Tanzania’s real estate industry has in recent years registered impressive growth, with investors putting money into new developments to meet demand for housing, office and retail space.
At the East Africa Property Investment Summit, held in Nairobi last week, a panel of experts discussed the country’s real estate industry, and how recent changes in government are likely to affect investors.
The commercial capital Dar es Salaam, and leading cities Zanzibar, Mwanza and Arusha tend to attract the most attention from property investors. But there are also opportunities in other emerging cities. However, Heri Bomani, CEO of Tanzania-based diversified company Pangani Group, cautions investors against going into hyped-up areas such as the gas-rich Mtwara region.
A few years ago, the southern region of Mtwara attracted significant attention due to its proximity to Tanzania’s offshore gas deposits. Land prices skyrocketed as speculators rushed in. However, some of the projects have moved further north and there has since been a slowdown in the real estate market.
“If one is looking to invest outside of Dar es Salaam, I wouldn’t necessarily look at Mtwara as being a very attractive area,” said Bomani. “Mtwara, I think, is very much a hype story.”
Bomani highlighted Mbeya as being a more attractive alternative. Mbeya is strategically located close to the Zambian and Malawian borders.
“There is business activity in Mbeya. It is very strong in trading [because of the proximity to Zambia]. If you are thinking of investing in real estate, I would argue that Mbeya, Morogoro, Dodoma… have bigger populations, bigger economic activity going on, and have seen more consistent growth in the past. They are probably safer than Mtwara,” explained Bomani.
Demand for hotels
One segment that holds potential is hospitality real estate. Bomani noted there has been growing interest among international hotel players. In the last 12 months, Ramada, one of the brands under Wyndham Worldwide, opened two hotels in Tanzania. South African chain City Lodge has also entered the market.
“I sense that there will be an explosion in hotel investment,” said Bomani. “I think most consumers will say they are not seeing enough three-star products of quality. The five-star hotel range is risky in Tanzania, but the [more affordable] hotel segment is very exciting.”
However, Lasse Ristolainen, development director for sub-Saharan Africa at Hilton Worldwide, noted Tanzania offers opportunities for his company.
“There has been very little that has opened up in Tanzania as a whole. The priority for us is Dar es Salaam. There is tremendous opportunity there, certainly at the airport which doesn’t have a single hotel [of] international scale,” said Ristolainen. “There’s a very big supply and demand imbalance. So we, as a company, see a number of opportunities.”
New government and risks
In last October’s general election, Tanzania voted in President John Magufuli who is driving dramatic anti-graft measures, and implementing strict measures on government spending.
“Probably why the current president is talked of as being unfavourable to some investors is that… [previously some] people were buying assets, taking up real estate, using cash that was acquired through controversial circumstances. That sort of capital is drying up now,” said Bomani.
Daniel Heal, senior managing director for East Africa at consultancy Control Risks, noted corruption and regulatory risk is relatively low in Tanzania.
“Off the back of the president coming in end of last year there has been a real drive at anti-corruption, which has had an immediate impact, albeit quite small. We do believe that is going to continue, and the ease of doing business and protecting your investments will increase,” said Heal.
However, the demands for full autonomy from Zanzibar, a semi-autonomous region of Tanzania, does pose some political risk. After the March 20 re-run election in Zanzibar – which was boycotted by the main opposition party and international observers – some western donors stopped aid funding in protest.
Bomani noted there has “been confusion around donor funding” which might affect implementation of infrastructural projects badly needed to support real estate developments.
“Some international governments have [decided] to slow down on putting in infrastructure funding and general budget support. So it’s not clear where the dice will fall in terms of funding for these projects.
“[However]… there has been a lot of misuse of cash and if the government is serious about correcting misuse, I would argue there are sufficient resources within the country to fund a lot of this infrastructure.”