Tanzania's property market continues to flourish
Lalaine C. Delmendo | December 02, 2019
The construction sector grew by more than 17% annually from 2016 to 2018. Despite this, housing demand still far outstrips supply. The country is experiencing rapid population growth of 3.11% annually and an urbanization rate of 5.22%, according to the Centre for Affordable Housing Finance in Africa (CAHF), create strong demand for housing, especially in the city centre.
Housing demand is increasing by about 200,000 units annually, with the current housing deficit estimated at about 3 million units, according to Tanzania Ministry of Lands, Housing and Human Settlements Development.
“The Tanzanian housing sector's fast-growing demand is mainly driven by the strong and sustained economic growth with GDP growth averaging 6-7% over the past decade, the fast-growing Tanzanian population which is estimated to be 55 million and is expected to more than double in 2050 and efforts by the government in partnership with global non-profit institutions and foreign governments to meet the growing demand of affordable housing,” said the Bank of Tanzania, the country's central bank.
The expatriate market in Dar es Salaam is relatively small and dominated by employees of donor agencies and other multilateral institutions. Although experiencing rapid economic growth, Tanzania remains one of the poorest countries in the world, with GDP per capita of just US$1,040 in 2018, according to the International Monetary Fund (IMF).
Non-citizens may only acquire land (leasehold) for investment purposes, subject to the approval of the Tanzania Investment Center (TIC) for the mainland or the Zanzibar Investment Promotion Authority (ZIPA) for Zanzibar. All land in Tanzania is owned by the state, and can only be leased to individuals for five to 99 years.
The most expensive residential properties are in the Oyster Bay and the Msasani Peninsula in Dar es Salaam, and on the Lake Victoria shores of Capri Point in Mwanza.
In Dar es Salaam, Tanzania's largest city and the economic capital, a 3-bedroom residential property located near a beach or in a prime location is priced between US$300,000 to US$500,000. However in other areas, 3-bedroom houses are priced starting US$50,000.
Yields in Tanzania are high at 9%-12%
Yields are relatively high at around 9% to 12%, because supply of good quality property is so limited. The rent for a 200 sq. m property on the mainland would be around TZS1.77 million (US$1,358) per month, or around Tanzanian shilling (TZS) 7,000 to TZS 8,800 (US$5 - US$7) per square metre (sq. m).
The rent for a 200 sq. m beach estate in Zanzibar would be about TZS2.36 million (US$1,811) monthly. Yields here too are around 9% to 12%.
Tanzania's rental income tax is high
Rental Income: Nonresidents are liable to pay tax on their rental income earned in Tanzania. Net rental income is taxed at the corporate tax rate of 20%.
Capital Gains: Capital gains from the disposal of Tanzanian assets by non-residents are taxed at 20%.
Inheritance: No inheritance or gift taxes are levied in Tanzania.
Residents: Resident individuals are taxed on their globally-sourced income at progressive rates, up to 30%.
The roundtrip transaction cost is high in Tanzania
The total round-trip transaction cost is around 9.26% to 19.26%, with the real estate agent’s commission at around 5% - 10%. The notary fee is usually 3%.
Pro-landlord landlord and tenant laws
Tanzania’s rental market practice is pro-landlord. Rents are freely determined. Advance payments can reach up to 6 months or one year, the legal limit is only two months’ rent. Because the formal, legal eviction process can take years or decades to conclude, landlords often resort to intimidation, threats and violence to evict tenants.
Rapid economic growthTanzania has experienced strong economic growth in recent years, with an average real GDP growth rate of 6.5% from 2000 to 2017. In 2018, growth was a spectacular 7%, according to the International Monetary Fund (IMF).
The Tanzanian government expects growth of 7.1% this year, though the IMF has released a more conservative projection of 5.2% growth this year and 5.7% in 2020.
President John Magufuli has embarked on an ambitious program of industrialization after coming to power in November 2015, investing billions of dollars in infrastructure, including the development of a major hydropower plant, the construction of a new rail line and the improvement of the national airline Air Tanzania Company Limited (ATCL).
In October 2019, the overall inflation rate was 3.6%, up from 3.2% a year earlier but still within the country’s medium-term target of 5%, according to the NBS. Inflation slowed to 3.5% last year, from an annual average of 6% in 2013-17 and 10.4% in 2006-12.
The current account deficit fell sharply to US$108.8 billion in Q3 2019, from US$435.7 billion a year ago, according to the Bank of Tanzania. The country’s current account deficit stood at 3.7% of GDP last year.
The country’s budget deficit was equivalent to 2% of GDP both in 2017 and 2018, the lowest level since 1998.
Tanzania’s external debt reached US$22.17 billion in Q3 2019, up by 7.8% from the previous year, mainly due to loans contracted for development projects. Despite the increase, the central bank noted that the debt remains sustainable as evidenced by the external debt service to exports ratio of 19.4% - still well within the 23% threshold.
General elections will be held in Tanzania in 2020.