DarProperty Tz
Senior Member
- Apr 24, 2011
- 168
- 29
http://www.darproperty.co.tz/article/readArticle/39
Why do the real estate developers and landlords opt to quote in the US dollar?
Is it affecting our economy? how?
Perhaps you are wondering, why would one live in Tanzania and do business in other country`s currency?, you are not alone, I felt the same way six years ago after being involved in a few real estate transactions. It is such a puzzle for an outsider to rationalize the motive for using the US dollar in our local real estate market. Some think the legal Tender; Tanzanian shilling is marginalized, undoubtedly because of the misguided monetary policies. NO! There is more than one to this.
It is economical but I am not advocating for it, do you know it is cheaper if you take a mortgage in the US dollar. The mortgage interest rates as of today in most of the commercial banks in Tanzania are around 8% for the US dollar and 19% for Tanzanian shilling. Mathematically if you take a mortgage in US Dollar, let us say. 100,000 you will be paying 1,371 monthly but if you take the equivalent, which is TZS. 160,000,000. You will be paying 3,130,000/= per month. It is cheaper but you have to prove to the lender that your income is in that currency. No wonder why our landlords ask for the US Dollar.
The target group (Market): most of these luxury apartments and bungalows that are listed in the US dollar are not meant for our Sister Mwajuma or brother Massawe, they are targeting the expatriate market and foreigners who have access to the currency and are conversant with it. What about for sale properties? That one am a bit puzzled, because our land laws do not permit foreigners to own (buy), unless it is for investment purposes through obtaining derivative rights.
Indexation: a system of economic control in which certain variables are tied to a cost-of-living index so that both rise and fall at the same rate and the detrimental effects of inflation are theoretically eliminated, we can all recall our inflation rates were as high as 18% last June but the Dollar grew stronger by 2.8% between January and September, if these landlords were using the legal tender, Tanzanian shilling and other things were held constant we would see them raising the rentals by at least 9% . My studies have shown that the tenants paying their rentals in TZS have seen their rent increasing by at least 10% after every two years while their counterparts who are paying in USD have constant rental charge up to 5 years.
Other comments by our readers through our social media:
hekimatele"it does greatly affect our economy as we devalue our currency to the great extent.
However, the real estate developers and stakeholders pleads that the reason why they quote in dollars is because the materials used in the development are quoted in dollars and even the payments made to their contractors and the like are honored with the same currency. Some of these real estate developers use Chinese contractors and other outside companies who prefer that medium of payment.
A number of philosophies have developed around this practice all of which do not seem to favour the country's economy.
My take:
king kan"I do think fluctuation in the value of local currencies also matters. It`s quite unfavourable to predict future incomes and to determine the repayment period over long periods of time using currencies subjected to unsteady inflation levels. And the very fact is real estate investment costs do cost a lot and have a long repayment period, so using dollar minimises the risks of variations brought about by unstable inflation rates and frail GDP growth of our local economy in income projections"
Mwanahisa"Real Estate industry is one of the promising future of our economy as well as financial institutions. One of the prominent feature which is missing is Regulatory frame work, Mfano mzuri is the so called brokers".
To view other articles and get researched insights about real estate in Tanzania, visit our website; www.darproperty.co.tz
Why do the real estate developers and landlords opt to quote in the US dollar?
Is it affecting our economy? how?
Perhaps you are wondering, why would one live in Tanzania and do business in other country`s currency?, you are not alone, I felt the same way six years ago after being involved in a few real estate transactions. It is such a puzzle for an outsider to rationalize the motive for using the US dollar in our local real estate market. Some think the legal Tender; Tanzanian shilling is marginalized, undoubtedly because of the misguided monetary policies. NO! There is more than one to this.
It is economical but I am not advocating for it, do you know it is cheaper if you take a mortgage in the US dollar. The mortgage interest rates as of today in most of the commercial banks in Tanzania are around 8% for the US dollar and 19% for Tanzanian shilling. Mathematically if you take a mortgage in US Dollar, let us say. 100,000 you will be paying 1,371 monthly but if you take the equivalent, which is TZS. 160,000,000. You will be paying 3,130,000/= per month. It is cheaper but you have to prove to the lender that your income is in that currency. No wonder why our landlords ask for the US Dollar.
The target group (Market): most of these luxury apartments and bungalows that are listed in the US dollar are not meant for our Sister Mwajuma or brother Massawe, they are targeting the expatriate market and foreigners who have access to the currency and are conversant with it. What about for sale properties? That one am a bit puzzled, because our land laws do not permit foreigners to own (buy), unless it is for investment purposes through obtaining derivative rights.
Indexation: a system of economic control in which certain variables are tied to a cost-of-living index so that both rise and fall at the same rate and the detrimental effects of inflation are theoretically eliminated, we can all recall our inflation rates were as high as 18% last June but the Dollar grew stronger by 2.8% between January and September, if these landlords were using the legal tender, Tanzanian shilling and other things were held constant we would see them raising the rentals by at least 9% . My studies have shown that the tenants paying their rentals in TZS have seen their rent increasing by at least 10% after every two years while their counterparts who are paying in USD have constant rental charge up to 5 years.
Other comments by our readers through our social media:
hekimatele"it does greatly affect our economy as we devalue our currency to the great extent.
However, the real estate developers and stakeholders pleads that the reason why they quote in dollars is because the materials used in the development are quoted in dollars and even the payments made to their contractors and the like are honored with the same currency. Some of these real estate developers use Chinese contractors and other outside companies who prefer that medium of payment.
A number of philosophies have developed around this practice all of which do not seem to favour the country's economy.
My take:
king kan"I do think fluctuation in the value of local currencies also matters. It`s quite unfavourable to predict future incomes and to determine the repayment period over long periods of time using currencies subjected to unsteady inflation levels. And the very fact is real estate investment costs do cost a lot and have a long repayment period, so using dollar minimises the risks of variations brought about by unstable inflation rates and frail GDP growth of our local economy in income projections"
Mwanahisa"Real Estate industry is one of the promising future of our economy as well as financial institutions. One of the prominent feature which is missing is Regulatory frame work, Mfano mzuri is the so called brokers".
To view other articles and get researched insights about real estate in Tanzania, visit our website; www.darproperty.co.tz