National Housing Corporation: The Leading Real Estate Company in Tanzania

Interview with Nehemiah Kyando Mchechu, Director General of Tanzania’s National Housing Corporation (NHC)

The Tanzanian housing sector’s fast growing demand is obviously mainly driven by the growth in the population which is now estimated to be around 53.47 million. That is expected to more than double by 2050. Do you think the country is going to be able to manage this explosive population growth and have the capacity to build enough?

Yes. I think first of all the population that we are talking about in Tanzania represents an opportunity for the economy and especially for the housing sector. It is a phenomenal opportunity for Tanzanian investors and for the people who want to bring in foreign direct investment. I think we are certainly going to manage as a country but we are not going to manage alone by closing the doors. We realise that for such a thing to happen you need both the government efforts and the private sector efforts. You need both direct, commercially orientated initiatives and maybe some initiatives that may require subsidies or support. We are trying to galvanise the effort from the private sector. Today, we had a meeting with all of the developers because we are now trying to galvanise all of them to realise the huge potential that is here and to get them to become more organised and have one common voice where they can participate on government initiatives. I had a group of 300 plus developers who came for the first time to set up the developers´ association. With all of these things that are going on and we are doing, I think we will be able to do it. Nevertheless, it is not an easy task. It will need some serious and coordinated efforts and good fiscal and monetary policies that will attract other investors to come in. Am I worried? Yes and no. Not if we organise ourselves well, but yes if we don’t because the population is going to continue growing and it doesn´t seem to be stopping.

The current demand for housing in Tanzania is estimated to be about 200,000 houses annually. There is a total housing shortage of about 3 million houses. How daunting a deficiency is this?

The population that we are talking about in Tanzania represents an opportunity for the economy and especially for the housing sector. It is a phenomenal opportunity for Tanzanian investors and for the people who want to bring in foreign direct investment.

I think it is a daunting task; it is a difficult mountain to climb. If I look at the demand per annum of 200,000 houses, I guess the supply at the moment is not even 40%, maybe 30%. That is from the formal supply from formal developers. You may have people in villages who are able to put up their one or two bedroom house themselves, but I am more concerned with the formal production, formal provision from developers which can easily be tracked. It is a daunting task. That is why the annual total deficit is increasing every year. I think we have a serious challenge. The government needs to realise that, I think they do, but it is one thing to realise it and another thing to internalise and take it on. I think the private sector needs to do the same, to internalise it and take the right actions. We are starting with the private sector today. There is still a lot that needs to be done.

The NHC was established by the government of Tanzania to undertake the construction of housing throughout the country. I understand you came to lead this institution in 2010 from a finance background. What has been achieved so far and what is NHC´s current overall development strategy?

I think it is good to give back some credit to the government. At least in the past decade, there has been a reasonable focus on the housing sector. In this country the first time we saw a serious focus on the housing sector was in the early years of independence and especially between 1962 and 1974. Thereafter the housing sector was left as a household problem but this is beyond a household problem because every time you accumulate a deficit it is a national crisis. In 2010, the government had worked quite well to change some of the laws and legislations, bringing in the condominium law, the mobile financing amendment, etc. The next thing they did was to undertake a total overhaul and restructuring of the National Housing Corporation. I think it was important to do so because firstly it is the largest corporation in this country, it is also one of the top largest real estate sector companies in eastern central Africa. In sub-Saharan Africa we must be in the top 5. We are a company with a capital base of more than 1.6 billion dollars. We are not very small in a normal context, especially when you talk about developing countries or the third world. They saw the opportunity and saw that the corporation needed a restructuring and somebody or a group of people to come in and undertake the full reform. That is the reason I came in in 2010. I joined this company with a new board; all of us were appointed on the same day. During that time we have accomplished quite a lot of the targets that we set for ourselves. I think we have been able to achieve around 90% or so. The first thing that we did was to undertake the new strategic plan. We then went on to see if we had the right organisational structure to address the latest strategic plan. Then we looked to see if we had the right people to run those areas and then we had to bring in new people who had good track records and who understood the vision that the country needed to see this corporation taking. From there we started on the execution. We had given ourselves 6 goals. One was to become the leading real estate developer in Africa, secondly we wanted to become the leading real estate management firm because we realised that we had so many houses and so we had to improve our management practices. Our third goal was to work on making our operations efficient. Our fourth goal was regarding the laws in terms of development and reviewing all of the contracts that we had in order to see whether they were still meaningful. The fifth goal was reviewing our human capital base, to see whether we had the right people and if they were in the right positions. The sixth goal which is still very important was regarding our image, our branding. To cut a long story short, we have achieved 95% of our goals.

The government enacted the mortgage law in 2008, and established their mortgage refinancing company TMRC in 2010. Whilst the number of mortgage lenders in the market increased from 3 in 2009 to currently around 20, the mortgage business is nevertheless still quite nascent in this country. Have banks started to be more forthcoming with mortgage lending?

If we were to look at mortgage growth in this country, it is growing several fold per annum. If you look at the total of those mortgages as to the value of the total development that is happening in the country, or the demand in this country, it is nothing. We have those two sides of the coin. Why is it not happening as fast as it should?

What is NHC doing specifically on the financing side to promote access to housing?

In sub-Saharan Africa we must be in the top 5. We are a company with a capital base of more than 1.6 billion dollars. We are not very small in a normal context, especially when you talk about developing countries or the third world.

In terms of what is holding it up a little bit: it comes to the banking sector, I think probably because we have a market that is not banked. However when you have a market that is not banked it means that there are many opportunities where you can put your money because it is not overbanked. Unfortunately, because historically we didn’t have a very good supporting housing law, the banks didn’t focus on it. I think that now they are starting to look at it more. Secondly, it is because of the high interest rates that we have seen in the market. That may have affected the affordability for many people in terms of access to a mortgage. I think there is also an issue in terms of financial awareness and understanding. What is NHC doing today? The government has now brought in the new legislations that are now very supportive of the banking sector. At that time I was sat on the technical committee as a CEO of the bank looking out for the interests of the bank. I can comfortably say that we have a law in place today which takes into consideration all of the issues that the banks were initially concerned about. At the same time bankers were not moving quickly into mortgage lending because they felt that they needed to see the effect of the law and to test it out. I cried out to them to say that they could not continue waiting. How can you test the law if you are not lending? One thing we did was to have a discussion with the banks, to understand their concerns and be able to address them. We gave a buy back guarantee to almost 19 banks. We signed with 19 banks and we gave them a buy back guarantee for five years. I know I will not lose my money because people want their houses. When you have a house you want to make sure that you are able to pay for it.

Also, we have worked on the provision of education in terms of financial literacy. We have a very good program on TV that is run by NHC. We have been using that TV program quite a lot in terms of educating people in financial issues and showing them what the opportunities are and what the challenges are, etc. To some extent we have also been trying to play a role as advisors to the government to try and help them see where things are not happening, why not and what should be done, because we are in the industry and we own the field, we know it and so we have been playing that advisor role to the government. I think those few things amongst many others are what NHC has been doing up until now.

In terms of the reputation of your organisation, how vital is the brand equity of NHC? How important is it that you are perceived as being a trustworthy and effective institution? What is your view as to the public perception of NHC in comparison with other Tanzanian SOEs?

I think as of today, probably the number one asset that we have and that we try to take care of and that perhaps we should take better care of, is our brand equity. Branding was among our 6 goals when we started our reform and it is still there. The importance has even increased today; it is even more critical and it is more relevant today. I needed to change the brand, improve it to build back the confidence of the general public, investors and the financial institutions regarding our business of national housing because we are not surviving off government subsidies; we are purely raising funds from the private sector. Today, I have even more projects that I am doing across the country. I have clients where I am preselling, so therefore when I look at the cost of my branding today, as compared to three or four years ago, today it is one of my top risks because when there is a negative image of the company, it affects the confidence of the bankers to give money to NHC. It may affect the confidence of our clients who are buying our houses, some of them in advance as we are active in presales. If a client shies away because of a negative image, it means I will have to raise more money from borrowing and how do I do that?

How proactive is NHC when seeking partners to finance its real estate ventures? Do you seek both local and international investors?

We are actively seeking both and we are actively looking for financers who can come in on the debt side and also for financers who could come in on both debt and equity and also local and foreign. NHC is supposed to invest in projects where we have a minimum return on equity of 20%. In reality, there are projects where we have enjoyed a return on equity of 50 to 100% for the simple reason that some of the projects are able to be sold off plan and therefore the exposure is zero.

Is there any specific project that you are urgently seeking investors for?

We have got many projects at the moment. We have projects where we are trying to build satellite cities in more ideal areas and that requires a lot of funds and investment. We have about 9 satellite cities and 5 of which have the master plan completed. We are keenly looking for investors but we are already moving on as we are waiting and as we look for investors. I have a few other big projects that I am already moving on with so if an investor comes in to discuss it, then we can do that. We have a total of about 40 projects now that are already designed or on the conceptual level so if an investor comes in, we can give them the information and move on together. We are open to PPPs and we are flexible. The most important thing and our focus is to find a win-win strategy. We want our investors to win but we want to win also. That is our philosophy.

As a publicly owned institution, does NHC play an active role in shaping those policies related to overall real estate sector development?

Yes, we do quite a lot of that because either you are a big player and just sit down and react to the changing policies, or you are active. We choose to be active. Today we are a company that is doing projects all across the country so we know the difficulties and the challenges better than any other public or private sector company or enterprise. Also, we have built up a very strong human capacity that can articulate issues and that is able to look at the different challenges and package them properly and inform the government accordingly. I think we have good will and loyalty with both the government and the general public. They are willing to listen to some of our proposals which is a huge asset for us. We must continue making sure that the respect, attention and acceptance is still there. In that way we give back our good opinions and our good and timely suggestions.

Tanzania counts as one of the youngest populations in the world. It has an average age of 17.3 years and it is expected to increase to 22.2 years by 2050. What does this represent in terms of the high potential growth for Tanzania’s real estate sector?

I think it is very interesting. I am bullish. By 2050 according to UN population agency, Tanzania will be the 13th most populous nation in the world. To me it means that the opportunity for the housing sector is huge. The opportunities for investors will continue to increase. The population growth means that the market size will grow and it is a lever. I see it more as a market opportunity. I think if we see it in a positive way and plan ourselves better in advance, then it represents a better future for this country. If we don’t reorganise ourselves well then we will have a crisis.

Dar es Salaam is Africa’s fastest growing city. It has a current population of 4.3 million which is expected to quintuple to about 20 million by 2050. Does this frighten you?

We choose to be active. Today we are a company that is doing projects all across the country so we know the difficulties and the challenges better than any other public or private sector company or enterprise.

Yes it does. It does scare me! Do I want to go and hide? No. It worries me that people are not internalising it and understanding what it means. One thing is to read the numbers, it could be worse if we couldn’t even read them but we need to internalise what it means and put plans in place. One thing that scares me is that we have limited resources. Sometimes the housing sector can easily be left as a household item. I am worried that in any country where you are not able to service the majority, to provide them shelter and to give them a sense of belonging, it normally affects the prospects and peace of a country. If we all realise this and put proper plans in place, if we act together, then it is a huge opportunity. I do get a little bit scared but I am part of the government, I am running a big institution and I think we command a good share and have a good voice in the housing sector. One thing that we will do is to pull the government to work together to make sure that all the necessary stakeholders start understanding and processing the challenges that we are facing and the opportunity that is sitting there. We want to ring the bell to make sure we all tap into these opportunities. That is why I held the event today because we felt that there are many real estate developers but everyone is working individually and they aren’t particularly putting their ideas together. We wanted them all to sit down together, and I had more than 300 people today in the venue, that is a huge number, a real success. The image, power and drive that people left with will take us to the next step. Today it was very simple, to push it back to the people, not to say that the government will do it but to put our voice together because when you have one voice you can take a proactive role and then the government will help. I have some concerns but I don’t want to sit on the fence, there are things that we must do and there are things that we are already doing and we are showing the way forward.

In your strategic plans you have identified some key drivers, obviously the property market situation, the public perception of the institution, what government expectations will be, and the role of housing in fostering overall economic growth. How are these factors interrelated and how will they form the basis of NHC´s strategic goals, objectives and targets going forward?

As we set out our initial plan, those were the key drivers that we looked upon. There was the perception of National Housing Corporation and we looked at that from the stakeholders’ point of view, the government’s perception and the general public perception, even our own staff perception. We looked at both the good and the bad because it was important to understand. We went further by looking at what the government expectations were. It was very important because they are the main stakeholders of this association. They own 100% and therefore I can say that they are our shareholders. If you don’t align to their expectations you are finished. It was very clear that the expectation was to see National Housing Corporation as a driving force for addressing the housing problem in this country. Then we went further and looked at the local opportunity in terms of demand and supply, in terms of economic prospects and so forth. I think those four pillars that we had looked upon were very important in setting up our initial agenda and setting up the strategy. Even as of today, that strategic agenda has remained relevant, the only thing we have tried to change has been the goals and the numbers. From the first five year plan to the ten year plan, that is what we have changed. We had put in a goal of being the leading real estate developer but we should just have started building; we have to use the experience and the skills we have better and apply them more. The population is increasing further, we have a capital base and the opportunities are there but also there is a need for the service and therefore we must continue being the leading real estate developer. Secondly, we said we wanted to be the leading real estate management firm; actually we have the highest number of houses as a single company in Africa. We have about 19,000 houses now, whether apartments or house units and with the construction that we are doing we are focused on building more for sale but we are also leaving some units for rental and that will continue. In terms of control of efficiency, when I came to NHC in 2010 we only had one project, today we have about 72 projects scattered across the country and therefore you cannot ignore the aspect of control and efficiency because if we didn’t improve the controls, then we would lose most of our money. With an increasing number of projects and an increasing number of debts and an increasing number of financial requirements, you need a lot of people who are professionals in those areas.

Has personnel moral much improved under your stewardship?

Yes. I think this institution is an SOE, a state owned enterprise, but I think our mind and efficiency is probably better than the private sector or aligned with the private sector. Furthermore, despite it being run by the government, we are running a social commercial enterprise in a sense that it is not about the profit that we make, but it is about the impact and the life changes that we are able to make. That is why we touch both the rich and the poor. I make most of the profits on the middle and upper end class but that profit is what subsidises the low income people.