PROPERTY MARKET STUDY OF ZANZIBAR FOR

DHOW FINANCIAL LIMITED

OCTOBER 2011

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TABLE OF CONTENTS

1. Introduction.......................................................................................................3
2. Terms of Reference.........................................................................................3
3. Research Background......................................................................................3
4. Method of the study..........................................................................................3
5. Market Area Analysis.......................................................................................4
5.1 Zanzibar........................................................................................................4
6. Current Trends and State of the Market..........................................................5
6.1 Demand and supply and rental rates for residential short stay housing......5
6.2 Demand and supply of houses for sale......................................................10
6.3 Demand and supply of office space...........................................................13
6.4 Demand and supply of retail space............................................................15
6.5 Supply of hotels including room rates and occupancy levels in both high
and low seasons........................................................................................16
6.6 Demand for Hotels......................................................................................19
7. Summary........................................................................................................21

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1. Introduction

Knight Frank Tanzania Limited (KFT) has been commissioned by Dhow Financial Limited P.O.
Box 77606 Dar-es-salaam Tanzania to undertake a market study of Zanzibar that will provide an
overview of the property issues within the isles.

2. Terms of Reference

In accordance with the instructions set out on an e-mail of 18 September 2011 from Dhow
Financial Limited the study will cover the following major issues:

 the demand and supply and rental rates for residential short stay housing,
 the demand and supply of houses for sale;
 the demand and supply of office space;
 the demand and supply of retail space;
 the demand and supply of hotels including room rates and occupancy levels in both high
and low seasons.

3. Research Background

This report is based on a combination of studies carried out by Knight Frank in the past, current
market data analysis, and our interpretation of current views, opinions, trends and a specific
survey of Zanzibar that was recently undertaken by a surveyor.

4. Method of the study

The methodology used to prepare this report has included surveying of Zanzibar including
specific buildings and sites visits, the holding of interviews with some of the investors, manager
and estate agents in Zanzibar in addition to obtaining information with the assistance of the
Zanzibar Commission for Tourism, Ministry of Tourism and Ministry of Lands.

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Our approach was as follows:
(i) Visit to the isles, viewing of the market by visiting various locations;
(ii) The prevalent economic environment in Tanzania and in particular Zanzibar
specifically Unguja Island has been reviewed to identify specific residential related
economic and demographic trends that may or may not have an impact on the future
performance of the market;

(iii) An analysis of the existing and planned developments providing an indication of both
the current and future accommodation demand and the best possible market
approach and concept;
(iv) We hereby emphasise that the assumptions used to compile this market study are a
combination of available historical and current figures, the results of meetings with
investors, managers, and estate agents, analysing operations in the market place
and estimates after liaising with surveyors and others based on our experience.

5. Market Area Analysis

5.1 Zanzibar
The island of Unguja which is Zanzibar’s main island lies in the Indian Ocean, just off the East
African Coast, about 20 minutes by air and 90 minutes by ferry from Dar es Salaam. Zanzibar
consists of a multiracial and multicultural community. It is a society of many faiths and of different
origins. Almost the entire population is of mixed races primarily of Arab and African decent and
blended with local culture. The current population of Zanzibar according to 2002 census is
984,625 inhabitants with an annual growth rate of 3.5%

The Zanzibar Commission for Tourism (ZCT) describe Zanzibar as land of exotic natural species,
Romantic Island, land of all kinds of merchants, traders, missionaries and explorers, mother city
of East Africa, paradise of Africa, isles of harmony and hospitality and the cradle of standard
Kiswahili. The attraction at Stone Town as one of a kind World Heritage site (UNESCO) anchors
Zanzibar’s image and promotion. Historic sites as Beit El Ajaab (house of wonders). Old Fort,
Livingstone House, newly restored Old dispensary, Anglican Cathedral on the site of the former
slave market, Tippu Tip House, Maruhubi palace and other ruins of the former sultans, Kidichi
Persian Bath, and the Kizimkazi Mosque, Chooko Mosque, Ras Mkumbuu, Mkamandume Ruins
can be reinforced by cultural performances so that a strong historic – cultural product exists in
Zanzibar

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According to Tanzania Tourism Sector Survey (2007) the Island’s major economic activities
include tourism, trade, agriculture and fishing. Zanzibar has many attractions such as the Stone
Town, ancient ruins and buildings, spices, sparkling white sandy beaches and clear blue sea.

Under the present system, investors in Zanzibar are required to approach the Zanzibar
Investment Promotion (ZIPA) with proposals for developments. The investor may have already
identified land or can request assistance from ZIPA to find land. According to the Tourism Zoning
Plan only land inside the zones can be developed. However, since there is no detailed planning
the investor is required to enter a protracted process of identifying his needs and negotiating
compensation with local residents.

6. Current Trends and State of the Market

6.1 Demand and supply and rental rates for residential short stay housing

6.1.1 Supply
In the stone town and surrounding areas, there are currently a number of houses that during the
high season are put into the market to let for accommodation to tourists. These are mainly let at a
comparable lower rate than most hotels in the surroundings. It is difficult to establish the number
of available houses because they change use in accordance with season.

Very few Zanzibari Diasporas stay in hotels. Most of them stay with relatives and some rent
accommodation such as Michenzani and Kilimani flats on monthly basis. They pay on average
US$300 to US$400 per month per flat. A flat tends to comprise two to three bedrooms and is
furnished. Whilst in Dar es Salaam furnished apartments which are available for short stay,
although some are serviced, are let at rates in the range of US$2,000 to US$4,500 per month.

There are other diaspora who reside in their own holiday homes which they tend to construct
themselves. Whilst they are away, they tend to leave the properties to house staff or their
relatives for house warming.

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Below is a photograph of one of the Michenzani blocks of Flats.

With regards to out of town, there are a few developments including the recently opened Zalu in
Nungwi and the two below which were identified as providing short term residential stays:-

Table 1: Existing Developments

Developme Completion Rates (US$) Rates (US$)

Building Type
nt Address Date
Low Season High Season

Melia Residential Villas within a hotel compound: December 753 – 1,650 886 – 1,915
formerly 6 units within a hotel compound. Comprises 2005
Zamani of 1 to 3 bedroom luxury Villas with
individual swimming pool.
Kempinski
Let/occupied on short term basis
Zanzibar Residential Villas within a hotel compound: December 220 - 290 300 - 700
Dolphin
View 0 units (phase 1) comprise of 3 bedroom 2008
Paradise double storey houses; 25 include individual
swimming pools.
Sold at approximately US$225,000 to
US$275,000 per unit and to be let by the
hotel. Similar to timeshare schemes.

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The following are photos of one of Melia’s private villas and site layout of Dolphin view:

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In addition, we identified other accommodation units which are located within hotels in Zanzibar
that offer short term stays and their details are as follows:

Table 2: Accommodation and Rates on the Beach and Island Hotels

Development Accommodation Hotel Rates (US$) Hotel Rates (US$)

Low Season High Season

Ras Nungwi Beach Hotel 34 rooms 110 - 215 210 - 305

Nungwi - the Ocean Suite 1 Villa 275 405

Matemwe Bungalows 14 bungalows 286 336

Matemwe Retreat 3 Villas 468 570

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 Development Accommodation Hotel Rates (US$) Hotel Rates (US$)
Low Season High Season

Diamond La Gemma Del’est 30 Villas 165 - 198 208 - 359

Mnemba Island Lodge 10 bungalows 1,115 1,500

Chumbe Island 7 bungalows 250 270

The following are photographs of some of the above developments

Ras Nungwi – Ocean Suite Ras Nungwi – Lodge Rooms

Matemwe Retreat Matemwe Bungalow

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 Gemma Del’este Resort Chapwani Island

6.1.2 Demand
Market investigation shows that demand for short stay residential accommodation largely varies
with season, with peak demand being during high tourism season and low demand being during
low tourism season. This variation also largely affects the determination of prices for
accommodation. During high season where there is the highest wave of tourists coming in
therefore operators tend to raise prices and lower them during the low season as shown on the
rates in table 2.

Apart from other services offered, extensive beach hotels that offer privacy to visitors also tend to
set their prices at the high end. According to tour operators interviewed, most high net worth
individuals during vacations prefer places where they can spend their time free from any kind of
interruptions from individuals or media and pay highly for such kind of place. The degree of
privacy, that an up-market residential property offers, tends to affect the setting of prices for
accommodation.

6.2 Demand and supply of houses for sale

6.2.1 Supply
There appears to be very little supply of houses to buy as the market norm has been for an
individual to purchase land thereafter to construct a residential property on their own. KFT
identified that the value of the land lies in its potential for development. It is worth pointing out that
the value and the marketability of the land depends much with the availability of the title deed and
the terms and conditions contained thereon.

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Since the market norm has been to purchase land and subsequently built on it, this norm appears
to have influenced the Zanzibar market as there appears to be no properties that are built
specifically to sell on the isle apart from the ones mentioned above at Dolphin and Zalu which are
for short term stay.

6.2.2 Demand – Potential Buyers

During site visit and when undertaking the survey of Zanzibar as a whole, the surveyor was
informed by investors, managers and estate agents that potential buyers for residential properties
in Zanzibar may be grouped into two namely foreign investors and local investors who may be
institutions as well as individuals.

Recently, Zanzibar has been experiencing a wave of foreigners coming to invest in hotels and
other tourist accommodation on the island. Similar to major tourists, they are mainly from Western
Europe and North America. They can therefore be targeted as the buyers from overseas because
they appreciate Zanzibar as a potential tourist destination since they tend to have previously
visited the island as tourists and later on return to invest in property. It is evidenced that Italians
and Spaniards stand as the major prospective buyers to the project due to the existence of Italian
and Spanish hotel investments as well as arrangement of direct charter flights from Italy and
Spain to Zanzibar during peak season.

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According to the 2009 Tanzania Tourism Sector Survey, the top 15 sources of tourism market to
Zanzibar are as provided in the table below:

Table 3: Top Sources of Tourism Market to Zanzibar

S/N Country of Number of % of Total
Residence Visitors
1 Italy 1,334 26.3
2 United Kingdom 763 15.0
3 Germany 399 7.9
4 South Africa 327 6.4
5 Unites States of 298 5.9
America
6 Spain 272 5.4
7 France 270 5.3
8 Netherlands 178 3.5
9 Australia 166 3.3
10 Canada 128 2.5
11 Belgium 95 1.9
12 Switzerland 92 1.8
13 United Arab Emirates 65 1.3
14 Ireland 53 1.0
15 Norway 49 1.0
16 Other 592 11.7
TOTAL 5,081 100.0
Source:- Tanzania Tourism Sector Survey, 2009

Seventy-nine per cent of visitors to Tanzania are on vacation, followed by those visiting friends
and relatives (8.2%). 6.5% and 2.3% came for business and conference respectively (the majority
of whom arrive in the country in Dar-es-salaam), with 3.9% ‘other’

Confidentially, on the side of local buyers, public institutions particularly pension funds such as
Zanzibar Social Security Fund (ZSSF), stand out as potential buyers of properties as they have

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done so in the past by purchasing the insurance company’s housing estate and surplus land in
Mbweni. They have been involved in major real estate developments in both Zanzibar and
Pemba and they appear have the financial muscular to handle huge investments.

Similarly, individuals have also recently been involved in large projects and may also be
considered as a potential group of buyers. Some of the potential buyers on the island include
those who expressed interest in a recent up-market sale of a residential property in Zanzibar and
they were Samir Esmail and Stephi Hill Said. There are also companies such as Zanzibar Soap
Manufacturing Company. From mainland individuals and private companies include Ameerali, N.
Esmail, Abdulsultan Jamal and Habitat Apartment Limited. Others could be high-net worth
individuals who have invested in Zanzibar and they include Ali Al-Bawdy and Said Salim
Bakhresa.

6.3 Demand and supply of office space

Supply
There are a few purpose built office blocks that are available to let in Zanzibar. The most
prominent is ZSTC Investment building with a total lettable area of 3,200m 2 which is located on
Malawi Road in Gulioni area. It has been in operation since 2002. The building is currently fully let
and amongst its tenants are UNDP, Macemp and the Board of External trade. The building is
currently let at US$7 per m 2 per month. Apart from the rent, a service charge of US$2 per m 2 per
month is levied onto the tenant.

Another building that is partly let (partly owner-occupied) is the ZSSF building which is located on
Airport Road in Kilimani area. The total lettable area is about 724m 2 with 719m2 occupied by
Zanzibar Revenue Board (ZRB) and 5m2 occupied by Brain Insurance Company. The building is
currently let on an all inclusive rent and service charge rate of US$8 per m 2 per month.

It is worth noting that the rental rates are very low when compared to other towns and cities in
Tanzania mainland such as Dar es Salaam which currently averages at US$18 per m 2 per month
for grade A office buildings and Arusha which is US$10 to 12 per m 2 per month for the same
quality office space. The rates are exclusive of service charges.

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Below is a photograph of ZSTC Building.

Other office occupiers tend to operate in three other types of accommodation and they are as
follows:
i) Stand-alone houses which have been converted into offices. The tenants are usually
private sector firms and they tend to rent at rates of US$500 to 1,000 per unit per
month depending on the locations;
ii) Offices within Ministries and other Government agencies. The tenants or occupiers
tend to be aid organisations. The rental payment or office provision tends to be
discussed and agreed upon as part of the aid being given to the country;
iii) Offices within retail thoroughfares. They tend to be offices in buildings such as
Muzammil building and Bombay Bazaar. They are let at the rate of US$420 per room
per month.

Demand

It is not possible to measure expected demand for offices from companies and other
organisations that are expected to set up operations in Zanzibar, as there are no statistical
data relating to such a matter, although it is clear that current demand is being driven by local

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 private firms, companies and other organisations from the mainland, aid organisations and
other foreign entities.

We estimate that there will be a small increase in the demand from all the prospective tenants
and owner-occupiers as we are seeing a small but steady influx of new companies and other
organisations into the market and many established companies have been expanding.

6.4 Demand and supply of retail space

Supply
The retail market in Zanzibar principally revolves around small town shops which are found in
areas within stone town such as Shangani, Darajani and Mchangani. Below is a typical retail
street in Zanzibar.

There are a number of new retail developments, mostly completed in the last few years, almost
all being away from stone town. They include Muzammil centre and Mwanakwerekwe shopping
centre which is a ZSSF owned scheme. ZSSF has managed to construct and let the centre which
measures 1,530m2. They have two anchor tenants namely Peoples Bank of Zanzibar (PBZ) and
Zantel. They have 74 other tenants and the all inclusive passing rent is US$5 to 10 per m2 per
month.

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ZSTC investment building also has numerous retail units on the ground floor. They are currently
let to Barclays Bank, Jubilee Insurance, Dyness Mdoe and Teddy Junior. As with the offices, the
passing rent is US$7 per m2 per month and the service charge is currently pegged at US$2 per
m2 per month. Bombay Bazaar let retail units on the ground floor at the rate of US$350 per outlet
per month.

Demand
The shops that are in supply are run, in the main, by the Arab and Indian communities although
there are a few Africans who trade within them. The demand tends to come from the same local
traders.

As mentioned earlier, most of the shops are in stone town therefore their demand is this area is
quite high as there is limited space. However demand is low in areas away from stone town. We
were informed that Mwanakwerekwe shopping centre was only partly built because there was
lack of demand and during the course of letting, asking rents has to be halved from the original
rates in order to achieve occupancy. The general feel in the market is that there is no effective
demand for western style mall in Zanzibar although ZSSF are planning to build a shopping centre
within the Kariakoo amusement park.

6.5 Supply of hotels including room rates and occupancy levels in both high and low
seasons

Being one of the top tourism destinations of the Indian Ocean which is wrapped in a mysterious
Arab/African ambiance and flavoured with palm fringed tropical beaches, Zanzibar experiences
higher developments in the hospitality industry compared to other investments. From discussions
held with tour operators and estate agents, the surveyor learned that this has largely been
influenced by construction of new hotels and refurbishment of the old ones. Likewise, there has
been impressive expansion of tourism activities as reflected by the increase in number of tour
companies and improvement in services offered.

During market investigation, the surveyor was informed that hospitality developments in Zanzibar
have been characterised in three groups based on location. These are the Stone Town, the North
East Coast, and the South East Coast

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The Stone Town is the old town and the cultural heart of Zanzibar, characterised by narrow lanes
winding between grand and ageing stone buildings with carved wooden doors studded with brass
bosses. These buildings show a clear blend of Arab and European architecture although the
general architectural styles are predominantly Arab.

Attractions at Stone Town as one of a kind World Heritage site (UNESCO) anchors Zanzibar’s
image and promotion. This ranges from Historic sites as Beit El Ajaab (House of Wonders). Old
Fort, Livingstone House and market (opened in 1904), newly restored Old India dispensary,
Anglican Cathedral (1873) which was built on the site of the former slave market, Tippu Tip
House, Maruhubi palace, the Sultan’s Palace which now is a museum and other ruins of the
former sultans, Kidichi Persian Bath, and the Kizimkazi Mosque, Chooko Mosque, Ras Mkumbuu,
Mkamandume Ruins and others underline the historical significance of Zanzibar as one of
potential tourist destinations.

Most hotels in Stone town are located within old buildings to blend with the historical feel of the
area. On the upper end hotel rates per room/suite range between US$90 at Tembo House Hotel
to US$250 at Zanzibar Serena Inn as outlined on the table below, although we would advise to
check the internet and liaising directly in order to obtain up-to-date information:-

Table 4: Accommodation Rates in Stone Town

Development Accommodation Hotel Rates (US$) Hotel Rates (US$)

Low Season High Season

Zanzibar Serena Inn 112 rooms 175 - 204 213 - 240

Tembo House Hotel 37 room 100 - 195 100 - 195

Zanzibar Palace Hotel 9 rooms 117 - 355 117 - 355

Beyt al Chai 6 suites 105 - 175 150 - 250

Emersons Hotel 10 rooms 155 - 211 155 - 211

Dhow Palace Hotel 28 rooms 75 - 170 75 - 170

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According tour operators in the region, the best beaches on Zanzibar island are to the North and
East. According to Tanzania Odyssey Zanzibar beaches are among the best in the world, and
have a very special charm, extended white sand beaches and views from the palm-fringed sands.
As a result the beaches have witnessed a range of first class hotel developments that attract a
good number of tourists from all over the world especially from Western Europe and North
America.

Hotel rates per room/suite per night range between US$90 at Pongwe Beach Hotel and US$900
at Ras Nungwi Beach Hotel as outlined in the table below:

Table 5:- Accommodation Rates on Beach and Island Hotels

Development Accommodation Hotel Rates (US$) Hotel Rates (US$)

Low Season High Season

Karafuu Hotel Beach Resort 89 rooms 62 - 118 164 - 250

Sau Inn Hotel Zanzibar 43 rooms 150 – 425 150 – 425

The Palms 6 Villas 464 - 465 584 - 585

Nungwi - the Ocean Suite 1 Villa 275 405

Ras Nungwi Beach Hotel 34 rooms 110 - 215 210 - 305

Matemwe Bungalows 14 bungalows 286 336

Matemwe Retreat 3 Villas 468 570

Echo Beach 9 room 150 - 200 150 - 200

Pongwe Beach Hotel 18 rooms 90 95

The Baobao Beach Bungalows 15 bungalows 75 - 115 90 - 135

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 Development Accommodation Hotel Rates (US$) Hotel Rates (US$)
Low Season High Season

Shooting Star 14 rooms 120 - 940 130 – 1,020

Mchanga Beach Lodge 8 rooms 168 - 605 230 - 665

Melia formerly Zamani Kempinski 117 rooms 137 - 299 171 - 379

Diamond La Gemma Dell’est 30 Villas 165 - 198 208 - 359

Mnemba Island Lodge 10 bungalow 1,155 1,500

Chumbe Island 7 bungalows 220 250

Chapwani 10 rooms 100 - 160 100 - 160

6.6 Demand for Hotels

According to a research carried out by the Zanzibar Commission for Tourism (ZCT), currently the
demand for tourists’ accommodation on the Island has been on the increase as reflected by the
increased number of new hotels and refurbishment of the old ones, the increase in number of tour
companies as well as improvement in services offered mainly due to increased tourist activities.

This is mainly attributed to increased tourism investment in the country, increased number of
flights from different destinations in the world, expansion of tourism activities as well as
participation in International Tourist Exhibitions such as the Spanish tourist exhibition known as
“Feria Internacional de Turismo” (FITUR), the Indaba of South Africa, the British World Travel
Market (WTM).

With the current economic crunch, it is not possible to measure the expected demand as most of
tourism sources have been badly affected by the phenomenon. However, accommodation and
tour companies’ operators are optimistic that it looks bright. In their opinion their major consumers
are high net worth individuals that are less affected by the phenomenon as compared to the
middle income earners. This is evidenced by the fact that there are still hotel and tour
reservations being received.

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In Zanzibar the high season usually starts around mid-November and extends to March. This is
the period where most tourists from North America come to Zanzibar. The low season mostly
dominates the period between April – June and September – October. July and August may
sometimes experience a wave of tourists, so it is regarded as mid-season.

During market study it was found out that most residential and hotel operators in Zanzibar use the
low season as the period for renovation or refurbishment of rooms. However, according to the
Zanzibar Commission for Tourism currently, there are efforts to advertise Zanzibar as a tourist
destination by extending the market to cover other countries such as China, India and South
Korea. This is mainly aimed at maintaining the number of consumers throughout the year.

It is evident that most tourists come to Zanzibar for the purpose of enjoying the white sand
beaches so mostly dominate the north and east regions of the Island. This is also the location
where most high class hotel developments are concentrated. Save for Zanzibar Serena Inn and
Beyt al Chai, most hotels in Stone Town accommodate the low budget crowd for they lack the
kind of privacy and amenities that the high budget crowd would prefer. As a result they mainly
come in town for sight seeing and shopping and later retire to their hotels out of town.

According to a survey carried of by MNRT, the average length of stay for package and non
package tourists in Zanzibar is 7 nights. The highest average length of stay was 10 nights
recorded by Italy, which is the significant tourism source market for Zanzibar.

Table 6:- Average Length of Stay of Visitors to Zanzibar

S/N Country Non-Package Package Visitors’ Combined
Visitors’ Country Country Average Average
Average
1 Italy 8 8 8
2 United Kingdom 7 6 7
3 United States of America 4 4 4
4 Germany 7 6 7
5 Spain 5 5 5
6 France 6 4 5
7 South Africa 7 6 7

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 S/N Country Non-Package Package Visitors’ Combined
Visitors’ Country Country Average Average
Average
8 Netherlands 6 6 6
9 Australia 6 4 5
10 Canada 5 4 5
11 Japan 5 2 4
12 Switzerland 7 7 7
13 Kenya 4 4 4
14 Belgium 7 7 7
15 Ireland 6 5 6
Average 6 5 6
Source:-Tanzania Tourism Sector Survey, 2009

The average expenditure per night for the Package Visitors is US$231 and US$195 for Non-
Package Visitors

Visitors from the mainland are divided into two, those who visit Zanzibar on official duties such as
politicians and businessmen, and the very few families who go over on holiday. They tend to
spend between three to five days on the isles and spend on average US$400 per person for the
duration of the visit

7. Summary

The study has revealed that there is still a satiable demand for hotels and short stay residential
accommodation to cater for tourists which may result in good returns on investments in this
sector. On the other hand rental levels of offices, retail and residential accommodation in
Zanzibar are lower compared to rents achieved on the mainland.

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