Social housing programme and foreign investment to boost Morocco's residential real estate market

In the 2008-15 period the real estate sector received the largest share of foreign direct investment (FDI), with 25.4% of total inflows in Morocco. Of these, about 40% came from countries in the Gulf. Foreign investment in real estate projects continued, with a number of announcements made in 2018. For example, in May 2018 Kuwait-based Alargan International Real Estate announced plans to develop commercial and residential projects in Morocco worth KD60m ($198.9m). Beyond Gulf investors, European developers are also present in the Moroccan real estate market. In November 2018 Italy’s Bertone signed an agreement for an investment of €350m in an urban development project in Rabat.

The flotation of the dirham in the beginning of 2018 marks a transition to a more flexible exchange rate regime, which is expected to increase Morocco’s appeal to foreign investors. The real estate sector is thus expected to receive further FDI in 2019.

However, while foreign investment contributes to sector growth, the industry faces challenges regarding dwindling transactions. Between 2017 and 2018 asset prices fell by 0.3% while transactions declined by 1.1%. Additionally, an annual population growth rate of over 4% coupled with the rising rate of urbanisation are pushing up demand for housing. In response, the government is expanding its social housing projects, and implementing measures to improve trading volumes to secure growth over the long term.

Regulation

According to Article 2 of the 2011 Law 39.08 related to property rights, people whose property has been sold fraudulently must file a complaint within four years. Failure to do so will result in the loss of ownership of the property. This had been the case for several foreigners and Moroccans residing abroad who had bought land or houses in Morocco only to come back and find out that their property had been sold without their knowledge.

To enhance the legal security of real estate, in September 2018 the government approved Bill 31.18 to prevent the selling of property without the owner’s knowledge. The bill enables bodies in charge of documentation to obtain transparent legal authority, which will regulate the powers of legal representatives. It also seeks to boost documentary and contractual security, and the protection of rights and property.

Real Estate Investment Trusts

Although Morocco has yet to see real estate investment trusts (REITs) list on the Casablanca Stock Exchange (CSE), REIT-like transactions – known as organismes de ongoing in the country for many years and to a larger extent since 2015, when a framework to standardise such transactions was established. In 2017 Vectuer Label Vie, a subsidiary of local supermarket company Label’Vie, and Canada’s property developer Petra merged to establish a new commercial real estate platform with 27 assets in 15 Moroccan cities. Furthermore, publicly listed Grit Real Estate Income Group announced in a report published in July 2018 that it plans to list its assets as OPCIs on the CSE within two years.

REITs expand the market to a larger range of investors by lowering the amount of investment required to own real estate. “Asset managers look for markets with a dedicated financial vehicle,” Nawfal Bendefa, CEO of local property developer Aradei Capital, told OBG. Therefore, real estate is expected to attract more investment through REITs. In particular, the commercial real estate sector should develop as companies announce their intention to list assets as REITs. Indeed, shopping centres in the city of Casablanca are increasingly coveted, given the high rate of activity in malls, including Morocco Mall and Anfaplace Shopping Centre.

Beyond the expansion of REITs, in April 2018 the bourse announced that it would conduct a sectoral reorganisation of listed real estate companies and refer to the sector as “participation and real estate development” going forth. This decision followed the announcement of an initial public offering from Belgium’s Immorente, an investment company that acquires and develops professional real estate assets for rent. The Dh400m (€36m) of capital raised is expected to finance the company’s development projects, including the acquisition of a 2500-sq-metre office building in Casablanca Marina for Dh67m (€6m) in the second quarter of 2018, which was subsequently leased to China’s telecoms company Huawei.

Retail

Although the retail segment continues to be dominated by street vendors that operate informally, retail real estate has been growing in various cities. In the Souss region, commercial space transactions increased by nearly 70% between the first and second quarters of 2018. Similarly, in Agadir transactions for commercial real estate spaces increased by 12.8% in the first half of 2018. In Casablanca, the retail real estate sector saw a supply increase in 2018 following the completion of a 5000-sq-metre commercial gallery called I-Dune on Al Massira Boulevard, one of the main commercial areas of the city. The retail area was fully pre-leased before construction began in 2015, with half of it occupied by the largest H&M store in Africa. Total mall retail space in Casablanca amounted to 143,000 sq metres by end-June 2018.

New projects in 2019, including developments in Casablanca Marina and an extension of the hypermarket Marjane Californie, are expected to bring total retail area to 220,000 sq metres by the end of the year. Further down the line, a notable project in Casablanca is the development of a retail park by local developer Aradei Capital, which is expected to open in 2021. There are also various commercial real estate projects in Marrakech that will help boost the overall growth of the sector, including the $450m urban golf and retail complex known as Marrakech Golf City, which is slated to open in 2024. “Retail is expected to remain dynamic,” M’hammed El Merini, general manager of Eagle Hills Morocco, a luxury housing developer based in the UAE, told OBG. “Although new retail projects in Morocco’s major cities might not resemble the same level of activity witnessed in previous years, projects in smaller cities may prove to be a new avenue of development.”

Office & Industrial

The growing trend of companies striving to improve the welfare and the performance of their employees has driven up demand for high-quality offices; however, delays in the delivery of new projects continue to be seen. Total office supply in Casablanca stood at 1.74m sq metres by end-June 2018.

Casablanca has 13 major industrial zones and parks totalling over 2000 ha. Overall, demand for industrial real estate is oriented towards assets located within integrated industrial parks, which benefit from quality infrastructure and services. Both rent and the price for industrial land remained generally stable over the first half of 2018. The country’s Industrial Acceleration Plan 2014-20 has facilitated access to industrial land, thus encouraging investment in this segment. An electronic portal dedicated to facilitating investor access to industrial land information was launched in 2016.

Residential

The housing sector contributes 6% to GDP and employs about 1m people. However, residential real estate has experienced growth difficulties since the global financial crisis of 2007-08. Both prices as well as transactions have been declining over the previous years. According to Bank Al Maghrib, the country’s central bank, residential housing prices rose by 4% year-on-year in the third quarter of 2017. In the third quarter of 2018 prices also increased, but at a more muted rate of 0.4%. Overall, residential housing prices fell by 0.6% in 2018, which is the result of a 1.1% decrease in apartment prices.

The number of residential transactions fell by 22% between the third quarter of 2016 and the third quarter of 2017. For luxury properties, prices are 20% to 30% lower than they were in 2008 before the global financial crisis. Real estate housing transactions for apartments have also slowed in recent years, decreasing by 1% in 2018. However, sales for villas and houses increased by 10% and 8%, respectively. This growth might be explained by the lower prices for luxury houses that have started to attract international buyers since 2016 and continued through 2017. In particular, buyers are
turning to Marrakech, Essaouira and Tangier, where luxury real estate sales have increased recently.

Social Housing Project

A lack of housing has been a persistent issue for Morocco, particularly in urban centres. Therefore, the country has adopted a series of financial, real estate and legal measures to eradicate inadequate housing. In 2010 the government launched a social housing programme to construct low-income homes sold below Dh250,000 (€22,500). Between 2010 and 2017, 1114 contracts were awarded to real estate developers and the number of housing units reached 1.66m. Of the total units built during that period, 496,000 were produced by the private sector. Public land mobilisation and the development of partnerships with the private sector has helped boost Morocco’s capacity to construct new homes. “One way to attract further private participation is to ease access to land,” Badr Kanouni, chairman of Al Omrane, the main public operator in housing and territorial development, told OBG.

As a result of this initiative, the housing deficit has reduced from 800,000 units in 2012 to 400,000 at the beginning of 2019; however, challenges remain. “Although the social housing programme has succeeded in substantially reducing the housing deficit, numerous units remain unsold due to their unpopular locations,” Hebbassi told OBG. Around 70% of the housing units completed under the social housing programme are located in the peripheries of Casablanca-Settat (45%), Tangiers-Tétouan-Al Hoceima (13%) and Rabat-Sale-Kenitra (12%), where there is a lack of adequate transportation, living spaces and public equipment. Therefore, infrastructure surrounding social houses needs to be improved to help boost sales.

For the category of units costing Dh140,000 (€12,600) under the social housing programme, a total of 33,468 houses were built at the end of 2017; however, many also remain unsold. According to Hebbassi, another problem is the one-size-fits-all concept with no differentiation in terms of location and price. Although the programme for low-income social housing is well under way in Morocco, there is currently no project targeting middle-income housing. However, the demand for such units is increasingly visible, and a former employee from the National Federation of Real Estate Developers told local media in January 2019 that between 20,000 and 30,000 middle-income houses are needed per year, referring to units costing Dh400,000 (€36,000) to Dh600,000 (€54,000). Therefore, focusing on the middle-income segment, and constructing houses that fall within this price range should also help to reduce the housing deficit.

Mortgage Financing

Although the government has taken strides towards involving the banking sector in credit allocation, many Moroccans still find it difficult to finance purchasing a house. In the case that they can afford to do so, Moroccans buy houses outside of the mortgage market. In other words, the majority of households continue to finance their property independently, with either savings or non-mortgage credit. As of the end of 2018, the lowest recorded interest rate on a mortgage in Morocco was 4.15%, with most falling in a range between that and 5%.

The Central Guarantee Fund (Caisse Centrale de Garantie, CCG) has played an active role by supporting home financing and guaranteeing mortgages, providing loan guarantees for middle-income housing in particular. Between 2003 and 2016 the fund assisted with the purchase of around 250,000 middle-income residences. Between 2014 and 2015 the volume of financial support allocated to individual Moroccans through the CGG rose from Dh27.4bn (€2.5bn) to Dh29.2bn (€2.6bn).

Outlook

The Moroccan real estate sector continues to progress and recover from the global financial crisis of 2007-08. The slew of foreign investment in the sector in 2018 signals the high level of international confidence in the market, which is expected to remain strong in the years to follow. Regarding promising segments, luxury real estate sales appear to be on the rise throughout various major cities in Morocco. Another key segment is retail, which already boasts various projects in the pipeline and enjoys an overall positive growth prospect for the years to come.

To ensure inclusive growth within the sector, the government will continue to carry out its social housing programme through to 2020; however, adjustments to the initiative are necessary to better sell the units already built. This, together with increased private sector participation and the construction of middle-income units, is set to help successfully curb the lodging deficit that has challenged the country for many years.