Morocco's real estate investment trust framework improved by new law

Real estate investment trusts (REITs) are a capital markets instrument used to finance commercial real estate. It is estimated that the average turnover of commercial real estate in Morocco is 3% per annum versus 4% per week for mutual funds. In the kingdom, commercial real estate assets sitting on company balance sheets represent about 15% of GDP, according to industry experts. REITs serve as a means to liquefy these assets, while offering pension and insurance investors an asset class secured by real estate and yielding rental income.

While REIT-style transactions do take place in Morocco, they are highly customised and are subject to generic contract law. The new law on REITs, passed in 2015, creates a dedicated framework that standardises the transactions, increases liquidity, protects investors and facilitates leverage.

NEW FRAMEWORK: Under the new law, at least 70% of the assets of REITs must be invested in real estate assets, while the remaining 30% can be invested in other types of assets in order to diversity their portfolios. The legislation stipulates that an external asset manager is required to undertake the management of any REIT operating in the country.

While the new law provides a clear regulatory framework for the operation of REITs, it has not brought with it changes to the existing fiscal framework. Therefore, at the time of writing REITs do not benefit from any fiscal incentives and are taxed under the generic corporate tax rate. However, the next fiscal bill is anticipated to make specific provisions to address this outstanding issue.

ATTRACTIVE OPPORTUNITY: Real estate has always been an attractive investment option in Morocco; the sector has garnered the highest level of foreign direct investment (FDI) in the kingdom, at around 40% of the total. With a new fiscal framework expected to be introduced with the passing of the next fiscal bill, the sector is forecast to attract even higher levels of FDI in the future. Furthermore, the law is set to help regulate the market and prevent excessive speculation by investors.

RISING RETAIL: The commercial real estate sector is forecast to have a positive outlook in the future. In the midst of different plans and programmes being implemented by the state to stimulate economic growth and strengthen the purchasing power of households, the number of shopping malls and commercial buildings is forecast to increase. By 2022 seven new malls are slated to reach completion, bringing the total number to 18 and, most importantly, doubling the amount of commercial retail space available in the country.

Currently, modern retail has a very low penetration rate, attracting no more than 15% of commercial activity in the kingdom. The segment therefore has considerable potential for expansion in the future, and can provide investment opportunities for REITs. With around 12 sq metres of modern retail space per capita in Morocco, versus 23 sq metres in Tunisia and 200 sq metres in France, modern retail has significant room for expansion.

INFRASTRUCTURE: In addition to helping to promote the development of a modern retail sector in Morocco, the new legal framework is also set to help facilitate the development of infrastructure needed for several national projects designed to boost economic growth and increase development. Notable examples of this include the production plants and assembly lines required in the industrial free zones under the Industrial Acceleration Plan 2014-20, and the logistics and procurement platforms detailed in the Rawaj Vision 2020 plan. Beyond regulating and propelling the real estate sector forward, this new law is expected to help increase liquidity for the Casablanca Stock Exchange over the medium term. As REITs go public on the exchange, they should provide a secure opportunity for new investors.