Mixed-use developments and cities sign of economic recovery in Morocco

A drop in real estate activity in the years following the global financial crisis marked an end to the sector’s boom years, but the industry has shown signs of a sustained recovery more recently. Transactions and foreign direct investment (FDI) both increased in 2014, although prices on average remained stable. The sector continues to be buoyed by government incentives to attract real estate development and construction projects in the low-income and mid-range segments in order to respond to a housing deficit, supplemented by a range of mixed-use projects and master-planned cities. Transparency in the sector is improving with a new quality label and a pricing reference, both introduced in 2014.

Performance

After steady growth in the 2000s, FDI in the real estate sector totalled some Dh8.2bn (€892.2m) in 2011, but subsequently fell in 2012-13. In 2014 FDI in the sector received a significant boost, growing 43% year-on-year (y-o-y) to reach Dh10.76bn (€1.2bn), up from Dh7.52bn (€818.2m) in 2013, according to data published by the Ministry of Habitat and Urban Planning (Ministère de l’Habitat, de l’Urbanisme et de la Politique de la Ville, MHU).

The real estate market saw an uptick in activity in 2014, with overall transaction volumes up by 11.9%. Residential property continued to lead the sector in terms of the volume of sales, which rose 14.8%. Apartment and villa transactions increased by 16.9% and 12.3%, respectively, while house purchases dropped by 9.7%.

The apartment segment also accounted for the greatest share of transactions in 2014, with 67.9% of the total market, while land and commercial transactions represented 18.5% and 6.5%, respectively. In the commercial property segment, sales rose by 13.9%, with an increase in office transactions of 15.6%, while urban land sales were up slightly, at 1.1% in 2014.

Prices, conversely, have remained largely static. Developed by the Central Bank of Morocco and the Central Agency for Land Registration, Cadastre and Mapping, the national real estate price index (REPI) decreased 0.8% in 2014, reflecting a 0.6% drop in residential property prices and a 2.6% rise in commercial property prices. Urban land prices fell by 1.4%.

Gross rental yields remain strong in Morocco. In Casablanca, for instance, they range from 4.84% for houses in to 7.23% for 70-sq-metre apartments, according to property investment website Global Property Guide. Average monthly rental prices for apartments in Casablanca range from $886 for a 70-sq-metre property to $2973 for one of 300 sq metres. Apartments in Marrakech rent for a monthly average of $718 for 55 sq metres to $1788 for 200 sq metres.

Prices for some segments are limited by regulations. The 2013 Finance Act capped the sale price for middle income housing at Dh6000 (€653) per sq metre for units of 80-120 sq metres, for instance.

City Trends

While prices throughout the kingdom remained stable, Marrakech saw the greatest regional price drop in 2014 at 2.9%, reflecting a 7.1% fall in land prices, though apartment sales rose by 15.7%. Prices remained largely static in Casablanca at 0.1% even as demand for apartments grew, with overall transactions rising by 30.3%, reflecting a 33.4% increase in apartment sales. Rabat saw prices increase by 0.4%, with land prices up by 10.8%, while Agadir saw the biggest regional increase in price at 2.7% over the year.

Property Registration

 Improvements to the property registration process have reduced the time needed to register property. In its 2015 “Doing Business” report, the World Bank ranked Morocco 115th out of 189 countries on the ease of registering property, up 11 places from its rank of 126th in 2014. The improvement in ranking reflects the implementation of changes to simplify the process of transferring property, which have reduced the time required to complete the transfer. The process requires eight procedures and takes an average of 40 days, down from 60 days in 2014. The average registration cost is now on par with the MENA region average of 5.9% of a property’s value.

Transparency

Considerable efforts have been made in recent years to increase transparency in the sector, in terms of pricing, oversight and contracts. The Ministry of Economy and Finance adopted a pricing reference for real estate transactions, which bases taxation on the minimum price per square metre for different types of real estate. The system was implemented in Casablanca in 2014 and will be phased in across the kingdom, starting with the capital Rabat.

The country launched the REPI in 2010, which has helped reduce disparities and gouging. According to Mohammed Iqbal El Kettani, deputy director of the National Federation of Real Estate Developers (Fédé ration Nationale des Promoteurs Immobiliers, FNPI) the new pricing reference “is a tool that can really increase transparency in the sector by making prices in every zone public”. Data will be updated over time to reflect adjustments in pricing in the real estate market.

In another effort to increase transparency, the MHU introduced a new regulation on lease agreements in 2014, which makes written leases mandatory. “These initiatives bring a level of rigor and transparency to the sector,” Emmanuelle Boleau, managing director of SeleKtimmo.com, a real estate portal based in Morocco, told OBG. A new framework to regulate real estate agents is also being developed by the MHU.

Another initiative launched in 2014 to structure the sector is the quality label, Iltizam, which can be acquired by real estate developers for housing projects that meet the quality criteria and security standards set out by the FNPI in conjunction with the government.

Financing 

Accessing adequate financing continues to be a constraint for the sector, primarily for developers, following a number of years of limited liquidity in the local banking market, although the situation has improved recently. Moroccan banks have been reluctant to provide new financing for real estate projects due to their already high level of exposure to the sector. However, individual household financing is increasing steadily. Outstanding credit extended to the real estate sector rose 2.7% y-o-y to Dh236.83bn (€25.8bn) in 2014. In spite of the constraints, Morocco has the most advanced financing market for housing in the region, according to the Centre for Affordable Housing Finance in Africa (CAHFA). Mortgage lending was equivalent to 13.85% of GDP in 2013, the third-highest rate in Africa. Housing loans to individuals have been growing by 11% annually, with more than 65% of new loans having interest rates between 4% and 6% per year, up from 45% of loans in that range in 2009.

State support is also available for some groups. The FOGARIM mortgage guarantee fund, launched in 2004 for low-income households, had 112,593 beneficiaries by the end of January 2015, for a total loan portfolio of Dh17.26bn (€1.9bn). Between January and August 2014, 11,145 loans were granted, up 32% y-o-y. Meanwhile, FOGALOGE, a guarantee programme for moderate-income civil servants, middle-class independent workers and non-resident Moroccans, has 20,258 beneficiaries with loans worth Dh6.05bn (€658.2m) by the end of January 2015, representing a 17% rise y-o-y.

Key Players

Groupe Addoha continues to be the biggest developer in the market with Dh9.45bn (€1bn) in revenue in 2013, followed by Alliances and Compagnie Générale Immobilière (CGI), a subsidiary of CDG Développement, with some Dh4bn (€435.2m) and Dh3bn (€326.4m) in revenue, respectively. Groupe Addoha is currently concentrating its activity in Casablanca and Rabat, while also seeking opportunities to expand in West Africa. Bouygues Immobilier Maroc, a subsidiary of the French company Bouygues Immobilier, entered the market in 2013 and is focusing on residential and sustainable urban development. Other developers in the country include Palmeraie Développement, Akwa Immobilier Développement and Yasmine Immobilier, which focus on the luxury market.

Mater-Planned Suburbs

As space for new construction becomes increasingly limited in the country’s biggest cities of Rabat and Casablanca, whose combined population is around 4.5m, the government has sought to emulate the trend elsewhere by establishing new master-planned suburbs and cities to better channel further growth and limit sprawl, with development plans started for the new cities in 2004.

Casablanca, which has the biggest housing deficit in the country, is the focal point for many of these projects. Lakhyayta, around 20 km to the south-west of the city, is expected to include 60,000 housing units over an area of 1300 ha. The Dh37bn (€4bn) project, which is being developed by Al Omrane and will eventually include hotels and a golf course, is currently home to some 3000 of an anticipated 300,000 inhabitants.

A similarly ambitious project is the 1860-ha Zenata Eco-City, 20 km outside Casablanca, being developed by Société d’Aménagement Zenata, a subsidiary of CDG. Initially proposed in 2006, the project is expected to be completed by 2030. Designed to accommodate 300,000 inhabitants and create 100,000 jobs, the project will provide zones for commercial, residential and leisure facilities, in line with guidelines that improve the city’s environmental sustainability. The first phase of the projected is financed jointly by the French Agency for Development and the European Investment Bank.

In partnership with the Urban Agency of Casablanca, Saudi-Moroccan real estate developer GARAN is developing a new urban pole in Bouskoura, representing an investment of Dh3.5bn (€380.8m). The project began in 2014, with the first phase of the 250-ha project set to be completed in 2015 and followed by the remaining phase in 2016. Designed to accommodate 150,000 people, the project will include residential properties and an open-air shopping mall.

“Large projects with a long-term return on investment are favourable for foreign investors as local investors in Morocco don’t have the liquidity or will not use it if they don’t see a relatively quick return,” Youssef Mansour, deputy general manager of GARAN, told OBG.

Other developments include Tamesna, 20 km south from Rabat, expected to be home to 250,000 inhabitants. The Dh21bn (€2.3bn) project covers 840 ha, 55% of which is dedicated to housing. Chrafate, located 18 km from Tangier, will be a total of 769 ha and include 30,000 housing units upon completion in 2020 to accommodate 150,000 people at an investment of Dh2.35bn (€255.7m). Meanwhile, Tamansourt, 10 km from Marrakech, currently has over 50,000 inhabitants, but is designed to accommodate as many as 250,000.

OCP S.A., the country’s main phosphate producer, has also branched out into property development following its announcement in 2009 of plans for the Mohammed VI Green City. The new master-planned development, which includes residential units along with commercial and leisure facilities, has been designed for 100,000 inhabitants and will cover an area of 1000 ha in Ben Guerir. OCP S.A. is also developing a second, larger city in Mazagan on a 1300-ha site. The Dh5bn (€544m) investment is expected to accommodate 130,000 inhabitants by 2030.

Urban Regeneration

Government efforts to combat slums continue through the “Cities Without Slums” programme launched in 2004. The scheme aims to eliminate slums in 85 cities and relocate 340,000 households to new urban areas. In the decade since its launch, 52 cities have been declared free of slums, according to figures from the MHU, and the programme has improved the living conditions of 1.24m people, 64% of the targeted population of 1.94m people. The Dh32bn (€3.5bn) project is funded in part by the tax levied on cement (see Construction overview) and public funds.

Some 327,000 households were targeted for relocation into adequate housing under the programme. Morocco’s population of 33.3m people has an urbanisation rate of 60%, which has increased by an average annual rate of 0.9% from 2010 to 2015, according to the UN’s Department of Economic and Social Affairs.

Other regeneration and infill projects include the Casablanca Marina, a major mixed-use project currently under development in central Casablanca, with 130,000 sq metres of office space and 625 residential units as well as a shopping centre and convention centre. By September 2014, more than 65% of the office space in Casablanca Marina had been rented or sold to large multinational companies. Some 65% of the residential segment had been rented or sold as well, while the mall is set to open in 2016.

Residential

Residential housing continues to be the sector’s biggest market in terms of transaction volume. In recent years, activity has been spurred on by growth in the housing sector with the middle class driving demand for mid-range housing.

Residential housing demand in the low-income and mid-income segments continues to be considerably stronger than in the luxury segment, which in recent years has seen a slowdown.

The housing deficit in the 33m-person country decreased from 840,000 units in 2012 to 642,000 units in 2014, edging closer to the goal of 400,000 units by 2016 as set out by the government. However, with an expected increase in demand of 150,000 units per year, the residential segment will continue to expand over the coming years. The government has set a target of building 170,000 new social housing units each year to cut the deficit in half. In 2014 a total of 140,880 units were built, down 1.1% from 142,501 units the previous year, according to the MHU.

A challenge in the residential segment is the disconnect between supply and demand across the country. While there continues to be a considerable housing deficit in some regions, notably Casablanca and Rabat, other areas, such as Marrakech and Tangier, have overproduced in recent years resulting in a housing surplus in those cities. Demand for rental property is also on the rise, particularly in the cities of Casablanca and Rabat where the shortage of homes for sale impedes access to the property ladder for many residents.

“The need for rental housing is growing, especially in the big cities. As an increasing number of people are looking to rent, housing products need to be adapted for this type of clientele,” El Kettani told OBG.

Thus an increase in development in this segment is expected. “With demand in the rental segment growing, the sector is expected to develop very quickly,” David Toledano, president of the Federation of Construction Materials Industries, told OBG.

Affordable & Mid-Range Housing

According to the CAHFA, the demand for affordable housing in Morocco currently exceeds the supply by more than 50% with 2.8m affordable housing units available and 3.4m low-income households living in informal, temporary dwellings. To attract private sector investment into the development of affordable housing, the government provides tax breaks and subsidises land for projects that will meet the needs of this segment.

According to Mansour, a shift by developers is required in terms of quality and price of projects to meet the needs of the local clientele. “In Casablanca, there is a strong demand for mid-range housing so developers need to adapt their products to ensure they are affordable for local clients,” Mansour told OBG.

Tourism Developments

The tourism sector is expected to continue growing in coming years spurred on by the Ministry of Tourism’s target to boost arrivals to 20m as part of its Vision 2020 plan. In 2015 Morocco expects over 11m tourists. The government aims to attract Dh150bn (€16.3bn) in investment through public-private sector projects in tourism by 2020. Plan Azur, a programme supporting the development of six new beach resorts launched in 2002, is expected to bring 28,000 new beds to the country along with €1.7bn in investment (see Tourism chapter).

In addition, 2014 saw the launch of several new hotels, such as the five-star Royal Palm and Baglioni in Marrakech, while a new Marriott hotel is set to open in Casablanca in 2016. Spanish company Melia Hotels International is developing a three-hotel beach resort in Saïdia in Berkane province, which is set to open in 2016 with an investment of Dh940m (€102.3m).

Office Space

Office space continues to be a priority in Casablanca, the country’s commercial centre, with the total take-up for this segment reaching 41,515 sq metres in 2014, according to Statimmo, an economic interest group created by four real estate brokers ( Carré Immobilier, CBRE, Jones Lang LaSalle and Lance) in 2014. Rental space increased by 11% y-o-y, reaching 32,577 sq metres, while purchased space grew by 54% y-o-y, up to 8938 sq metres. A large volume of new commercial space is coming on-line through bigger planned developments, as opposed to individual building construction or renovations. Casablanca Finance City, offers one of the largest AAA-office space developments in the city and represents part of the country’s efforts to expand its financial services sector (see Banking chapter), with some 700,000 sq metres of office space.

Casanearshore business zone provides Casablanca with more than 300,000 sq metres of space for offices and services over a 53-ha area. The Dh3.4bn (€369.9m) investment has already attracted 100 multinational companies to set up in the park and held 13% of the market share for office space in Casablanca in 2014.

Elsewhere, TetouanShore in the Tangiers-Tetouan region will see 100,000 sq metres of office space developed by 2020. The first completed phase includes 22,000 sq metres of office space. The project represents a total investment of Dh200m (€21.8m).

Retail

The retail segment continues to be an area of growth in the real estate sector. Although Morocco has fewer than 10 malls, new developments will increase numbers over the coming years (see Retail chapter). A 6-ha shopping mall, Mall de Rabat, is set to be built as part of the $1.1bn Wessal Bourgereg mega-project in the capital. The project will include a 2000-seat theatre, several hotels, commercial space and a marina.

Also in Rabat, Ryad Centre, developed by Foncière Chellah, a subsidiary of the CDG group, will feature 29,753 sq metres of office space and 8132 sq metres of retail space. Foncière Chellah is also developing the Arribat Centre in the capital, a complex which includes a shopping mall, cineplex and other leisure facilities, hotel and over 52,000 sq metres of office space.

Meanwhile, a joint venture between Portuguese Sonae Sierra, Dubai-based Al Futtaim, local holding Marjane and Société d’Aménagement de Zenata (Groupe CDG) is developing the new Zenata shopping centre in the new city of Zenata outside Casablanca with a €100m investment. The first phase is expected to open in 2015 with an additional phase coming on-line in 2017.

Outlook

Following a slowdown, growth has returned to the real estate sector. Demand for housing is expected to remain strong, particularly in Casablanca and Rabat, with affordable housing continuing to drive the sector, while the mid-range segment will become an area of increasing opportunity. Improving economic conditions in Europe should support further recovery in the sector, while demand in the commercial segment, particularly for office space in Casablanca and Rabat, will continue to provide opportunity for growth.