Change in the winds: The establishment of new cities will focus on closing the social housing gap

Despite the difficult global economic context, Morocco’s real estate sector is performing well, having recovered from a drop five years ago. Activity is down from its peak levels – recorded in 2007-08 – but the sector continues to attract a number of international players. Social housing has proven to be the driving force behind the industry in recent years, and fiscal incentives introduced by the Ministry of Housing and Urban Planning (MHUP) should continue to spur housing construction in the medium term. At the same time, growth in mid-range residential, office, retail and industrial real estate have also boosted sector turnover.

SECTOR PERFORMANCE: Foreign direct investment (FDI) in real estate has steadily improved since 2009, growing 12.8% year-on-year (y-o-y) to reach some Dh8.2bn (€727m) in 2011. According to MHUP data, FDI totalled Dh1.4bn (€124m) in the first quarter of 2012, which was down from Dh2.1bn (€186m) in the same period in 2011. And yet, other indicators attest to the recovery of the real estate sector. Sales of cement were at a record high of 16.13m tonnes in 2011, up 10.7% y-o-y. Construction sector GDP reached annual growth of 4.2% in 2011, up from a rise of 2.6% in 2010. At a national level, property sales also picked up in the first half of 2012. The number of purchases, which has held steady since the beginning of the year, reached a total of 28,123 transactions in the second quarter, up 10.1% y-o-y. Real estate transactions continue to be dominated by residential property sales, which represented over 67% of the total, primarily of apartments. Urban land and commercial property are the next largest segments, representing 25% and 7% of domestic market transactions, respectively. Overall real estate prices in the second quarter of 2012 were up 1.6% y-o-y, an increase on the 1.2% growth seen in the first quarter. In the absence of reliable price indicators, Bank Al Maghrib and the Land Registry Office developed a real estate price index (REPI) in 2010, using a base of 100 in 2006, prior to the economic downturn. The 1.6% overall price increase in the second quarter reflected a 1% rise in residential property prices, including 2.3% y-o-y growth in apartment prices, as well as a 3% increase for urban land and 1.6% for commercial property. In the commercial segment, office prices rose by 13.5% y-o-y, as demand for business space continues in Casablanca and Rabat, as well as new centres such as Kénitra and Tangier.

BUCKING THE TREND: However, Morocco’s real estate market has followed disparate trends in the main cities. In Marrakech, Fez and Tangier, cities that attract much of the tourism market, a speculative bubble grew from 2006-08 for high-end developments such as luxury villas and apartments. This bubble burst with the global economic crisis and real estate prices have since undergone a correction. “It is very important today to not repeat the mistake of focusing too much on a region or city that will become over-capacitated with tourism offers,” Imad Barrakad, the director-general of the SMIT, told OBG. Yet, both Fez and Tangier registered a slightly improved performance by mid-2012. In the second quarter, apartment sale prices in Fez increased 3.4% yo-y, and the price of urban land grew 8%. In Tangier, the price of both apartments and houses were up by over 5%. But the downward trend continued in Marrakech, one of the areas hit the hardest by declining tourist arrivals. The REPI was down 2.9% y-o-y by June 2012, with the biggest decreases seen in the price of houses (-7%) and apartments (-3.5%).

Demand for residential and commercial properties remained high in Rabat and Casablanca where limited available space continues to exert pressure on prices. In Casablanca, the REPI stagnated y-o-y; the sale price of houses and villas continued to decline, but the sector was buoyed by office prices, which rose by some 9.9% y-o-y. Rabat has also been exempt from much of the downward pressure on prices, as demand for both housing and business space has remained strong. The construction of the new headquarters of national telecoms company Maroc Telecom is also under way and has already begun attracting new businesses to the area.

RESIDENTIAL: In recent years, much activity has been driven by growth in the housing sector, which would explain why cities with stronger domestic demand for housing have fared better. In particular, the growth of Morocco’s middle class has increased the need for mid-range housing, which is now spurring a number of building projects nationwide. The National Federation of Property Developers (Fédération Nationale des Promoteurs Immobiliers, FNPI) estimates that the middle class currently represents 50% of the population. In order to increase the offer in this segment, the FNPI proposed a new fiscal scheme for mid-range housing as part of the 2013 Finance Act, which was approved by parliament in late December 2012.

Two categories of housing were defined under the 2008 Finance Act, and now the 2013 law: low-value housing is capped at a value of Dh140,000 (€12,400) for a 50- to 60-sq-metre unit. Social housing is capped at a price of Dh250,000 (€22,225) for a standard 50-to 80-sq-metre unit. The new legislation also creates a third framework for mid-range housing, defined as properties with a standard surface area of 80-120 sq metres and sale price capped at Dh6000 (€533) per sq metre, or a total cost of Dh480,000 (€43,000).

NEW CITIES: As space for new construction is limited in major urban centres, particularly Rabat and Casablanca, the government is also turning to the creation of “new cities”. The state began developing plans in 2004 for the establishment of new cities, four of which are under construction, to become areas of economic activity outside of the country’s existing urban centres. For example, there are plans for a 1050-ha development in Melloussa on the outskirts of Tangier, to accompany the Melloussa industrial zone where Renault launched a major automobile manufacturing plant in early 2012.

Commercialisation has already begun on two sites. Tamesna, near Rabat, is being constructed on an 840-ha plot and is expected to accommodate 250,000 inhabitants and include 48,000 social housing units and 1500 mid-range villas, for a total investment of Dh22.3bn (€2bn). In addition, the first segment of the Tamansourt development outside of Marrakech is being commercialised. The zone is expected to offer 58,000 homes on a 1200-ha site, for a total investment of some Dh24.5bn (€2.2bn). Another zone, the Mohammed VI Green City (Ville Verte Mohammed VI) near Benguérir, is being developed by the publicly owned phosphates firm, the OCP Group. Its plans include eco-friendly housing for 60,000 inhabitants. Two more zones are under construction on the outskirts of Casablanca, in what will be the cities of Zenata and Lakhyayta. The new city of Zenata should have a particularly strong mid-range housing offer, accompanied by plans to build hotels, leisure facilities and a shopping mall; the project is supposed to be finished by 2030.

HOUSING AVAILABILITY: The mid-range segment should help to drive real estate growth in the future, but currently the most productive sector is social and low-income housing. The MHUP estimated that the national housing deficit reached 840,000 homes by the end of 2011. The ministry aims to cut the deficit in half by 2016 to 400,000 homes and to facilitate the construction of 150,000 new social housing units per year. By 2020, demand is expected to increase by approximately 250,000 to 360,000 homes. In the first half of 2012, the number of housing units produced reached 66,195, of which 48,286 were social housing units, according to figures from the MHUP. This represents a 16.6% increase from the 41,423 social housing units constructed in the first half of 2011.

TAKING ACTION: The state is working to stimulate building in social housing through a variety of measures. Most notably, the 2010 Finance Act introduced a number of incentives for affordable housing developers, including exemption from corporate taxes, land registration fees and value-added tax. These incentives were set to expire at the end of 2012, but the 2013 Finance Act confirms their renewal in order to continue stimulating growth in the segment.

Today, all developers are eligible for these incentives as long as they commit to building a minimum of 500 housing units in urban areas or 100 units in rural areas within five years. In the last few years, the Ministry of Housing reduced the minimum building requirement from 3500 to 2500 units and finally settling on the 500-unit requirement in 2010. While the social housing market continues to be dominated by real estate majors such as Al Omrane, Addoha, Alliances, Compagnie Générale Immobilière (CGI) and CDG Development, this move has opened up the market and made it easier for smaller developers to participate.

Following the introduction of incentives, the annual rhythm of social housing construction has picked up considerably. According to MHUP figures, the state signed over 400 conventions with public and private real estate developers in 2011, intended to generate over 800,000 units in the long term. The state has also worked to attract private developers through the widespread use of public-private partnerships (PPPs), under which the government makes public land available for private housing projects. “One way in which the market will be shaken up is with the introduction of new PPP legislation. The most important criteria for choosing a builder then become the technical aspects – financing and construction and maintenance – rather than price,” said Ali Bencheqroun, the director-general of Bymaro, the Moroccan subsidiary of Bouygues Bâ timent International, which specialises in construction and engineering projects.

URBAN REGENERATION: Much of the push in social housing construction is related to the state’s policy to eliminate urban slums, Cities Without Slums (Villes Sans Bidonvilles, VSB). Morocco’s 32.3m population has an urbanisation rate of nearly 60%, and this is increasing by an annual rate of roughly 1.6%, adding an estimated 500,000 new urban dwellers each year. The VSB programme, financed by public funds and a tax on national cement sales, aims to eliminate slums in 85 urban areas nationwide and to relocate a total of 327,000 households between 2004 and 2012.

The programme represents a total investment of Dh25bn (€2.22bn), according to figures from the MHUP. Construction of new units is being principally implemented through PPPs, with developers such as Addoha and Alliances, though Al Omrane, the national social housing firm, dominates.

By the end of 2011, the ministry noted a progress rate of 70%, including households that had already been, or are slated for, relocation. Living conditions have been improved for roughly 177,416 households, and the ministry reported that slums have been fully removed from 43 of the total 85 cities.

COMMERCIAL DEVELOPMENTS: Morocco continues to generate interest in commercial developments, although investment in high-end tourism projects aimed at foreign audiences, including leisure facilities and luxury, second-home projects, has declined sharply since the beginning of the financial crisis in 2008.

The country’s Vision 2020 plan aims to double the number of annual tourist arrivals to 20m, which will require an ambitious building programme. Plan Azur, a Dh46bn (€4.07bn) strategy to develop six new beach resorts, aims to increase private firms’ interest in the sector. However, a number of international firms pulled out of tourism projects between 2009 and 2010, and have since been replaced by local developers such as Alliances, CGI and Addoha. Local developers have also expanded into sub-Saharan Africa, and Alliances recently signed deal with the government of Côte d’Ivoire to build 7000 homes near Abidjan.

In addition, 2011 saw the launch of several new hotels, such as the $164m Marrakech Four Seasons developed by Saudi Arabia’s Kingdom Holding Company, as well as the initiation of construction by the Swiss hotel group Mövenpick on its second Moroccan property, which is slated to open in Marrakech in early 2014.

A number of projects that include offices, mid-range apartments and retail space are under development in urban centres nationwide, and have drawn considerable interest from foreign and domestic investors alike (see analysis). Two such developments, Anfaplace in Casablanca and Tanger City Centre, began to commercialise residences and office add retail space in 2012, with openings planned for 2013.

Retail properties in particular have drawn considerable investment in recent years. The country’s largest shopping centre to date, Morocco Mall, was opened in December 2011 and is expected to attract 15m visitors per year. The development entailed a total investment of Dh2bn (€177.9m) and covers 200,000 sq metres along Casablanca’s Boulevard de la Corniche, including 70,000 sq metres of retail space and 30,000 sq metres of entertainment facilities. Yves Delmar, CEO of Emaar Morocco, part of the Dubai-based global property developer Emaar Properties, said, “New malls continue to be planned, including concrete plans for a new mall in Rabat. There is real urban demand for such properties, but their success depends on the segments of society that they plan to cater to.”

A growing number of industrial and business zones are also being established nationwide, drawing foreign investment. Casablanca Finance City, a free zone recently established near Casablanca, aims to attract financial service institutions to the area, and will entail a number of building and commercialisation projects in the coming years. Two other business zones under development, Casanearshore in Casablanca and TétouanShore in the Tangier-Tétouan area.

LAND ISSUES: The state owns 20-30% of land in Morocco, on par with neighbours such as Algeria (30%) and Egypt (20-30%). All investors have equal market access, as there are no restrictions to participating in the primary and secondary markets. Land markets are affected by a pluralistic legal environment; an estimated 30% of land is listed in the formal registry, and a traditional land ownership system has been perpetuated in some rural areas. The state is working to formalise this, but is constrained by the complicated property registration system, which is currently ranked 163rd out of 183 countries in terms of efficiency and cost by the World Bank. With things running more smoothly in late 2012, property registration may improve in 2013.

ACCESS TO FINANCING: Access to adequate financing also continues to be a constraint for the real estate sector, as Moroccan banks have faced a liquidity shortage in the last two to three years. Outstanding credit extended to the real estate sector increased by 10.1% y-o-y to reach Dh207.13bn (€18.35bn) in 2011, up from 7.1% annual growth in 2010. Moroccan banks are generally more willing to lend to property buyers than developers, as a lower-risk way to stimulate the sector. Credit extended to developers represented one-third of outstanding loans in 2011, while the remaining two-thirds were held by consumers. And yet, the volume of new loans given to developers made a considerable jump from Dh50m (€4.45m) in 2010 to Dh9.02bn (€800m) in 2011, while the volume of new loans given to consumers remained stable y-o-y, with Dh13.46bn (€1.2bn) added over the course of 2011. The MHUP attributes this rise in loans to the social housing sector, which is increasingly seen as a stable, low-risk investment.

A number of products exist to encourage homebuyers. Mortgage lending in Morocco is equivalent to 13% of GDP, a level that is on par with neighbouring Tunisia, but well above levels of 1.3% in Algeria and 0.5% in Egypt, according to a 2011 report by FinMark Trust.

Partnerships between banks and the government make lending more accessible to middle and low-income families through the Mortgage Guarantee Fund for Low or Seasonal Income Groups (FOGARIM). Launched in 2004, this fund guarantees up to 60-70% of a loan made to low-income households. Interest rates for such loans averaged around 6.1% in 2011. FOGARIM’s credit guarantees grew by 23% y-o-y to reach Dh11bn (€978m) in 2011, for a total of 80,000 beneficiaries so far. Furthermore, FOGARIM was merged with another guarantee fund that assists mid-income civil servants and independent workers to purchase or construct homes up to $100,000 in value. The consolidated fund, Damane Assakane, held roughly Dh14.05bn (€1.25bn) in guarantees on its books as of April 2012.

OUTLOOK: Despite a difficult global economic context and a domestic credit crunch, a number of high-value commercial projects continue to attract international investment. In the short term, efforts to incentivise social housing construction and urban planning programmes meant to absorb sub-standard housing will continue to drive much of real estate sector activity.