Opening up: International participation and a more agile legal framework should help the sector realise its potential

Although momentum slowed following the global financial crisis that began in 2008, Algeria’s real estate market has remained buoyed by its strong fundamentals. Government-led investment is driving sector growth, not only in the more populated regions of the north, but also through expansion of developments across the country’s central and southern areas.

Construction remains an important focus as the government looks to increase the number of affordable homes, while a push to establish new urban areas through the construction of new towns will also help create regional markets and attract developers.

In terms of housing policy, the biggest challenge in promoting the development of a fully operational real estate market will be to effectively make the transition from the current context of government-led housing provision to one where private operators are allowed to participate more freely. The continued enactment of laws related to land usage and registration, as well as the increasing ease of foreign participation in both construction and real estate are expected to open the market over the coming years.

DIFFICULT TRUTHS: A young and rapidly growing population, together with high rates of urbanisation, continue to put pressure on housing availability. This is especially true in the northern towns and cities, where over 60% of Algerians live, and where a lack of available space has led to overcrowded homes and the spread of shantytowns and other forms of illegal urban development. The issue is most pressing in the biggest cities. The lack of affordable housing in the Algiers province ( wilaya), for example, led to the building of over 24,000 temporary homes between 1998 and 2008. As a consequence, the percentage of substandard housing rose from 5.1% to 9.1% of total stock.

With demand far outstripping supply, house prices can be beyond the reach of average-income earners. Even in the regional context Algeria’s situation is challenging. According to South African think tank the Centre for Affordable Housing in Africa, the final cost of a market-rate housing unit in Algeria is estimated to be eight or nine times the annual income of a middle-income family, versus five times the annual average income in Tunisia and Egypt. This has severe social implications by exacerbating overcrowding of dwellings and delaying marriage. The lack of affordable housing is means many young Algerians live with their parents well into their 30s until they can afford a home.

UNUSED CAPACITY: According to the Ministry of Housing and Urban Development (Ministère de l’Habitat et de l’Urbanismeet de la Ville, MHUV), at the end of 2011 the national housing stock stood at 7.4m units, for an estimated 5.7m households. However, the government is aware that the condition of these units is variable. Of the total housing stock, the MHUV estimated that around 20% of homes were vacant, a surprising figure in light of the high demand. Another 500,000 units were designated as precarious or in need of major repair. Authorities also estimate that around 2m existing housing units are quite old, having been built before independence from France in 1962.

STATE SOLUTIONS: Successive governments have tried to solve the problem, and the state has long been the main facilitator of home access, using its budget to finance the construction of affordable housing. According to the MHUV, between 1999 and 2012 an estimated one-third of people living in the Algiers wilaya applied for housing assistance from the government. This has increasingly weighed on state finances.

Under the government’s 2005-09 development plan, affordable housing received €5.3bn in funding, a figure that jumped to between €36bn and €47bn for the 2010-14 strategy. A total of 810,000 homes were built under the 1999-2004 plan, with an additional 912,326 units constructed from 2005-09, including 315,000 lease-to-own units, 310,000 social housing units, 120,000 rental units and 275,000 rural houses.

Under the current investment plan, which will run until 2017, the government aims to build 2.45m homes. This is a tall order, especially considering the amount of other construction and development work going on in several sectors, which is already straining available resources. However, housing has become one of the chief priorities of the government, which has called on a host of foreign contractors to participate in the programme, allocating a set number of homes to different international firms through direct negotiations. This should help streamline construction and increase the number of available units across major cities.

GOVERNMENT-DRIVEN: Aware of the sensibilities around the issue, the authorities are keen to deliver new social housing units as they become available, and the capital and its surrounding urban areas are a main focus. In July 2013 Prime Minister Abdelmalek Sellal announced that 25,000 homes would be distributed before the end of the year in the Algiers wilaya.

On top of these efforts, an extension project that will see the creation of new neighbourhoods on the outskirts of the capital was launched in 2013. Construction has begun on the initial 37,000 units of a total of more than 58,000, with the authorities developing land previously used for agricultural purposes in three zones. The first, to the east of the capital, will include 11,107 homes to be constructed in the Ouled El Hadj and Slamani areas. The second, comprising a total of 30,538 units, will be in the areas of Sidi Slimane, Habchi, Semrouni, Roukhi and Ouled Fayet, to the west of Algiers. The third development zone will have 17,244 housing units to the south of the capital, in Djenane Sfari and Haouch Mihoub. The government expects the extension project to be able to house some 350,000 people.

In Oran, the country’s second city, government programmes have delivered 35,000 social housing units since 2005, out of a total that is set to reach 114,000 over the coming years. In Aïn Defla, to the south-west of capital, 3500 more will be ready before 2014, adding to the 10,000 that have been built since 2010. In Annaba, the country’s most easterly city, 4000 new social housing units are to be distributed by the third quarter of 2013 to people living in precarious conditions. “A key aspect of this social housing programme is that the projects are being replicated across all wilayas,” Dareb Debsi, the general manager of Egyptian construction firm Arab Contractors, told OBG.

HIGH-END: While the government is tackling the lack of sufficient housing for low- and middle-income families, private operators are discovering the potential demand for higher-end options. Despite the difficulty in finding available land in most areas of Algiers, the coastline on the outskirts is ripe for high-end housing. Average prices for new middle to high-end developments in the capital vary from €1800 per sq metre for a studio apartment to as much as €3400 per sq metre for a seven-room unit. High-end homes can cost up to €4600 per sq metre or more. “Demand is guaranteed over the coming years, as economic growth has increased purchasing power. Moreover, this has triggered a return of Algerian expatriates who are used to living standards in the West. High-end development will benefit from this trend,” Mohamed Arayssi, managing partner at Libanaise de Promotion Algérie, told OBG.

The tourism real estate sector is also set to get a major boost, driven by government plans to double room capacity by building 750 new hotel units across the country at a total investment of around €4bn. “Promoters that focus on tourism projects will have good returns in the medium to long term, because the government is pushing the sector to develop adequate infrastructure,” said Sahraoui M’hamed Noureddine, the general manager at real estate developer SOPIREF.

OFFICE: Although demand for office space has been increasing over the years, excessive development in the past has left some buildings – generally in Class C – unused. Algiers has seen an inflow of international companies over the past few years, but the growing presence of multinationals has been shifting demand to Class A office space, leaving some of the outdated or less-equipped office rentals unused. Most foreign firms moving into the country have followed the habit of renting their offices, as opposed to buying. Some of the inflow had traditionally been channelled to the more central neighbourhoods of Algiers, such as Hydra, where many companies still use converted villas as office space. However, these have become outdated, and demand for quality office space is rising. “Office space is available in Algiers and other cities, but demand has fallen over the past few years. This is a risk for developers that have invested in new buildings. But there is high demand for quality office developments because they are still so rare,” said Noureddine.

A handful of ventures have produced Class A and Class B office space. The Bab Ezzouar area, near Houari Boumediene Airport, is increasingly seen as the capital’s business district, with new facilities and office space attracting business renters that want to be located close to the airport. Other business rentals, such as the Hilton Business Tower and the ABC Tower, have also been successful at attracting international companies wishing to set up Algerian operations.

INDUSTRIAL: Although most industry remains clustered around major cities such as Algiers and Oran, and related to activities such as hydrocarbons processing and cement production, the manufacturing base is set to expand. Although European manufacturers such as Renault are entering the Algerian market, availability of industrial and warehousing real estate has been a problem. “There is not enough available warehousing space, and this is connected to the fact that prices for land have risen,” said Sabri Bencherif, general manager at transport firm Global Freight Transit. Most of the existing industrial and warehousing stock is made up of aged facilities, with few modern installations.

According to the Intermediation and Land Registration Agency (Agence Nationale d’Intermédiation et de Régulation Fonciére, ANIREF), the price of industrial real estate in Algeria in 2012 averaged €40 per sq metre. There is wide variation in price depending on a property’s location, ranging from €7 per sq metre to €140 in the more expensive areas.

New roads and rail connections will help shape the real estate offering for manufacturing industries. Connecting the central and southern regions with Algeria’s more developed north, transport links such as the Hauts Plateaux Highway and the series of auxiliary highways connecting to the ports will facilitate the establishment of industrial zones (see Transport chapter).

Industrial real estate is set to become available through a government plan to create up to 42 new industrial zones across the country. The project, piloted by ANIREF, will receive €1bn in financing from the National Investment Fund. Most of these industrial areas are set to be established in close proximity to the main transport infrastructure, allowing for easy access to the zones and improving commercial utilisation of new transport infrastructure. The tenders for construction of the first seven industrial parks have already been launched, and ANIREF expects some of them to be ready by 2014. “Lack of industrial real estate and properly prepared land plots has always been a deterrent to investment. We hope that the new industrial zones will change that,” said Rachid Reddaf, advisor in charge of communications at ANIREF. The plan is expected to encourage development beyond the more populated northern region, with 10 industrial parks to be located along the Hauts Plateaux and five in the southern provinces (see Industry chapter).

WHERE TO LAND: Overall, the sector’s growth is somewhat limited by the existing market conditions. With most land in the hands of the government, any plots made available for private development see their prices rise quickly, which means many Algerian families are priced out of the housing market and forced to depend on government housing programmes. This is especially true in major cities in the more heavily populated northern areas. According to the Centre for Affordable Housing Finance in Africa, over 30% of available urban land in Algeria is in the hands of public entities.

Bureaucratic land registration procedures also cause hurdles, leading to title disputes, which leave plots unused and buildings empty. In 2012 the World Bank’s “Doing Business” report ranked Algeria 167th for registering property, which on average takes 10 steps and can cost over 7.1% of the property’s value, inflating prices. “On average, the price of land has doubled in urban areas over the past five years,” said Noureddine.

REGULATION: To improve access to housing and encourage the development of the private real estate sector, a host of changes have been implemented to legislation on both the demand and the supply sides. In 1997 the government created the Real Estate Development Guarantee Fund (Fonds de Garantie et Caution Mutuelle de La Promotion Immobilière, FGCMPI). A big contribution of the fund was to avoid the negative consequences of the introduction of off-plan sales during the 1990s, which allowed buyers to use down payments to buy properties that were still under construction. Although off-plan sales helped galvanise the real estate market by enabling developers to access financing for projects, occasional developer malpractice meant some buyers lost their investment. By covering buyer payments in case developers fail to fulfil established contracts, the FGCMPI created a more secure environment for private investors, although there are still cases of unfinished construction in some cities.

Laws were strengthened in 2010 through the introduction of compulsory penalties for developers with projects behind schedule. Authorities also created a national registry for real estate developers, and more specifically, mandatory listing of all off-plan sales in the market. In addition, new FGCMPI legislation passed in 2011 established a completion guarantee law to ensure that construction projects are concluded in cases where developers are unable to proceed.

Due to the high demand for public housing and the limitations on building availability, authorities have worked to improve verification of housing requests as part of efforts to counter accusations regarding the mismanagement of the allocation procedures. Government verification teams were deployed to certify waiting lists for housing programmes and reduce fraud, such as duplication of applications or applications from people who are already homeowners.

Several laws were also enacted to facilitate land access and, more importantly, to make the real estate sector more appealing to international investors and developers. In 2011 the government started to allow foreign investors to lease land for 99 years (through renewable 33-year contracts) instead of 20 years. Overseas investors also have access to other benefits, such as exemption from transfer tax on all real estate deals that constitute investment and a 10-year tax exemption on land bought as an investment.

OUTLOOK: Algeria’s real estate market has the potential to become one of the most interesting and lucrative in the region, given the combination of high demand and limited supply, alongside more-than-adequate financing. State spending is helping to renew urban and transport infrastructure across major cities and open up the central and southern parts of the country to investment. As the government enlarges the pool of foreign contractors contributing to the current housing plan, closing the gap between supply and demand for homes should become easier.

A continued effort to reduce red tape will also contribute, not only by increasing access to land for local developers, but also by encouraging international real estate investment to flow more easily. With the number of foreign companies operating in Algeria rising, so will demand for international-standard rental space, countering a certain level of oversupply in the market.