general public is invited to purchase houses. Loans for houses are normally structured for 15 year repayment terms. The Public Service Pension Fund, starting this last year started an acquisition phase that will see it acquire plots in Dar es Salaam and other regions. These plots will be sold to members either through direct purchase agreements or through guaranteed loans from Azania Bank, whose largest shareholders are the main pension funds. Loan deductions would be spread over 5 years. Initially 200 houses are planned for Dar es Salaam and 50 each for Morogoro, Mtwara, Shinyanga and Tabora regions. Investment in low income housing is viewed as low risk as outright purchase will be required and where loans are granted, there will be substantial cash cover from pension savings accumulated by the borrowing member; this cover will meet liabilities in the event of default.

27 (National Social Security Fund, 2007/08)

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The Parastatal Pension Fund PPF also ventured into low cost housing and in 2007 developed a project in Kiseke, Mwanza, comprising 580 houses. Members of the Fund bought 365 of these houses through bidding. The remainder were reserved for the general public but the uptake has been slower than expected primarily because the Fund raised the selling prices to take into account higher construction and carrying costs.

A study commissioned in 2006 by the Financial Services Deepening Trust (FSDT) to review the scope of access to financial services in Tanzania, under what is now known as the Finscope 2006 demand survey, revealed that 54 percent of Tanzanians were excluded from any kind of access to a financial service, be it formal, semi-formal, or informal. Furthermore, it revealed that only 9 percent of Tanzanians maintained an in a commercial bank or credit institution (formal financial providers). Two percent to the adult population it was noted were, at the time, served by Microfinance Institutions (MFIs) and SACCOs (semi- formal financial providers), and 3 percent were served through informal groups such as Village Community Banks (VICOBA) as well as family and friends). Together with those who have no access to any financial services, 89 percent have no access to formal or semiformal financial institutions. Commercial banks serve less than 10 percent of the population (or 1,382,000 people in an adult population of 21 million)28 yet attract more than 50 percent of those who take

out a loan or choose to save (Bank of Tanzania, 2010). SACCOs are their principal competitor, attracting almost 800,000 savers with MFIs and the Postal Bank trailing behind.

Overall, domestic lending to the building and construction industry has been increasing year on year in shilling terms (see table 4) with lending to the sector tripling since 2004. However, it has been registering a declining as a percentage of gross domestic lending activity (see chart 2 below) in the wake to increased lending to the agricultural and

Table 4: Domestic lending activity (in shilling terms)2004 2005 2006 2007 2008 06/200

9Real Estate & Leasing - - 54,443 50,028 88,352 95,082Building &

Construction42,15

783,07

4 83,456 104,102

142,992

114,872

Data Source: Bank of Tanzania

Chart 2: Domestic lending activity to the Building & Construction sector as a percentage of gross domestic lending activity

28 The latest Finscope report bullets highlights increased penetration with formal financial institutions now servicing 12.4 percent which represents about two million adults of the currently estimated at 20 million adult population.

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2004 2005 2006 2007 2008 399650.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%

Domestic Lending - Building & Construction Sector

Data Source: Bank of Tanzaniamanufacturing sectors. Nevertheless, it is anticipated that this trend will reverse as banks seek to enter into the mortgage market.

7.1 The mortgage market in TanzaniaIt is estimated that mortgage loans outstanding currently amount to around USD 100 million, split between around 2,000 loans, making for the average loan size of around USD 50,000 (Hanai & Chambi, 2009). However, this amount is growing relatively rapidly as new entrants come into the market. Since independence in 1961, housing was approached by Government with a policy that drove towards universal state provision of housing in rural and urban areas. However, this proved unaffordable, and the policy was changed in 1972 towards a slum improvement program(Hanai & Chambi, 2009). The Government also encouraged

self-construction through the provision of land and subsidized credit finance. It established the Tanzanian Housing Bank (THB) in 1973 for this purpose. THB provided around 14,000 mortgages until its demise in August 1995. Since the collapse of THB, there has been no widespread provision of housing finance in Tanzania. Since the beginning of the 1990s’, considerable effort has been expended towards improving the financial services sector primarily through the financial sector liberalization and reform program implemented following the adoption of the Banking and Financial Institutions Act of 1991. The table below offers a comparison of Tanzania’s mortgage market size relative to some other sub-Saharan African markets.

Table 5: Mortgage Debt to GDP 2007Mortgage Debt

to GDP$GDP/Head

(2007)Tanzania 0.30% 392Nigeria 0.50% 944Uganda 1.00% 382Senegal 2.00% 941Ghana 3.90% 749Namibia 20.00% 3,502South Africa 34.00% 6,185Source: World Bank7.2 Key risks facing the Mortgage Market

7.2.1 Insufficient stock of housing qualifying for mortgagesDue to the historical past of the country having no mortgage facilities, property development has been traditionally been conducted individually and incrementally over periods

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stretching beyond five years matched with commensurate salary earnings. To this end, the supply of housing, particularly affordable housing, remain virtually non-existent. In this regard however, immense opportunities exist in the housing development space for the keen property developer.

Mitigant: Due to the same fact that housing has primarily been done incrementally and in situ over many years, there is a large stock of partially finished homes that are capable of providing the needed equity for the development of a vibrant mortgage market. Furthermore, with the revamping of the NHC towards making it a Master Developer with full support from Government, one would expect that in the next few years, a housing stock of good and affordable houses will begin to emerge..7.2.2 High Cost of Land DevelopmentAs a result of poor town planning, access to sizeable parcels of land for development remains scarce. Where one would wish to leverage their costs down with economies of scale, one would have to virtually seek a large site in the peri-urban areas of a city or alternatively incur large expenses in acquiring dilapidated properties within key strategic areas. Given the inefficiencies within the local government of not being able to deliver the needed infrastructure i.e. roads, water etc in a timely manner, additional costs are incurred by developers in having to factor in the development of sites, services and required infrastructure adds to projects costs which they obviously pass on to their clients.

Mitigant: As mentioned earlier, the restructuring of NHC towards making it a Master Developer, responsible for delivering larger parcels of serviced land will ultimately create the economies of scale to make housing affordable in light of the larger projects that will be carried out. Ultimately, this ought to bring down the overall pricing of houses as well as manage down the prohibitive cost of trunk infrastructure.

7.2.3 Underdeveloped Land and Housing MarketTanzania lacks adequate serviced land and suffers from lack of capacity and resources toward the development of a good housing market

Mitigant: Government with the restructuring of the NHC, the creation of the TMRC, change of key legislation surrounding mortgages and the planned sensitization of the general public towards the use of mortgages is certainly showing the required spirit towards meeting its housing deficit of in excess of three million units. The appointment of a capable Lands Minister who understands the issues surrounding housing and urban development is certainly helping the process as the budget allocation for the NHC is set to rise tenfold in the coming fiscal year. Tasked with the responsibility of delivering 15,000 units of new housing by 2014, it is expected that the landscape will change tremendously over the next few years.

7.2.4 High Cost of Construction

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Construction materials and technology coupled with continuing construction inflation is increasingly putting pressure on the unit cost of built up space adversely affecting affordability. Elements such as value added tax (VAT) on materials effectively is passed on the property buyers creating an increased hike in prices

Mitigant: The passing of the Unit Titles Act, also referred to as the Condominium law, will support the development of storied housing creating higher density and more cost-effective configurations of building and space configurations. Intense lobbying is being made for the removal of VAT on building materials to catalyse development and allow for affordability on new developments coming up.

7.2.5 Credit RiskGiven that mortgages are relatively new to both consumers and bankers in Tanzania, there is a possibility of doubtful lending and questionable products being delivered to the general public. Furthermore, with the absence of a well established Credit Reference Bureau (see 8.4 below) the exposure is amplified given that mortgages generally entail large sums being lent out for longer term periods.

Mitigant: There is ongoing development of a regulatory framework that is being led by the Bank of Tanzania and supported by the World Bank to help manage this risk. Furthermore, with the creation of TMRC, where equity of members is required, TMRC will carry its own credit assessment of its member institutions while member

institutions will need to do proper assessment of all mortgage products and loans to ensure that repayment is not comprised so as to maintain the integrity and ensure the continued success of TMRC.

7.2.6 Lack of Construction Finance availability for DevelopersHistorically, banks withheld providing construction finance primarily as a result of issues surrounding the prevailing mortgage legislation at the time and the fact that there was no ready mortgage market to guarantee the availability of offtakers on the demand side.

Mitigant: In the wake of revised legislation and efforts being carried out by government to rally forward the housing market, the previous trend is now reversing with financial institutions now beginning to scout for reputable developers

Cost of MortgagesInterest rates on mortgage loans is currently prohibitive hovering at 16 -18 percent per annum (see table 6).

Mitigant: It is expected that with increased participation and innovation from new entrants into the mortgage market, strengthened by the input expected from TMRC, and new well built affordable housing is made available, mortgage rates will begin to fall. Table 6: Breakdown of Mortgage Terms from Main Mortgage Lenders  INTERES

TLOAN SIZE DEPOS

ITMAX.

TENORInstitution TZS USD Min Max Percent Period

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(mlns) (mlns) (Years)Azania Bank Limited

18% n/a selective

selective

20% 15

Commercial Bank of Africa (CBA)

18% 9% 20 350 10% 20

Bank of Africa

17% 10% 40 n/a 20% 10

Source: (Moyo, 2011)

7.3 Tanzania Mortgage Refinancing CompanyThe Tanzania Mortgage Refinancing Company (TMRC), which is currently under formulation, is intended to be a specialized single purpose institution involved in the development and promotion of the mortgage finance market with the specific remit of providing liquidity to mortgage lenders and steering the increased development of the local bond market. Spearheaded by a World Bank initiative, TMRC will have majority of its shareholding held by Banking and financial institutions as defined by the Banking and Financial Institution Act No. 5 of 2006. Currently six banks namely National Microfinance Bank (NMB), CRDB Bank, Tanzania Investment Bank (TIB), Exim Bank, Azania Bank and Dar es Salaam Bank have acquired equity in TMRC. National Bank of Commerce (NBC) has confirmed its intention to subscribe shares given that there is no restriction on other banks or other eligible institutions participating. Lending will be made strictly to member banks. It should be noted that TMRC will not be a deposit taking institution but will rather refinance eligible mortgage loans of mortgage originators and fund by

issuing simple corporate bonds in the local bond market. TMRC is expected to start operations with a minimum capital of TZS 6 billion to be provided by the founding shareholders. As the balance sheet of TMRC grows, shareholders will be expected to raise its capital. TMRC was founded by five shareholders with no single shareholder owning more than 33 per cent of the equity, minimum equity subscription is TZS 500m. The key benefits o f the TMRC are: (i) provision o f longer term funds to the Tanzanian financial market; (ii) creation o f a lender o f first resort function which allows deposit base to be better leveraged without liquidity concerns; (iii) reduction in interest-rate and asset-liability matching risks for the mortgage lenders; (iv) promotion o f competition among market participants, by removing long-term funding as barrier to entry; (v) enhancing affordability of mortgage for home-owners by lengthening maturities and lowering funding costs; and (vi) development of a deeper and more liquid private bond market (World Bank 2010)

7.4 Credit Reference BureauThere is presently no credit reference bureau in Tanzania although it is anticipated that one will be operational by the end of the year. However, banks have over the past five years, on the strength of the Tanzania Bankers Association (TBA) appeal, been obtaining signed authorization to disclose personal details in the event of default to the Credit Reference Bureau as a pre-requisite for account opening. To this end, TBA has been maintaining a register effectively creating a database for defaulters. Banks have in the past

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shown reluctance to share information due to issues surrounding breach of non-disclosure of key client detail.

8.0 The Real Estate Market in TanzaniaThe present state of the real estate market leaves much to be desired. With 70 percent of the urban population immersed in unplanned and unserviced informal settlements, there lies immense opportunity for growth especially bearing in mind that the government’s strategy is geared towards upgrading. Affordable housing is in short supply. With the current annual demand of 200,000 plots and a 3,000,000 housing gap, Tanzania faces a huge hurdle but equally presents immense opportunities for the prudent investor. 8.1 Housing DemandThe urban transition is well under way in mainland Tanzania. The urban population increased from a low base of 5.7 percent to 22.6 percent over the period 1967–2002, based on census data. The total housing deficit was estimated at 2.2 million units in 2000. It has since escalated to in excess of 3 million units. Between 1990 and 2001, the average annual demand for plots in Dar es Salam was 20,000 units while the average annual supply was under 700, leaving 97 percent of the recorded demand unfulfilled. Since most Tanzanians construct their own homes slowly over a number

of years, the supply of land is crucial to the production of shelter. At the national level, the annual demand for formal land between 1991 and 2001 was 150,000 plots29, while the supply averaged 8,000 surveyed plots annually, indicating an annual shortfall of 95 percent.8.2 Main actors and players in the Real Estate Market in TanzaniaThe limited amount of housing construction is largely done by the public sector either through the National Housing Cooperation (NHC), the Tanzania Building Agency (TBA), which caters specifically to the government employee market or through the parastatal pension and social security institutions. The private or “organized” developer/ builder market is virtually absent in Tanzania and there is no professional real estate developer associations. The little private development which does occur tends to be luxury developments aimed at the wealthy, expatriates or the Diaspora. Reasons given for lack of real estate developers are (i) lack of access to finance (ii) lack of technical and managerial capacity in real estate development sector and (iii) the high cost of using imported materials and (iv) the lack of provision of basic services and infrastructure by local authorities. Developers are then forced to develop their own solutions, which inevitably raise the price of houses significantly.

Table 7: Key actors in the development of shelter in Tanzania

Actors Contribution

29 Now estimated at 200,000 plots

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1 Individual Unsurveyed Dwellings 70.0%2 Individual Surveyed Dwellings 13.5%3 National Housing Corporation 5.1%4 Real Estate Developers 3.9%5 Central Government 3.0%6 Pension Institutions 2.4%7 Local Government 2.1%

Source: (Nnunduma, 2009)8.3 Availability of Serviced LandWith few and limited housing options in the formal sector, the vast majority of the population, as mentioned earlier, reside in informal settlements where the typical form of tenure is rental. Despite the government’s efforts to try and create additional plots as in the case of the 20,000 Plots project30, there has been slow growth, contrary to what was anticipated, due to inaccessibility of housing finance and the fact that the plots were totally green fields without the needed infrastructure of services to make it all work.

8.4 Building and ConstructionOnly 15 percent of households in Tanzania have electricity, with a very large disparity between urban and rural households in Mainland Tanzania (45 percent and 3 percent, respectively)- see table 6 below. Two in three households in Tanzania (67 percent) live in dwellings with floors made of earth, sand, or dung. The next most common type of flooring

material is cement, accounting for 30 percent of households. Most urban households in Mainland Tanzania have floors made of cement (71 percent), while in rural areas the main flooring materials are earth, sand, or dung (84 percent) – See table 7.

Table 8: Household Characteristics - ElectricityHOUSEHOLD CHARACTERISTICS

Households PopulationMainland Mainland

Urban Rural Total Urban Rural TotalElectricit

yYes 45.4 3.4 14.2 45.4 3.0 13.2No 54.5 96.6 85.7 54.4 97.0 86.7

Total 100.0 100.0 100.0 100.0 100.0 100.0Source: Tanzania Demographics and Household Survey 2010Good-quality walls ensure that household members are protected from harsh weather conditions and, therefore, exposure to hazardous factors. There are three main types of materials used to construct walls in Tanzania: sun-dried bricks (28 percent), poles and mud (27 percent), and baked bricks (23 percent). Cement blocks are mainly used in the urban areas of Mainland and Zanzibar (47 percent and 48 percent, respectively) – See table 8. Overall, six in ten households use iron sheets for roofing material. The remaining households mainly use grass, thatch, or mud. In Mainland Tanzania, almost nine in ten urban households use iron sheets, while in rural areas half of households use grass,

30 The 20,000 plots project was geared to create additional plots in the direct peri-urban areas of Dar es Salaam where large parcels of undeveloped land was surveyed and subdivided and sold to individuals for the purpose of housing construction.

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thatch, or mud and the other half use iron sheets (NationalBureau of Statistics, 2011).

Table 9: Distribution of households by construction materials – Flooring Materials

DISTRIBUTION OF HOUSEHOLDS BY CONSTRUCTION MATERIALS

Households PopulationMainland Mainland

Urban Rural Total Urban Rural Total

Flooring Material

Earth, sand, dung 23.1 83.9 68.2 24.3 84.2 69.7

Cement 70.7 15.2 29.5 69.4 14.9 28.1Other 6.1 0.8 2.2 6.3 0.9 2.1Total 100.0 100.

0100.

0 100.0 100.0 100.0

Source: Tanzania Demographics and Household Survey 2010

Depending on the strategy for entry into the Tanzanian market, one would estimate costs to run in the region of USD400-USD600 for a lower income house, USD600 – 800 (medium income) and 800+ for a high end development.

Table 10: Distribution of households by construction materials – Main wall and main roof materialsDISTRIBUTION OF HOUSEHOLDS BY CONSTRUCTION MATERIALS

Households PopulationMainland Mainland

Urban Rural

Total Urban Rural Tota

lMain Wall Material

Grass 0.1 0.8 0.6 0.1 0.7 0.6Poles and Mud 7.8 32.7 26.3 7.9 31.0 26.1

Sun-dried Bricks 20.1 31.9 28.8 20.8 34.5 30.3

Baked Bricks 23.2 24.3 24.0 24.2 24.4 24.1Wood, Timber 0.2 1.9 1.5 0.2 1.8 1.5Cement Blocks 46.7 3.8 14.8 44.8 3.3 13.6

Stones 1.2 0.2 0.5 1.2 0.1 0.5Other 0.7 4.4 3.5 0.8 4.1 3.4Total 100.0 100.

0100.

0 100.0 100.0 100.0

Main Roof MaterialGrass/

thatch/mud 6.5 49.0 38.1 7.4 48.7 38.9Iron sheets 88.0 50.5 60.1 86.2 50.7 59.3

Tiles 1.8 0.2 0.6 1.9 0.2 0.6Concrete 2.8 - 0.7 3.2 - 0.7Asbestos 0.8 0.2 0.4 1.3 0.2 0.4

Other - 0.1 0.1 - 0.1 0.1Total 100.0 100.

0100.

0 100.0 100.0 100.0

Source: Tanzania Demographic and Health Survey 20108.5 Efficiency of Property Rights and RegistrationThere are a total of nine procedures that are required to register property in Tanzania that on average take 73 days before title is provided (see appendix 2). On the other hand, it would take 328 days to obtain a construction permit (see appendix 3)8.6 Rental Market

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Tanzania enjoys pro-landlord legislation. Rents can be freely negotiated and are normally paid either bi-annually or annually.31 Very rarely will one be charged on a monthly basis although the government is now seeking to outlaw annual house rent outright (James, 2010). However, it is actually illegal to receive annual rent in advance, but due to the current housing crises, government has found it difficult to regulate. Rentals were previously regulated by The Rent Restriction Act 1984 which was heavily pro-tenant but has now been repealed. Rents are now controlled through the The Courts (Land Disputes Settlements) Act, 2002 which allows landlords to recover arrears, among other things, and outlines due process for evicting tenants32. It should be

noted that more than 80 percent of residents in urban areas are tenants (UN HABITAT, 2010)

Table 11: Duration of Eviction Process for non-payment of rent

EVICTION FOR NON-PAYMENT OF RENT

Duration until completion of service of process

7

Duration of trial 180Duration of enforcement 30Total Days to Evict Tenant 217Source: Global Property Guide

8.7 Taxation RegimeMain taxes levied on property:-

Table 12: Snapshot summary of tax payable on land or propertyTax AmountLand Rent Tax 11.5% – 12.5% on

economic value of the land

Lease Agreements 1% of gross rent being stamp duty

Conveyance 1% of gross rent being

stamp dutyWithholding tax (rent) 15% of rental income.

Can be credited against tax payer’s income tax

liabilityCorporate Tax 30%Capital Gains 20%Property Tax TZS 15,000 – TZS 75,000.

Payment based on size, use location of the

property

31 Real Estate Agents normally receive a commission equal to one month’s rent32 In theory, however, to evict a tenant who has caused a breach or failed to pay rent, the landlord must get the approval of the Ward Tribunal. If the tenant does not comply with the orders of the Ward Tribunal, the case is elevated to the District Land and Housing Tribunal for enforcement, and then to the High Court and Court of Appeals For recovery of possessions worth TZS (Tanzanian Shilling) 50 million (US$42,914) or more and compensation for arrears worth TZS40,000,000 or more (US$34,331), claimants can file the case directly to the High Court (Land Division) (Pro Landlord Landlord andTenant Laws, 2011)

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9.0 Rationale for Shelter Afrique Involvement in Tanzania

Tanzania has taken the effort to make amendments to what was previously doubtful mortgage legislation. The improved legislation as a result of the passing of the Mortgage Finance (Special Provisions) Act No. 17 of 2008 and the Unit Titles Act No. 16 of 2008 sets the stage for serious housing development opportunities in very near future.

Given its experience in construction finance in different markets, Shelter Afrique would have an upper hand in structuring deals and bringing them through to fruition.

The market is ripe for construction finance particularly where the development of ‘affordable’ residential housing is concerned.

Upon entry, Shelter Afrique should concentrate on the USD 50,000 – USD 150,000 market which has been totally ignored in the past yet has the highest

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potential for growth given that the bulk of local working professionals fall within that price banding and are presently not having their needs met accordingly.

Shelter Afrique would be in a position to use a blend of financing that could entail the use of co-financing, joint venture or direct lending to support housing development.

New legislation requiring Pension funds to place their funds with a custodian or trustee financial institution so as to concentrate on pension services delivery would play well into Shelter’s flexibility and guarantee a steady pipeline flow from Pension organizations seeking to develop properties for their pensioners.

Shelter Afrique enjoys strong brand recognition that it can leverage in this market

The development of TMRC, which aims to be a catalyst in bringing about a mortgage market should create further liquidity in the market place which ought to translate to increased construction of housing and provide for more borrowers in the market place.

Appendix 1 Distribution of Household by Construction Materials

DISTRIBUTION OF HOUSEHOLDS BY CONSTRUCTION MATERIALSHouseholds PopulationMainland Mainland

Urban Rural Total Urban Rural Total Flooring MaterialEarth, sand, dung

23.1

83.9

68.2

24.3

84.2

69.7

Cement 70

.7 15.

2 29.

5 69

.4 14

.9 28.

1

Other

6.1 0

.8 2

.2

6.3

0.9 2

.1

Total 100

.0 100.

0 100.

0 100

.0 100

.0 100.

0  

Main Wall Material  

Grass

0.1 0

.8 0

.6

0.1

0.7 0

.6

Poles and Mud

7.8 32.

7 26.

3

7.9 31

.0 26.

1 Sun-dried Bricks

20.1

31.9

28.8

20.8

34.5

30.3

Baked Bricks 23

.2 24.

3 24.

0 24

.2 24

.4 24.

1

Wood, Timber

0.2 1

.9 1

.5

0.2

1.8 1

.5

Cement Blocks 46

.7 3

.8 14.

8 44

.8

3.3 13.

6

Stones

1.2 0

.2 0

.5

1.2

0.1 0

.5

Other

0.7 4

.4 3

.5

0.8

4.1 3

.4

Total 100

.0 100.

0 100.

0 100

.0 100

.0 100.

0  

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Main Roof MaterialGrass/thatch/mud

6.5

49.0

38.1

7.4

48.7

38.9

Iron sheets 88

.0 50.

5 60.

1 86

.2 50

.7 59.

3

Tiles

1.8 0

.2 0

.6

1.9

0.2 0

.6

Concrete

2.8 -

0.7

3.2

-

0.7

Asbestos

0.8 0

.2 0

.4

1.3

0.2 0

.4

Other -

0.1

0.1

-

0.1

0.1

Total 100

.0 100.

0 100.

0 100

.0 100

.0 100.

0

Source: Tanzania Demographic and Health Survey 2010

Appendix 2: Procedure for Registering PropertyProcedure Time to Complete Associated Costs

1. Obtain an official search at the Land registry 14 days33 TZS 2,000 - 4000

2. Obtain clearance by the Land Ministry of payment of land tax for ten years 1 day34 No cost

3. Obtain a property tax clearance from the Municipality for the last 10 years 1 day35 No cost

4. Obtain a valuation report 2 days36 (Property Value – 200,000)*(1.25/1000)+550+valuation approval fee of 0.01% of property value

5. A government valuer inspects the 7 days Already paid in Procedure 5

33 Simultaneous with procedure 2,3 and 434 Simultaneous with procedure 1,3 and 435 Simultaneous with procedure 1,2 and 436 Simultaneous with procedure 6

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property to determine its value6. Notarization and execution of sale

agreement and preparation of title deed 1 day37 Approximately 3% of property value

7. Obtain approval for the transfer 14-21 days TZS 50008. Obtain a capital gain tax certificate from

the Tanzania Revenue Authority 14-21 days No Cost

9. The transfer deed is delivered to the Land Officer for its recording under the name of

the buyer at the Lands Registry14 days 1% of property value (stamp duty)+ Registration Fee as

follows: (Property value – 100,00)*(2.5/1000)+1000

Source: World Bank – Doing Business

Appendix 3: Dealing with Construction PermitsProcedure Time to

CompleteAssociated Costs

1. Obtain location plan from City Council, Ministry of Lands 7 days TZS 5,0002. Obtain certified copy of the land rent receipts from the Internal Revenue Authority 7 days No charge3. Obtain Geological Survey 20 days TZS 8,000,0004. Obtain Building Permit 180 days TZS 300,0005. Request and receive pre-construction inspection from the City Council Officers 14 days No charge6. Request and receive excavation work inspection from City Council Officers 1 day No charge7. Request and receive foundations work inspection from the City Council Officers 1 day No charge

37 Simultaneous with procedure 4

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8. Request and receive concrete works from the City Council Officers 1 day No charge9. Request and receive slabs work inspection from City Council Officers 1 day No charge10. Request and receive roof work inspection from the City Council Officers 1 day No charge11. Request and receive inspection from the fire department once construction is completed

1 day No charge

12. Obtain approval of the building from the fire department upon completion 14 days No charge13. Receive inspection from the health department 1 day No charge14.Obtain approval of the building from the health department upon completion 14 days No charge15.Apply for occupancy permit from the City Council and request final inspection 1 day No charge16.Receive final inspection from the City Council Officers 1 day No charge17. Obtain Occupancy Permit 14 days No charge18. Apply for electricity connection 1 day No charge19. Receive electricity connection from Tanesco 1 day No charge20.Obtain electricity connection from Tanesco 60 days TZS 10,000,00021. Obtain water and sewerage connection from Urban Water Authority 30 days No charge22. Obtain telephone connection 3 days TZS 60,000Source: World Bank - Doing Business

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URT. (2002). The Land Disputes Court Act No. of 2002.URT. (2007). The Land Use Planning Act.URT. (2008). The Mortgage Finance (Special Provisions) Act No. 16 of 2008.URT. (2008). The Unit Titles Act No. 17 of 2008.URT. (2007). The Urban Planning Act of 2007.URT, Land (Amendment) Act. (2004).URT, Land Act. (1999). The National Land Act Cap. 113.URT, National Land Policy. (1996). The National Land Policy.URT, The Land Acquisition Act. (1967). Land Acquisition Act No. 47.URT, Village Land Act. (1999). Village Land Act No. 5. Tanzania.USAID. Property Rights and Resource Governance, Tanzania.

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