Government efforts seek to address Algeria's public housing deficit

Algeria’s real estate market has in recent years seen a proliferation of private property developers seeking to tap into growing demand amongst the upper and middle classes for mid-to-high-end residential property, shopping malls, quality hotels and tourist resorts. However, demand remains highest for low-income units, which the public sector is looking to address. Supply remains constrained as a result of the scarcity of land available for new development, dampening interest among private developers and resulting in the government building much of its new social housing stock in greenfield areas.

Demographics

As a result of increasing urbanisation and population growth, the expansion of Algeria’s cities is creating pressure for increased volumes of residential and commercial real estate of all types, especially in the north. Some 64% of the population of 39.5m live in the northern coastal region, although this represents only 4% of the territory. In comparison, 28% of the population lives in the Hauts Plateaux region, which accounts for 9% of Algeria, and 9% of people live in the south, which accounts for an overwhelming 87% of the country’s surface area.

This demographic imbalance is being accentuated with each passing year, fuelling rising demand for housing. Urbanisation is growing at above 3% per annum, according to the Centre for Affordable Housing Finance in Africa (CAHFA), and stood at 74% in 2014, according to a report by Economonitor in August 2015. With population growth rising at around 2% annually, demand for affordable housing shows no immediate sign of slowing.

Housing Demand

While there are signs that demand for upmarket housing is easing following some major private property developments and uncertainty about the economic outlook, demand for affordable housing remains high as a result of supply constraints. Algeria has a national housing shortage estimated at 1.2m units despite having built a total of around 2.4m low-cost housing units since 1999, according to the Ministry of Housing and Urban Development. Under the current five-year plan, the government has earmarked public funding of $65bn to build 1.6m new homes by 2019, in addition to the 650,000 units that were already in progress in 2014. Only 693,000 of 1.2m units targeted in the 2010–14 plan were built. Despite significant state funding, the limited capacity of the country’s public construction sector means that demand continues to outstrip supply. The other major long-standing problem is the scarcity of land available for private development in urban centres, which has driven up prices to levels of those in major European cities. Most land remains in state hands (see analysis). “The government has failed to respond to current demand. There are still slums on city outskirts, still people needing to be housed and rising numbers of young people entering the housing market without the means to buy their own accommodation,” said Hassina Hammache, an independent consultant.

However, the general trend is a positive one. For example, the quality of construction is improving overall. The calibre of new constructions has increased dramatically, according to Meriem Bisker, director of the Algiers-based private property developer ImmoDelta, as result of a combination of greater quality control of building materials, competent architects and the increasing quality demanded by buyers. “An increasing number of Algerians now travel abroad and want to buy property of a similar quality to that in Europe and elsewhere,” she said.

Occupancy has fallen to 4.5 persons per home in 2014, according to the Ministry of Housing, compared to 7 persons per home in 1977. The authorities have also made a concerted effort to clean up shantytowns with a comprehensive slum eradication project. Started in 1999 with a World Bank loan of $150m, this programme has targeted 65 sites, accounting for 30,390 inadequate units, housing 172,000 residents. In July 2014, the government made a further commitment of $80.3m for the improvement of 25,000 inadequate units. In 2014, 72,000 residents were surveyed as still living in precarious or inadequate housing in Algiers. The Ministry of Housing aims to clean up all existing slum areas by mid-2016.

Subsidy Schemes

The government offers a state subsidy scheme to help lower-income households afford property. The state-subsidised housing programme is being carried out through five separate schemes. Four of the schemes offer housing of varying size and quality depending on the household’s income. The social housing programme provides rental housing for households earning less than 1.5 times the monthly minimum wage of AD16,000 (€147.20). Rent ranges from €11–21 a month. The programme is a rent-to-own formula for households earning between AD24,000-108,000 (€221-994), and with limited down-payment capacity. Buyers pay rent and charges to the state until they pay off their reduced share of the price. The Assisted Housing Programme supports home ownership for households earning up to six times the minimum wage. It provides an upfront grant of either €4460 or €7760 to assist with down-payments and subsidised loan finance with interest rates between 1-3%. Meanwhile, the Private Promotional Housing programme is available to households with monthly earnings of AD100, 000-200,000 (€920-1840) with three classes of housing at fixed prices of between AD9m (€82,800) and AD12m (€110,400) in a lease-to-own arrangement, with a 10% payment required before entry. There is also a Rural Housing Programme for rural areas, where an eligible household receives a subsidy of €81 for renovation or new home construction.

For low and middle-income households, the purchase process is slow and waiting lists are long, while down payments can be a challenge. The state offers a middle income housing programme, but between AD700,000 and AD1m (€6440-9200) is required upfront, which is a relatively high amount for the target groups. In 2014, the price-to-income ratio in Algiers rose to 26.1 times the average income, according to CAHFA, making it extremely difficult for many people to access housing on the private market. Nearly 70% of Algerians still earn less than €749 per month, which puts the price of private sector housing beyond the means of many households.

Middle & Luxury

There is significant new-build activity in the middle and high-end market in suburbs of Algiers despite the first signs of market saturation. At the upper end of the market, new development is centred around Grands Vents and to the west of Algiers with Emiral’s Forum El Djazair development, which is slated to be completed in 2017. In the mid-market segment, there are major new apartment developments at Ouled Fayet, Aïn Taya and Cheraga, while a significant volume of serviced apartment stock will be delivered over the next four years with several towers under construction at the Trust Complex and around the Algeria Business Centre in the eastern Algiers district of Bab Ezzouar.

There is risk of excess supply, according to Bisker. “Supply is exceeding demand for upmarket residential property in the west of Algiers, and while prices remain high they have stagnated for the past two years and will almost certainly fall,” she told OBG.

Price Trends

On average, luxury apartments in Algiers are priced from around AD500,000 (€4600) per sq metre, while prices for a mid-market apartment range from AD180,000-300,000 (€1656-2760) per sq metre depending on the location, size and development. There has been less construction activity in the east of Algiers as a result of a lack of available land. However, this has not stopped development with private property developers buying private villas to develop multi-floor residences. Prices in the residential district of Kouba to the south-east of the city centre have soared to AD400,000-450,000 (€ 3680-4140) per sq metre with an average property of 100 sq metres selling for AD18-25m (€165,600-230,000).

Prices in the other major cities such as Oran and Constantine are around 20% lower. Yields on upmarket residential investments have slipped in recent years, according to Frank Knight’s Africa Report 2015. A four bedroom executive house in a prime location such as the Algiers’ suburb of Hydra, popular with expatriate workers, now rents out for €4460/month and commands an annual investor yield of 8% for the owner. “The prime market has softened over recent years, with downwards adjustments being made to rents on renewal”, noted the real estate consultants.

While residential prices are still 30-50% below their peak in 2007, prices are now starting to fall and could drop by as much as 35% in 2016, according to a statement in November 2015 by Abdelhakim Aouidat, president of the National Federation of Real Estate Brokers (Fédération nationale des agences immobilières, FNAI). Aouidat said there are two main factors explaining the downward trend. High prices have led to a slowing of property sales over the last year as a result of the economic slowdown and the entry on the market of growing volumes of housing under state-sponsored programmes. The other main reason is the requirement since July 2014 for payment by cheque for property transactions with a value equal to or above AD5m (€46,000) in order to end cash payments and trace deals for tax purposes. In Oran, prices for both new and existing housing have dropped by up to 30% over 2015. The fall in prices is affecting both mid-range and high-end housing according to FNAI-registered estate agents.

Planning

Numerous residential districts of Algiers such as Kouba, south-east of the city centre, are being transformed rapidly – but often without an integrated development plan. Previously private villas were the norm in many areas, but developers are now buying these villas to create residences with up to six floors without comprehensive plans for the greater demand this is creating for utilities and transport services. Suitable land for affordable housing could be made available to private developers in districts like Belouizdad and Barak some 10 km from the centre of Algiers, but instead the government has opted to build new housing 40-50 km from the city centre. The areas identified as new towns have been taken over by the Ministry of Housing to accommodate its building programmes, yet some have expressed concern these new areas will simply become dormitory towns.

Office Space

Rental prices for office space have stabilised in recent years, with evidence of a slight softening on the edges of the market as supply now exceeds demand following a sharp increase in availability and reduced demand due in part to the economic slowdown. Société des Centres Commerciaux d’Algérie (SCCA), which has 20,000 sq metres of office space at its Centre Commercial Bab Ezzouar, says that it typically rents out office space at between €250-400 per sq metre per year, with three quarters of the space currently let.

Regus, which currently rents office space in Algiers, and will be expanding and opening up new offices in 2016, has also seen demand falling over the last year, according to general manager, Hanane Boutobza. “We have seen demand fall since this summer but expect demand for office space to pick up again as the authorities are increasing their efforts to attract new foreign investment,” she added.

According to Frank Knight’s Africa Report 2015, average monthly rents in Algiers are around €33.45 per sq metre in prime locations, offering prime yields of 9%. This compares to average monthly rates of €40.14 per sq metre and prime yields of 10% reported in its 2013 report. One of the main problems, according to Frank Knight, is that most of the office stock falls short of international corporates’ standards. This has seen a number of international groups build their own offices in the Bab Ezzouar district with companies such as KPMG and BNP Paribas represented.

Retail 

Dedicated retail space also remains at a premium, with the country’s three major shopping centres – Centre Commercial Bab Ezzouar, City Centre and Medina Centre, all in Algiers – seeing sustained demand. The average monthly rental prices for retail space in these shopping malls has risen to around €40-42 per sq metre, up from around €33.45 in 2014 as estimated by Knight Frank in its Africa 2015 report.

The Centre Commercial Bab Ezzouar, which was built at a cost of €75m, is the largest of three shopping centres in Algiers, and includes two towers with office space of 20,000 square metres. According to the SCCA, which operates Bab Ezzouar and is owned by a consortium of Swiss investors – Darsi Investment (54%), Valartis International (20%) and Jelmoli Holding (26%) – the mall has rented out all of its 31,000 sq metres of retail floor area to 110 international and local retail, leisure and restaurant outlets, and has a footfall of 8m visitors per year. SCCA is building two new malls in Oran, one in Sidi Bel Abbes and another in Tlemcen, and has plans to build another in the western part of Algiers. Its largest and most advanced project is the Es Senia complex, which will be located between the centre of Oran and its airport, and is scheduled to open in Q2 2017. The mall, which is being built on a 50,000-sq-metre site, will rent floor space to 125 retailers over a floor area of 34,000 sq metres. In addition it expects to open another in central Oran with a commercial surface area of 18,000 sq metres in the first half of 2017. The shopping mall in Sidi Bel Abbes, with retail floor space of 10,000 sq metres, is scheduled to open in 2018, and its centre in Tlemcen, totalling 20,000 sq metres, is slated to open in 2019.

The other two existing shopping centres, Medina Centre and the City Centre, are also located in the east of Algiers. City Centre in Bananiers-Bab Ezzouar is the most recent addition to the retail real estate market. Owned and operated by the Algerian Saudi Investment Company, in partnership with the Chaïbi Group, exclusive partner of Carrefour Group in Tunisia, it was inaugurated in June 2015 with the opening of the first Carrefour hypermarket in Algeria. Built at a cost of AD3.6bn (€33.1m), it has a total surface area of 32,000 sq metres and a retail floor space of 12,000 sq metres, of which a third is occupied by Carrefour. The return of Carrefour, Europe’s largest retailer, to Algeria after a six-year absence is another positive sign for the domestic commercial real estate market.

Mixed Use

Many of these new shopping malls are being built as part of mixed-use development comprising hotels and residential and office blocks, as is the case with the Trust Complex and Alger Medina projects in Algiers and the City Mall in Constantine.

Park Mall in Sétif is scheduled to be the next to open in early 2016. The complex, which is being built by Turkey’s Kayi International on behalf of Prombati, an investment group belonging to the local businessman Rachid Khenfri, will comprise a shopping mall, including a Uno supermarket belonging to the Cevital group, as well as leisure facilities, cafeterias and restaurants and two towers of 17 and 18 floors. The 17-floor tower will host a four-star Marriott Hotel with more than 200 rooms, while the second will comprise offices as well as 20 luxury flats, each over 200 square metres. The complex is expected to be able to receive 5m visitors per year.

The Medina Centre, which will contain the first Ardis hypermarket in the country, is part of a major property development being undertaken by local group Arcofina in Pins Maritimes for scheduled completion in 2020. Built over an area of around 100 ha, the Alger Medina complex will, when completed in 2020, comprise two office blocks, around ten apartment blocks, a hotel, and a marina, in addition to a commercial centre and the ABC Tower.

Last but not least, the Trust Complex, in Staoueli in the wilaya (province) of Algiers, adjacent to the resort town of Sidi Fredj, is being built by Dubai-based Drake & Scull Construction (DSC) in a joint venture consortium with Athens-based Consolidated Contractors Company (CCC), on behalf of the developer and future owner-operator Emiral. The mix use complex, which will span a total of 40,000 square metres over an area of 290,000 square metres, will comprise a shopping mall; two hotels; four 23-floor residential high-rise buildings; three office blocks and 15 ultra-modern, high end residential villas. Construction commenced in 2012 and is due to be completed in 2017.

Industrial Developments

As part of the National Plan for Regional Development 2010-30, six industrial segments have been highlighted as offering particularly promising potential for growth, with the government selecting specific locations in which to develop them: Algiers, Sidi Abdellah and Bouinan for ICT and biotechnology; Oran, Arzew, Sidi Bel Abbes and Tlemcen for organic chemicals and energy; Constantine, Annaba and Skikda for metallurgy and petrochemicals; Sétif, Béjaïa, Bordj Bou Arréridj and M’sila for electronics and plastics processing; Médéa, Boughezoul and Laghouat for pharmaceuticals and nuclear energy; and Ouargla, Hassi Messaoud and Ghardaïa for renewable energy and petrochemicals. As part of this initiative, a total of 42 industrial parks are planned, but development has been slow to date. Arab Contractors are building two sites at Djelfa (450 ha) and Médéa (220 ha) while a new zone at Sidi Abdellah is becoming a centre for the pharmaceutical and biotech industry, with Sanofi and Hikma both building factories. Opening in late 2016, Sanofi’s production and distribution complex will become the French company’s largest site in Africa.

Tourism 

Algeria is also investing heavily in the tourism industry with a view to attracting international visitors while also promoting domestic tourism. About 1000 hotels and tourist complexes and clubs will be completed between 2016 and 2017, with a total of 2500 new projects to be launched across the country from 2016, to provide the country with 400,000 beds in the medium-term, according to a statement in November 2015 by Amar Ghoul, the Minister of National Planning, Tourism and Craft Industry.

As part of this initiative, Swedish-listed Carlson Rezidor Hotel Group is planning to expand its presence in the country. The group announced in October 2015 that once its Algiers hotel opens in 2016, it intends to open its second establishment in Tipaza at the end of 2017. Both hotels are being built and will be 100% owned by the local private real estate developer Bali Group but will be managed under contract by the hotel group. Carlson Rezidor is planning to expand in Algeria with a target of six to seven hotels in the main cities, including Oran, Constantine, Sétif and Ghardaïa, according to Romain Avril, vice-president France, Southern Europe and Northern Africa for Carlson Rezidor. “It is a complicated market to do business fiscally and administratively speaking, things such as securing all the necessary authorisations and finding the right partners are challenges but there is a growing unfulfilled demand for upscale hotels in the main cities and in the coastal resorts, with high average room rates, and as a result we are seeking to expand in Algeria,” Avril noted.

Outlook 

Attention is on the government’s ability to deliver on housing. A steady flow of state-subsidised housing is coming on to the market, but high levels of population growth and urbanisation still leave the public housing sector in deficit. Residential property prices have started to fall and should drop further in 2016 as a result of the impact of stagnating sales and new payment requirements. This is unlikely to have a major impact on the continued shortage of affordable housing, as high prices mean that much of this property remains out of reach for most people.