Affordable Housing Solutions: Urban Developer CPS Applying to Build the First CLT Factory in Tanzania

Interview with Sebastian Dietzold, CEO at CPS Tanzania

Can you describe your scope of business and what sets you apart from the rest?

CPS is an urban developer, and we concentrate on large housing developments. As was mentioned recently, one of the biggest challenges for humankind is urbanization in Africa. By 2100, there will be another 1.5 billion people in Africa, or a total of 3 billion people, which is two Chinas. It is a challenge, and it is a huge opportunity. It is a business opportunity because there is a huge demand for homes, but it is also an opportunity to do things right. Our focus has been on Fumba Town, and from the beginning, to build homes and urban centers in a sustainable way. That means two things for us; we have implemented green infrastructure based on therma culture principles in our cities, towns and developments, and we have implemented regrowing and decarbonizing construction technology. We know today that construction and construction-related sectors are responsible for 38% of carbon emissions, and we understand that we have to reduce carbon emissions heavily to reach the climate goal of not increasing the global temperature by more than 2 degrees. We have committed from the beginning to build technology that allows that, which is what I meant by doing things right. We have put a lot of research into the building of timber technology which has many advantages. For instance, timber is the most reliable and oldest construction material we have, it is the only regrowing building material we have, and timber is modern. There have been a lot of developments in the last 10 or 15 years that use engineered wood products made from timber such as CLT (Cross-Laminated Timber), which is considered the concrete of the future. We are one of the first, if not the first, in East Africa to build multi-story homes with CLT here in Zanzibar. We started with timber-framed houses in Fumba and now we are moving more and more to CLT to replace the concrete parts of buildings with renewable technology like CLT. Besides being a very innovative, climate-friendly and regrowing natural building material, it is also super durable, it is extremely beautiful and has a lot of positive effects.

So, when we see the challenge of building 2 billion homes in the next 100 years in Africa, how do we do that? The big theme is that construction has to move to production, meaning outsourcing a big part of the construction process into an industrialized environment. This has advantages in terms of quality, and it will help us to reduce the cost of a high-quality home dramatically. We started with home prices in Fumba that were around 45,000 US dollars, but we know the majority of the market in Tanzania can only afford homes below 12,000 US dollars and to achieve that target, we need technology. We need to build fast, and green and at that price level and that is achievable with CLT. We are the first ones to introduce this technology, this is truly one of our big USPs (unique selling proposition) and we are currently selling in Fumba at 11,000 US dollars, and we are working on reducing those prices even further to produce homes for many, many more people and to make it affordable for many more people to own a home. Owning a home, and with different financing plans we have, such as rent to own, it is creating assets for families with value that you can bank on. That means people can move out of a poverty trap because suddenly they own something. Even people who can maybe only afford to pay 50 or 100 dollars rent per month, they will own at some point. And they will own property that is not only green, carbon friendly, beautiful and extremely durable, but the value will appreciate. We are already doing this. It is not a dream; it is not a mission we have. And we are applying to build the first CLT factory in Tanzania to produce 100,000 cubic meters of CLT for this market. All these things come together closing the gap of a huge demand for homes by producing beautiful homes at a very high speed. To give you an example; a CLT timber frame, multi-story home with 22 apartments is assembled in 10 days. These are things that have not been in the market in Africa, and this is surely something where CPS is leading the game at the moment.

The technology was developed in Europe, the leading countries are Austria and Germany. The exciting part of it is that it is actually very simple. CLT is soft wood laminates that are cross laminated at 90 degrees to each other, so you have three layers, five layers or seven layers and that technology can create a structural strength that you can build a slab with that before was built with reinforced concrete. When you start building slabs with that technology, you can build faster. So, planting and harvesting trees and using them for construction to replace concrete, which emits a lot of carbon dioxide, is better for our climate.

If this technology has been around for 10 years, why is no one else using it?

As a developer, I want to secure our supply chains, so we are investing in them. That will ensure that CPS can produce the 10,000 homes a year that we want to produce. That is our main mission.

It starts with perception. When I started building timber frame homes here in Zanzibar, everybody thought we were not going to sell them because they thought wood is not as strong and solid as concrete. We gave people the option by pricing our timber homes the same as conventional brick-and-mortar homes and 67% of our buyers decided on timber homes. A lot of local developers still believe that concrete is the future. That is not just an African thing, it also a European thing and even the same in America. They think concrete is cool and they would rather have a brick house than a timber house, but that perception is starting to change. In Tanzania, we are especially blessed because we have a lot of forests. For instance, in Kenya forest cover is only 7%. Our forest cover is 52%. And Tanzania, being a lot bigger than Kenya, means there is a lot of timber. We could supply timber for the whole world. We have companies like Green Resources and Sao Hill Industries already in Tanzania who are doing large-scale, sustainable forestry, so we have supplies of the material. We also have a fantastic network of companies in Europe including Binderholtz in Austria, which is the global leader in CLT production. It is a growing market. In Paris, their building policy is now that all public buildings have to be 50% timber. Munich is going in that direction, as is Berlin where the old Tegel Airport is 100% timber construction.

Is the difficulty that not enough CLT products are being produced?

Yes. Two companies in South Africa, in Johannesburg and Cape Town, have started producing CLT on a small scale and we are most probably one of their first clients. We want to shift our supply chain away from Europe to Africa as the first step because timber prices in Europe are exploding at the moment. Africa has a lot of timber, and it is quite stable. The second step will be supporting the supply chain of timber from sustainable forests to bring CLT production here, and for that we have investors and partners coming to build the factory in Tanzania. Production is due to start here in 2024. We have already sent containers of timber to Europe to be tested and certified by the Technical University of Munich. There are similar trends happening in other places such as southern China and Brazil because we all have the same challenge – to build in a sustainable and affordable way.

Are there enough forests in the world to do this?

Yes, there are. In Austria, the second tallest timber tower in the world, the HoHo Tower, was opened in Vienna. When the developer opened the building, the press said they were destroying forests, so they hired a consultancy company to do analysis and found that the timber used in the building regrows in the forests in Austria. In Tanzania, we know exactly the productivity of our forests. For one hectare, the yield is 18 cubic meters of timber.

Are there any obstacles preventing CPS from doing this in other parts of Africa?

The main one is that soon we will not be able to keep pace with production capacity needs. We will need more forests to be managed in a sustainable way. We want to educate villages in the Southern Highlands and other areas by rolling out schemes that they will understand. A forest is not a very attractive crop in Africa because it needs a long time before it can be harvested. It is different to many other crops in Tanzania that can be harvested two or three times a year. Timber can be harvested every 16 to 18 years, but it is a big advantage for Africa because in Finland for example, trees can only be harvested every 70 years. We also need investment in forestry, large-scale investment in sawmills, and we need construction companies to get into the game. As a developer, we work with contractors, suppliers, architects, consultants, and governments. We also need universities to increase their departments for timber technology and forestry management. It is a whole new sector that has to be supported. The Gatsby Foundation (London-based) estimates that this sector could be worth roughly 20 billion US dollars annually to the Tanzanian economy.

As a developer, I want to secure our supply chains, so we are investing in them. That will ensure that CPS can produce the 10,000 homes a year that we want to produce. That is our main mission. In the past couple of years during the pandemic, supply chains have been crazy and have not been reliable. If that keeps happening, we cannot produce. That is why we are going to be investing in forestry with our partners. And beyond that, the model of Fumba Town can be replicated in Kenya, and the circular economy can be replicated in other African countries such as the Congo for sure with its huge, forested areas. Africa should be the CLT global producer.

Does it require a lot of lobbying of governments?

Yes. Together with the Tanzanian forestry industry we have been lobbying for this for quite a while already. Last July, the President published the developmental framework for engineered wood products for Tanzania, so in Tanzania at least, we have full government support.

What is your observation of the real estate industry in Tanzania? What are the latest news?

It is a very small sector in comparison with Kenya, our direct neighbor. It is dominated at the moment by one government developer called National Housing Corporation. We are one of the biggest private developers that do more than 100 units a year and we feel that there is a lot of potential because there is a big backlog in housing production in the affordable and middle markets. In 2020, around 8,000 homes were being produced in Tanzania, of which more than 7,500 were local dwellings which means unplanned building of small houses somewhere. Only a very small percentage of the market is organized structure development of homes, and the backlog is building up every year.

Where is your geographic target market, and what is your primary market?

Geographically, we are currently focusing on Tanzania and Zanzibar, but we are very open to looking at east African countries like Kenya, Uganda and Rwanda, as well as potentially in Burundi. I do not think we would go straight into West Africa as we do not have experience there, although we could bring our technology and know-how to joint venture projects with urban developers in Ghana, Nigeria or Senegal. In terms of our target market, we are not looking at the upmarket segment as it is well supplied, rather we are very much into the low to middle income market. We call it equitable housing, which means people who can afford to buy, and we would like to cover a price range of people being able to pay a mortgage fee of between 50 to 400 dollars a month.

We have a new strategic partner hopefully coming on board at the end of March who we will be working with on a large-scale development in Dar es Salaam. There is a big potential for a huge project in Dodoma, the capital of Tanzania, where we are looking for equity partners. We go into partnerships with equity primarily in the early phase. What happens with large-scale developments is we have 20% to 30% of equity in the business, and then there is the selling off plan and once the project has gained some traction, we then reduce the equity with short-term debt and the projects run quite smoothly. In Europe, I would do this very differently right now because bank money is cheap, but here financing is still quite expensive. We are talking in Tanzania of mortgage finance rates of 14% to 18% interest per year.

What is your success story from a business standpoint?

We can build urban centers, or we can build houses, but they are just empty buildings, so my proud moment is when I started moving people into our towns and then getting feedback that they love living in Fumba Town and could not imagine living anywhere else in Zanzibar. You can build houses but, in the end, you have to turn those houses into hope. Managing that is key when building communities. And changing the perception of many people in saying that timber houses are sustainable homes and are the way to go, and then people investing in them is good too.

In terms of our financial success, we are proud to be the first large-scale private developer in Tanzania. Since the opening of Fumba Town in 2015, we have sold 500,000-dollar homes every month in a market that is growing exponentially. Basically, coming into a market that did not exist before and continuously selling is something we are proud of. It is amazing.

What kinds of amenities do you have in your communities?

One of the biggest amenities we have is nature around us. We have planted a lot of fruit, so kids can go out and pick papayas and pineapples. The fence around the town has passion fruit on it. We have a farmers’ market on the first Saturday of the month that promotes local food and products. There are kiosks and cafes and Friday evening there is always a barbeque and DJs playing. We are opening a commercial center; we have a small school and a hospital here already and a lot of events we do together with the global community. During Ramadan we have iftars and we sponsor football around the area.

What is your medium to long-term hope?

The dream is really to build 10,000 homes a year, that is our big target. And to be able to sell homes below 10,000 dollars, which should be achievable in three to five years with the technology here in the market. And to do so without compromising quality. If we can do that, we are good.

ABOUT SEBASTIAN DIETZOLD: Sebastian Dietzold grew up in Tanzania and lives there now, after 15 years in Germany. He studied civil engineering in England and Germany and specialised in real estate investment. During his time in Germany, Sebastian worked for major companies such as Deutsche Bank, PriceWaterhouseCoopers and KPMG. He founded CPS with his wife in 2012, with the vision to design and implement sustainable and empowering urban developments in Africa.

FAIR USE POLICY
This material (including media content) may not be published, broadcasted, rewritten, or redistributed. However, linking directly to the page (including the source, i.e. Marcopolis.net) is permitted and encouraged.