A place of your own: Expanding options is a top priority in both the residential and commercial segments

Following the global economic downturn in 2008, Algeria’s real estate market suffered a slowdown, incurring the loss of some key investors and the postponement of various projects. Nevertheless, sector developments remain largely positive, driven by significant government and private sector investments to increase housing availability and realise several major real estate projects. Continued progress towards the achievement of large-scale initiatives also inspires a great deal of optimism for the future, with 2010 seeing the inauguration of the Bab Ezzouar multipurpose development project. Meanwhile, work continues on the €2.5bn Alger Medina, though financing issues have complicated completion. Algeria has also witnessed a burst of new social housing and hotel projects, facilitated by new amendments to banking and real estate regulations. With a variety of developments in progress and rising demand for additional initiatives, the sector is expected to enjoy sustained growth in the long run.

HOME BUILDING: The combination of a high rate of urbanisation, rapid population growth and limited space for expansion in Algeria’s cities has had serious consequences for the real estate market. With an estimated 63% of the population living in the Tell region, which comprises only 4% of the national territory, lack of housing has contributed to overcrowding and the growth of shantytowns and illegal urban expansion. A shortfall of affordable accommodation is a major issue, with housing prices exceeding average income levels.

The housing shortage has been further exacerbated by a massive expansion in the youth population, with the number of people under age 30 now constituting over half the total. The housing crisis has made it difficult for young Algerians to get married or live on their own, as many must stay with family members well into their 30s. These grievances have fed popular discontent with the status quo, fuelling escalating social tensions. With high demand and few available options, housing has become “the biggest problem confronting the government”, according to M’hamed Sahraoui, the CEO of real estate firm Société de Promotion Immobilière Raoudhet El Feth (SOPIREF). “When you demand for housing units outstrips supply, it causes a social crisis, with demonstrations and violence in the streets,” he told OBG.

To combat these challenges, the government has implemented an expansive housing programme to build millions of homes by 2017. The Ministry of Housing and Urban Development expects the investment to make up for the shortfall in housing.

SOCIAL HOUSING: Several social housing projects have been completed in the first half of 2012. The state has worked desperately to overcome the shortage over the past 10 years, and allocated roughly €40bn under the current five-year national investment programme for related construction projects.

The government has adopted an ambitious housing programme and aims to construct 2m social housing units (logements publics locatifs, LPLs) between 2009 and 2017. This comes on top of 1m homes which were built in the 2005-09 period. To account for delays on several projects under the previous five-year plan, and to accommodate the steady growth of demand for housing, the government set the goal of building 1.2m units under the 2010-14 programme. “Particular measures have been taken to allocate accessible land for housing development in collaboration with the provinces. Indeed, this has been done through strategic urban development planning and working with local and foreign firms.

The programme will see the delivery of 240,000 units per year,” Noureddine Moussa, the former minister of housing and urban development, told OBG.

While progress for certain projects has at times been slow, the announcement of several recently completed projects bodes well for the sector in 2012.

In mid-June, 570 new LPLs were allocated to residents in the area of Aoulef, which is located 250 km east of the capital city of the Adrar Province in south-western Algeria. Construction took a total of two years and an investment of €30.64m.

In the area surrounding the city of Constantine, 520 subsidised housing units (logement promotionnels aidés, LPAs) were allocated to area residents in late May 2012. Local housing authorities indicated that a total of 8000 such units are set to be delivered in Constantine by the end of 2012. Also in May, just over 300 rural homes were delivered in a community in Béchar Province in western Algeria, which should go a long way to meeting the registered demand for 500 homes in the area.

PRIVATE PARTICIPATION: There is also considerable room for private sector investment in real estate management under the national housing programme. Of the 7500 LPAs to be built in Oran between 2010 and 2014, approximately 3000 are reserved for private developers. The remaining units will be allocated to public agencies that specialise in the field, such as the Oran Property Agency and the Office of Real Estate Promotion and Management.

The timeline for many of these projects will benefit companies that are able to compress delivery schedules while maintaining competitive prices. In May 29, 2012 private real estate developers were selected amongst hundreds of bidders for the construction of 3000 LPAs, according to local press reports. In the selection process, local authorities insisted upon companies that are able to meet project deadlines, as delays have been a persistent, system-wide problem. In Oran, some 8500 housing units meant to be completed between 2004and 2006 are still under construction.

LPLs made up roughly 91% of the national real estate market in 2011 and represent the bulk of current unmet demand. Mid-range properties made up approximately 8% of the market, and high-end housing only 1%. The 2010-14 spending programme aims to incentivise and finance the construction of several different levels of social housing nationwide, including 500,000 LPLs for rent and 500,000 LPAs.

In addition, 300,000 units are to be built under the slum eradication project (Résorption de l’Habitat Précaire) and another 700,000 units under the rural development programme, which finances the construction of homes in rural areas in an effort to alleviate congestion in urban centres.

Social housing is reserved for low-level salaried workers who earn less than €245 per month. Rents on these properties vary between 2% and 12% of minimum wage. Subsidised housing, meanwhile, aims to encourage home ownership among the middle class by offering government-subsidised interest rates and loans. LPAs are open to Algerians earning between one and 12 times the minimum wage. “Incentive measures have been taken simultaneously on the demand side to make it solvent and on the supply side to make it more reactive through several schemes and actions, including: the institutionalisation of procedures, tax benefits, the reduction of housing costs and clearly defining housing rights,” Moussa said.

CHALLENGES: The challenges facing the Algerian housing sector are considerable. The majority of the population is concentrated in the northern Tell region, where large cities and much of the nation’s economic activity is located. As a result, a high rate of urbanisation and limited space for expansion have led to rising real estate prices, and some land owners have manipulated prices to their advantage. These conditions have in turn led to overcrowding in many urban areas, as well as the spread of shantytowns and unregulated urban expansion on the outskirts of many cities that do not meet basic living standards.

However the regulatory environment is improving, as the state has taken on several initiatives aimed at organising the sector. The National Development Master Plan 2025 (Schéma National d’Amé nagement du Territoire) was adopted in 2010 to plan the establishment of new urban centres in order to ease congestion. The state also undertook an urban planning scheme for Algiers in 2010, which will manage all future expansion. Insufficient land availability has been an obstacle to the real estate sector as a whole. To remedy this, the government is making state-owned land available under a number of 33-year concession agreements that can be renewed twice, the majority of which will be reserved for public housing.

OTHER HOUSING PROJECTS: The government housing programme has promoted the construction of a range of other housing options, with 310 rural homes finished in May 2012 in Mechraa Houari Boumediene, 88 km south of Béchar. These completed projects are part of a large-scale rural housing initiative to build 900,000 new homes, thereby encouraging citizens to leave over-crowded cities. Additionally, the government has implemented a slum eradication project (Résorption de l’Habitat Précaire) that will lead to the dismantlement of 553,000 illegal housing units and the construction of another 300,000 housing units to replace those removed.

Though representing only 1% of the national real estate market in 2011, demand for high-end housing continues to grow along with increases in purchasing power. The expansion of this segment of the market is epitomised by a burgeoning number of luxury properties, including the Algerian La Libanaise de Promotion initiative, La Residence des Pins, expected to be complete by the end of 2012. Grade-A properties garner between AD120,000 (€1152) and AD220,000 (€2112) per square metre in the market.

Under the housing initiative, building affordable homes for the middle and lower class is a top priority, with an emphasis on the construction of units for sale as opposed to rental properties, with only 5% of homes envisioned for the latter option, estimates Sahraoui. Both public and private developers have strayed from building rentals as they prefer an immediate return on investments.

MULTIPURPOSE FACILITIES: The opening in 2010 of the €70m Bab Ezzouar complex is the first of several major mixed-use projects in the Algerian real estate market. Covering 45,000 sq metres, the Swiss-sponsored development includes a cinema, a hypermarket, restaurants, basic services, stores and office spaces, while the surrounding area houses the headquarters of companies like Djezzy, Mobilis and Novotel. Demand for Grade-A office space in particular has grown rapidly over the last several years, aided by the development of national firms and the participation of major foreign enterprises in the local economy. The Swiss consortium overseeing the Bab Ezzouar project, Société des Centres Commerciaux d’Algérie, is also considering an additional investment of €80m in the construction of two new shopping malls in Algeria.

Another large-scale project is the 100-ha Alger Médina complex, which will include a shopping mall and hypermarket, a theme park, three business towers and residential properties. The project was due for completion in 2012 in Algiers, but has been subject to delays due to financing issues, though work continues on the facility. Meanwhile, the Emirati-led project Dounya Parc envisions 10,000 villas and apartments, an international school, hospital, central business district golf course and equestrian centre in the capital. Other major initiatives include SOPIREF’s Residence Urba 2000, which will contain over 400 housing units, a hotel, a business tower and a commercial centre stretching across 51,000 sq metres.

REGULATORY IMPROVEMENTS: Created in the year 2000, the Mutual Guarantee Fund for Property Development (Fonds de Garantie et de Caution Mutuelle de la Promotion Immobilière, FGCMPI) was established to address various shortfalls in the regulation of the real estate market. During the 1990s, the introduction of off-plan sales facilitated the rapid development of the real estate market, enabling buyers to place down payments on housing and commercial properties yet to be constructed. While this initiative gave developers the necessary funds to implement their projects, a few notable cases of developer negligence left buyers without their property or their investment. Therefore, the FGCMPI was created as a special fund with the ability to cover buyer payments in the event that developers do not live up to their contracts. Additional protection measures include the 2010 implementation of a new draft property development law, which created a registry for licensed real estate developers and required developers to pay penalties for late projects. Moreover, the law obliges all off-plan purchases to be registered.

The FGCMPI was further strengthened with the introduction of a new law in 2011 that provided a completion guarantee, which extends beyond the reimbursement of buyers’ investments and ensures that construction work is completed, irrespective of the developer’s failures. At the end of the first four months of 2012, the FGCMPI had under guarantee 235,889 LPAs and 30,010 free promotional houses, up from a mere 510 and 357 in 2000, respectively. With total current funds amounting to AD4bn (€38.4m), the FGCMPI also guarantees 3589 projects.

ENTICING FOREIGN INVESTMENT: The state has recognised the benefits of additional foreign investment, launching a liberalisation programme to stimulate international interest in the Algerian real estate sector. Foreigners have access to a variety of benefits, including an exemption from the transfer tax on all real estate purchases made as investments, and a 10-year exemption from the land tax on any property purchased as an investment.

A number of additional measures were implemented to encourage foreign investors during 2011, including the introduction of new methods of payment for inputs and raw materials imported by manufacturing companies. The state also simplified tax procedures and rescheduled unpaid taxes while lowering overall tax rates. Efforts have been made over the past few years to revise the commercial code, to streamline the legal process for registering businesses and to develop attractive industrial zones.

IMPROVING ACCESS TO CREDIT: Constituting a key challenge to the development of the real estate sector, access to credit for aspiring homeowners is another area that the government has sought to facilitate. The state has begun offering home loans at reduced rates of 1-3% through public and private banks, leading to an annual growth rate of 25% in loans between 2010 and 2011. Growth in loan provision has also encouraged the expansion of the banking sector with the introduction of state-subsidised housing loans from foreign banks, such as Société Générale. By the end of 2010, the bank had already committed to disbursing €19.6m in loans to aspiring homeowners, with intentions to increase credit provision in the future.

On the other hand, loan provision to businesses continues to be a source of delays for real estate projects, with companies often experiencing significant difficulties in accessing credit. “There is too much bureaucracy involved in accessing credit, which greatly complicates business. To obtain credit in a Western country, the process would probably take three months, but here the same procedure may take two years. The government must facilitate the process for obtaining credit and minimise delays,” Sahraoui told OBG. Though large-scale players with an established reputation have few problems taking out loans, small and medium-sized enterprises (SMEs) have a harder time, hindering their ability to implement projects. While the situation has improved with the arrival of foreign banks, businesses cite the role of the central bank as a barrier to credit, with the institution characterised as a reluctant lender.

Gamal Farid, the general manager of Orascom Construction Industries Algeria, told OBG, “Investment in projects in Algeria is really affected by oil prices, as 90% of state revenues are related to oil and gas production. Therefore, when the price of these resources is affected, the government takes prudent measures such as saving revenues and lowering imports for exports, as they do not know what the future may hold. ... However, the state can improve its investment portfolio in various sectors, as this will create more revenue and diversify the economy, lowering its dependence on hydrocarbons revenues.”

THE COSTS OF LAND: Ranging from AD100,000 (€960) to AD150,000 (€1440) per sq metre in urban areas, “the biggest obstacle to the development of the real estate industry is the lack of affordable land, particularly when it comes to the exorbitant prices for land offered via promotional sales,” according to Sahraoui. In response to these shortcomings, efforts have been made to increase the amount of accessible land in Algiers by making government-owned land available under several 33-year concession agreements, with the possibility of renewing contracts twice.

The majority of this will be dedicated to providing public housing units. Moreover, a number of reforms were introduced by the government in the 2011 supplementary budget to stimulate investment and encourage the development of SMEs, specifically regarding the access of firms to industrial land. In the past, only around 30% of property designated for industrial purposes was being used for industry. As a result, the Ministry of Industry, SMEs and Investment Promotion will put an estimated 9000-10,000 ha of poorly used land on the market again. These initiatives are expected to facilitate the construction of current projects and encourage the creation of new projects, spurring long-term sector growth in the medium to long term.

OUTLOOK: Despite the slowdown as a result of the economic downturn in 2008 and though significant challenges complicate the completion of projects, the real estate industry is expected to enjoy sustained growth in the long term. New demand and opportunities for large multipurpose complexes will propel the diversification and expansion of retail, luxury and office projects, and continued improvements in the regulatory environment will support the timely completion of developments. Meanwhile, the state’s commitment to expanding social housing options and involvement by private developers in these initiatives will ensure that the housing market continues to propel growth. With Algeria’s expanding economy there are many reasons to be optimistic about future prospects in the sector.