Turning over a new leaf: Mixed-use projects and mid-range housing will advance the sector

Activity in the real estate sector has fallen, but stabilised, following an earlier boom between 2007 and 2008. The sector has been buoyed by a government-sponsored financial incentive package aimed at attracting real estate developers and builders to the mid-range market segment, where there is a housing deficit. The luxury segment has witnessed a sharp fall in demand due to a sluggish international economic environment, particularly in Europe, as well as the impact of the Arab Spring, which has shaken foreign investor confidence. In response, real estate developers have refocused their activity away from rural areas and smaller towns and towards bigger cities, such as Casablanca, Rabat and Kenitra, where there is a strong need for social housing. Furthermore, a number of major mixed-use projects in Casablanca and Tangiers are expected to begin delivery in 2014, which will drive activity forward. These factors combined with increased political stability and improved economic conditions in Europe will reverse the downturn in the sector, and support a positive mid-term outlook.

SECTOR PERFORMANCE: In 2012, foreign direct investment (FDI) in the sector reached Dh7.85bn (€697.1m), but by the first quarter of 2013 it was down 12.9% year-on-year (y-o-y). FDI to the sector as of September 2013 was dominated by France, which contributed 41%, followed by the UAE with 11%. Both the UK and Singapore contributed 8%. Singapore has traditionally contributed less to the sector’s FDI total, but as a result of a major investment worth Dh2.3bn (€204.2m) involving the purchase of a 27.5% stake in Consumar, a Moroccan sugar producer, the country became an important source of FDI.

The real estate market remained stagnant in 2013, growing by 0.4% y-o-y by the third quarter, with transaction volumes down by 5.3%. Residential property prices were up by 0.5% y-o-y. Residential property led the sector in terms of sales with 71.7% y-o-y of the total market. Apartments, which traditionally lead the sector, represented 65.2% of transactions in the third quarter of 2013, with prices down 4.6% y-o-y and with a total of around 34,500 transactions.

Homes and villas both witnessed a drop in 2013, of 1.2% and 4.1%. Land property prices were up 0.4% yo-y. Commercial space rose by 0.1% and office space was up by 3.4%. Office space transactions rose by 16.9% y-o-y. The regions of Oriental, Tangiers-Tétouan and Doukkala-Abda witnessed the greatest price increases, while prices in Chaouia and Tadla-Azilal fell the most. The downturn in the real estate sector was reflected in other key indicators.

For example, cement sales dropped 6.3% in 2013, with 14.87m tonnes sold in 2013, well below the 15.87m tonnes sold in 2012. Sales increased by 1.7% near the end of 2013, which may be a positive sign for the sector’s performance in 2014. FDI has dropped recently due to reigonal political uncertainty, but with Morocco remaining stable, there were signs that investors are returning to the country.

TRENDS BY CITY: Due to the difficult economic climate, developers have shifted their attention away from markets such as Marrakech, where the focus is on tourism, in favour of Casablanca, Kenitra and Rabat, which are more local markets.

Indeed, Groupe Addoha, which represents 25% of the local real estate market, has recentred its activity on these three cities. Prices in cities have stabilised, increasing by 0.4%, with the exception of El Jadida and Kenitra, which dropped 3% and 3.8%, respectively. Prices increased most in Oujda, by 6%, as well in Tangiers by around 3.5%, and 2% in Rabat. The country’s biggest city, with 7m inhabitants, saw prices increase by just below 2% y-o-y.

“Due to the lack of offers and free land in the central business district (CBD), the authorities have encouraged the development of mixed-use projects in the immediate suburbs of the town centre. These developments, such as AnfaPlace, la Marina, Casa Anfa and Sindibad, are creating new urban centres in which the prices are now reaching the levels of those in the CBD. To a lesser extent, we are witnessing the same kind of changes in Rabat with the development of Bouregreg, Arribat Centre and Dar Essalam,” Aymeric Robert, manager for Morocco of the international real estate firm CBRE, told OBG.

Across all three sectors, prices are expected to remain stable for the luxury segment, while mid-range property is expected to see prices increase in 2014. The social housing segment has witnessed strong growth in the past five years due to robust demand as well as strong government backing.

MARKET ACTORS: Groupe Addoha is the biggest developer in the market with Dh9bn (€799.2m) in revenue. Alliances and Compagnie Général Immobilière (CGI) are the two other major companies in the market, with Dh4bn (€355.2m) and Dh3bn (€266.4m) in revenue, respectively. The trio witnessed a competitor enter the market in 2013.

Bouygues Immobilier Maroc, a subsidiary of the French firm Bouygues Immobilier, has invested Dh50bn (€4.44bn) to begin operations in Morocco and is focusing on the residential and tertiary sectors as well as on sustainable urban development. Its entry onto the Moroccan market demonstrates a sense of overall optimism about the sector’s future growth potential. Moreover, other developers are also actively present in the market, such as Palmeraie Dé veloppement, Akwa Immobilier Developpement and Yasmine Immobilier, which have a focus on the luxury market.

NEW CITIES: New cities have sprouted up as a result of a government push to curb excessive urban sprawl in the country’s main cities, such as Casablanca and Rabat. Tamesna, a city that is expected to house 250,000 inhabitants, is a 20-year project involving Dh1bn-1.5bn (€88.8m-133.2m) in investment. Another city, Chrafate, is being built outside of Tangiers at a cost of Dh24bn (€2.13bn). In 2013, 6000 units were launched and the project will have 30,000 housing units in total on a 1299-ha plot of land, for a population of 150,000 inhabitants. The city will provide needed housing for current and future employees of the new Renault factory as well as the ongoing expansion of the Tangiers Automotive City industrial zone.

Tamesna, near Rabat, is a Dh22.3bn (€1.98bn) total investment and is being constructed on a 840-ha site. The city has fallen behind its objectives, which prompted the Ministry of Habitat and Urban Planning ( Ministère de l'Habitat, de l'Urbanisme et de la Politique de la ville, MHUP) and the city of Tamesna to sign an agreement in 2013 to re-launch the city’s development plans via Dh538m (€47.7m) in investment. The funds will be used to implement more than 20 infrastructure projects. Currently, it has 25,000 inhabitants. Tamansourt, a Dh39.5bn (€3.51bn) total investment, will accommodate 51,000 units of 1140-ha once the city of 250,000 inhabitants is completed. Casablanca faces the biggest deficit in housing and two cities are currently under construction to address this issue. Lakhyayta, outside of Casablanca, is 80% complete, with 2300 units. Zenata is also being built and is expected to have a capacity of 300,000 inhabitants and cover a surface area of 1860-ha. The city will also receive a university, a logistics zone and a 30,000- to 50,000-sq-metre exhibition park.

The Office Chérifien des Phosphates (OCP) is developing sustainable urban centres. Its Mohammed VI Green City is under construction: when finished, it will cover 900 ha in Benguerir and will have 90,000 inhabitants. A second green city financed by the OCP is under way in the Mazagan region, which will cost Dh5bn (€444m) and cover 1272 ha.

COMMERCIAL: The tourism sector is expected to grow significantly in the coming years under the Ministry of Tourism’s Vision 2020 plan to increase arrivals to 20m and build six new beach resorts. Already a number of four- and five-star hotels are slated for construction in the next two years.

Palmeraie Hotels & Resorts announced in 2013 it would invest Dh785m (€69.7m) into expanding its hotel developments in Morocco. Other major hotels will be opening four- and five-star establishments in the country, such as Mövenpick, the Four Seasons Hotels and Resorts, the Ritz-Carton Hotel Company, Marriott International as well as Hilton Hotels & Resorts. As well as this, a three-star Ramada will be launched in Tangiers in 2014.

OFFICE SPACE: Casablanca has made office space a priority, but the macro-economic climate has dampened demand recently. “There was a huge deficit in office space, which resulted in many new developments to try to meet demand. However, due to the poor economic climate many have not been purchased or rented,” Mehdi Ammouri, equity research analyst at CFG, told OBG. Demand will likely return, and the Greater Casablanca region has embarked upon three major initiatives to supply the market with further office space. The Casablanca Auda project covers 350 ha. The complex will offer 1.3m sq metres of office space and 2.5m of residential space, which will house between 80,000 and 100,000 inhabitants. The project is being developed by Bouygues Immobilier and Caisse de Dépot et de Gestion. The highlight of the project will be Casablanca Finance City’s financial district, which will aim to make Casablanca a leading financial centre in Africa, with an estimated 700,000 sq metres of office space. A 33-storey tower will be the district’s defining centre piece.

The Casablanca Marina is the city’s second major mixed-use project currently being built. The project is being developed by Al Manar, which is a subsidiary of CGI. It will offer 130,000 sq metres of office space and 625 residential units as well as a 200-room, 4-star and a 300-room, 5-star hotel.

It will have 60,000 sq metres of shopping centre space and a 5000-seat convention centre. Moreover, an additional 15,000 sq metres of commercial space will be available on the ground floor. Once completed, Casanearshore will provide Casablanca with 270,000 sq metres of office space. As of 2013, 168,000 sq metres were ready for use.

Two mixed-use projects are also planned for the capital Rabat. The Ryad Centre will feature 29,753 sq metres of office space and 8132 sq metres of shopping space, which is being developed by Foncière Chellah. Arribat Centre, a second complex being developed by the same firm, will feature a 4-star hotel and 35,420 sq metres of office space. The expansion of the middle class has led to the development of a series of shopping centres following the launch of the 70,000 sq metre Morocco Mall in 2011. Les Arènes will open in 2014 and bring an additional 25,000 sq metres of shopping space to Casablanca, and a 120,000-sq-metre shopping centre is slated to open in 2015 in Zenata, outside Casablanca. Office National des Chemins de Fer, the national railway company, is investing in the Casa-Port train station, which will feature a 3500-sq-metre mall and a 500-room hotel.

SHOPPING: In Tangiers and Marrakech, shopping space is being developed by the Spanish developer Inveravante, which will launch a 45,000-sq-metre shopping centre and residential complex in 2014. The Tanger City Centre will have 117 stores and 800 residential units. In Marrakech, a 100,000-sq-metre, mixed-use complex will open in 2014. The Carré Eden development by French firm Eden Développement will cost Dh260m (€23.01m). A Radisson hotel will be included in addition to 110 apartments.

RESIDENTIAL: The residential housing market is the sector’s biggest in terms of volume, with demand in the low-range and mid-range stronger than for the luxury segment. The housing deficit for the low-income segment remains around 650,000. The government has established a target of building 170,000 units per year. The industry expects to reach a deal with the government, which will lead to a package of financial incentives that will be presented under the 2015 Finance Act.

URBAN RENEWAL: In a drive to reverse the growth of shanty towns, the government embarked on a campaign launched in 2004 to relocate these populations into adequate housing under the “Cities Without Slums” (Villes Sans Bidonvilles, VSB) programme.

Some 327,000 households were targeted for relocation under the programme and in 2010, the MHUP declared that 70% of the programme’s objectives had been reached. Morocco has an urbanisation rate of 59.2% along with a total population of 32.52m, and urban dwellers increased by a rate of 0.68% y-o-y in 2013. The programme has a budget of Dh25bn (€2.22bn), which is funded by a tax on cement sales as well as public funds. Out of 87 cities designated problematic, a total of 47 cities were declared slum free by the authorities in 2013.

ACCESS TO FINANCE: Moroccan banks are reticent to fund further real estate projects due to their current high level of exposure to the sector. “Taking into account their exposure to real estate and tourism, the banks are more and more careful about providing any financing to develop real estate projects,” Robert told OBG. Banks have preferred lending to individual borrowers for home loans rather than to real estate developers for major projects in an attempt to diversify their exposure to the real estate sector. Outstanding loans in the real estate sector increased by 5% y-o-y in November to nearly Dh231bn (€20.6bn). This is due to a 7.3% increase in credit provided to individual property buyers, whereas the increase in loans provided to real estate developers was 0.4%. With private sector support, the government has created two loan guarantee programmes to assist both low- and middle-income earners obtain financing for housing purchases. Firstly, FOGARIM, a loan assistance programme for low-income earners, provided Dh1.75bn (€155.4m) in loans at the end of October to 10,344 individuals. The launch of FOGARIM has coincided with the introduction of the VSB initiative in 2004.

The fund guarantees up to 70-80% of a loan to low-income households. Furthermore, over this same period, Dh1m (€88,800) had been provided to 3647 middle-income earners as well as Moroccans living abroad under the FOGALOGE loan assistance programme.

RECENT REFORMS: Newly implemented reforms in 2013 led to the World Bank increasing the country’s ranking in terms of the ease of conducting business. In its “Doing Business” report Morocco improved from 95 to 87 out of a total of 188 countries. Morocco currently ranks 156th out of 188 countries regarding the efficiency of its property registration system, moving up 10 places in the ranking. A permit now requires six procedures and 60 days, compared to 15 procedures and 97 days in 2011. The average price of registration is now on par with the MENA region at 5.9% of property value. In 2013, a law was introduced, reducing the time required to register a deed of transfer. Moreover, a capital gains tax in the real estate sector, which will increase from 20% to 30%, was introduced to try to prevent speculation in the housing market. The 2012 Finance Act introduced a tax on cement that indirectly impacted the real estate sector as builders transferred the costs onto real estate developers. The following year, the 2013 Finance Act led to taxes on steel rebars and sand, which once again negatively impacted real estate developers.

OUTLOOK: Following a slowdown in the first three quarters of 2013, growth has begun to return to the real estate sector. Builders are expected to deliver a number of high-end properties over the next five years. The market will also witness an uptick in activity once the government’s drive to reduce the mid-range housing deficit has begun. More tertiary real estate space with international standards will come onto the market in 2014, although the main obstacle to growth will remain a lack of access to credit.