Algeria continues its housing drive

After a decade of rising prices, the Algerian real estate market experienced a gradual slowdown in 2017 and through most of 2018. While a growing population and a high rate of urbanisation have kept demand high for affordable state-provided housing, the provision of new units at a rate of 300,000 per year has begun to impact private market prices.

Although there are some inherent challenges in the operating environment, such as strong government control over much of the property in the country and a large informal market, there are significant opportunities for private developers in terms of commercial and industrial real estate, particularly given the current drive to diversify the economy away from a reliance on hydrocarbons exports by encouraging the development of industrial and leisure infrastructure.

Size & Structure

The Algerian real estate markets most prominent player is the state, which is committed to providing housing for all citizens, a right provided in the country’s constitution. According to the World Bank, total housing stock reached 8.9m units in 2017, approximately half of which is government owned. It is estimated that 20% of the national supply is empty, kept as either second homes or investment properties for the upper class.

The substantial price differential between public and private units make this a unique market. Residential properties are sold for up to five times their true value on the private market, a phenomenon that can largely be explained by the widespread prevalence of informal brokers and speculators who control an estimated 80% of this segment. Consequently, reliable figures on the sector are difficult to pin down given the predominance of the informal real estate market in tandem with widespread under-reporting of prices and transactions as well as the absence of regulation in regards to pricing.

Trends & Performance

Real estate in Algeria is in a transitional phase as prices on the private market adjust to the development and distribution of large-scale public housing projects.

Property values in Algeria are still high. According to the Centre for Affordable Housing Finance in Africa (CAHFA), in 2017 the average sale price per sq metre for an apartment in Algiers was about AD220,000 (€1600), a 20% increase over 2016, while the figure for secondary cities was around AD130,000 (€944). A moderately priced apartment in the capital costs approximately AD10m ($72,600), which is 15 times the average annual income of a two-salary household, a ratio six times larger than the upper limit of accessibility. Consequently, homes available on the private real estate market is beyond the means of most Algerians, and as such state initiatives that assist home buying have taken on new significance.

While ownership on the private market is prohibitively expensive for most citizens, the private rental market is expanding as average rents are decreasing for the first time in nearly a decade in some wilayas (provinces). Figures on the Algerian rental market in 2017 released by Algerian real estate company Lkeria indicate that at least 10 wilayas experienced a decrease in average rent compared to 2016. The wilayas of Boumerdès and Tizi Ouzou experienced recorded decreases of over 20% in average rent, while the major cities of Algiers, Oran and Tlemcen all had negligible decreases of 0.2%, 2.0% and 1.7%, respectively, amounting to a stabilisation in prices. The majority of wilayas recorded average rents between AD30,000 (€217) and AD40,000 (€290) per month, while those of major cities were higher. For instance, in Algiers rents ranged from AD38,300 (€278) for a 50-sq-metre apartment to AD76,500 (€555) for 100 sq metres. National housing programmes in addition to successful relocation strategies have contributed to the general decrease in rents across the country.

Helping Hand

The government provided 3.6m units between 1999 and 2018, making substantial progress in addressing the housing crisis and reducing the average number of occupants per household from 6.8 to 4.3. However, according to the World Bank, in 2017 the country’s total and urban population grew at rates of 1.7% and 2.6%, respectively. This trend continues to put pressure on the government to increase supply each year, a situation that is reflected in the size of the budget allocated to housing. The state’s financial commitment to the sector is one of the highest in the world, with public housing programmes representing 5% of total government spending, or 2.2% of GDP. Between 2010 and 2014, the state spent 17.4% of its budget on provision of housing. The Ministry of Housing, Urban Planning and the City (Ministre de l’Habitat, de l’Urbanisme et de la Ville, MHUV), has emphasised that its financial commitment to provide housing for its citizens will continue unaffected by recent economic difficulties related to the collapse of the hydrocarbons market.

Informal Market

According to CAHFA, as the state only makes a very small amount of land accessible to private entities, little room remains for the formal market to expand. The informal market is estimated to constitute 80% of the country’s real estate sector, a reality that, in combination with the inadequate supply, has led to a comparatively expensive market. There are massive gaps between the prices paid on the private market and those of publicly developed housing units, enabling informal brokers to mark up property values by as much as 40%. The pervasiveness of informal real estate limits the availability of accurate information about the market itself as well as about transactions and buyers.

In a move towards greater transparency, in October 2017 Djamel Khaznadji, the head of the Directorate General of State Property, announced the government’s intentions to abandon the system that allows the identities of property holders to remain anonymous. In hopes of establishing a national property registry and bringing transparency to the market, as of January 2018 anonymously registered accounts were no longer accepted and properties whose owners do not present deeds establishing ownership after 15 years will be transferred to the state.

Main Developers

The government’s 2015-19 investment plan outlined the construction of some 1.63m residential units, 54% of which were to be built by domestic private companies, 39% by foreign entities and 8% by local public firms. However, in practice the preference for Algerian firms has not been the reality: according to the MHUV, in June 2017 it was revealed that 70% of housing contracts had been awarded to foreign firms, the majority of which were Chinese and Turkish. However, in October 2017 Abdelwahid Temmar, minister of housing and urban planning, announced the government’s aim to contract future housing projects from local construction companies and property developers, in addition to using only domestically produced materials.

The Mutual Guarantee Fund for Property Development, a non-profit with a mandate to cover the payments buyers make towards developments that fail to come to fruition, has registered more than 5700 developers, around 1000 more than in 2017, the majority of which are privately financed. However, according to the National Organisation of Real Estate Developers, only around 1000 to 1200 developers are involved in the private market, while the remaining firms rely on state-sponsored projects.

Residential

The five-year investment plan originally aimed to build 3.18m homes; although, due to fiscal issues related to the collapse of hydrocarbons market in 2014, the figure was essentially halved. However, the government has continued its housing drive, announcing in April 2018 an allocation of AD33bn (€239.6m) to finance the completion and delivery of 375,000 homes of various types.

In an effort to stave off increasing urbanisation, the state also provides subsidies ranging between AD700,000 (€5080) and AD1m (€7260), which is disbursed gradually as progress is made, for citizens who wish to build or rehabilitate dwellings in rural areas. Between 2000 and 2017, 48% of the 3.1m housing units delivered by the state were built in rural areas through this programme. The remaining 52% were constructed in urban areas with 35% being public rental units and 17% constructed under other housing programmes for middle-income Algerians.

In addition, the National Agency for Housing Improvement and Development offers a lease-to-own model by which 120,000 homes will be registered by the end of 2018. The MHUV has stated that one of its main priorities is to accelerate the pace of completion and delivery of these units, which is aimed at families without the capacity to make a down payment. The programme requires an upfront payment of between AD700,000 (€5080) and AD1m (€7260), after which the state guarantees 100% of the lease on a zero interest basis. Regulators are leveraging the potential of this programme to both rebalance supply and demand and incorporate more citizens into the market. Towards this end, a 100% credit enhancement for the construction of approximately 90,000 housing units under the programme has been proposed under the 2019 draft Finance Law.

Housing for All

In order to meet the housing needs of all income brackets, Algeria’s public rental housing system provides access to homes constructed entirely by state funds on government lands. The programme is available to citizens earning less than 1.5 times the minimum wage or AD24,000 (€174) per month, offering rents that cost approximately AD1095-2300 (€7.94-16.70) per month.

Among other notable new promotions is the relaunch of the Assisted Housing Programme, which aids families making between 1.5 and six times the minimum monthly wage, or AD24,000-124,000 (€174-900). The programme, for which demand is high, provides grants of either AD395,000 (€2870) or AD702,000 (€5100), in order to assist with down payments, and subsidised interest rates of 1-3% on loans. This initiative was revived in part to ease the demand on other state schemes, though it has been refined since its previous iteration to reduce the state budget and provide developers with new incentives to encourage participation. Through the end of 2018, the government is slated to provide 70,000 people with access to this programme.

Additionally, in January 2018 officials established the terms of an assisted housing offer for citizens that have moved abroad in what can be seen as an attempt to attract skilled labour, investment and capital back to the country. Subscribers to this programme benefit from the ability to claim a loan of up to 90% of the property value at a subsidised interest rate of 3%. In April 2018 the MHUV announced that over 16,000 applications had been received for 2250 residences across 24 wilayas. Some 84% of this demand came from citizens living in France.

Developments

One of the main developments evolving in the sector is the new city of Hassi Messaoud. Located 80 km equidistant from Ouargla and Touggourt, the project is planned to incorporate four large neighbourhoods accommodating approximately 20,000 people each by completion in 2030. In February 2018 a call was placed for both public and private property developers interested in the concession of land within the city and its logistics zone, hoping to bring in investments for a series of commercial, retail, residential and leisure projects. The first phase of Hassi Messaoud is under way, which plans to complete infrastructural and residential capacity for 45,000 inhabitants by the end of 2018.

Informal Housing

Since 2014 the state has launched a series of slum eradication programmes in Algiers. As of March 2018 over 80,000 families, totalling nearly 400,000 citizens, have been relocated from slums into state-run accommodation, allowing the recovery of more than 530 ha of land for the construction of additional developments. Zena Ali Ahmad, director of UN-Habitat for the Arab Region, indicated in July 2018 that the processes surrounding slum eradication in Algiers had fundamentally been successful, and that the same methods would be treated as best practices and implemented in other countries. Similar operations are expected to carry on to 2035 with the intention of eliminating dangerous, illegal housing in the capital city entirely.

Mortgages

State-owned banks make up the majority of all home loans, which are offered at a rate of 8% for periods of 20-40 years, according to the CAHF. While government initiatives are improving by offering varying forms of assistance, such as subsidies on interest rates in rural areas and down payment assistance for qualified households, the lack of institutions remains an issue. In addition, the majority of credit in the country is provided to commercial real estate rather than retail housing.

Nevertheless, in 2017 the number of mortgaged households in Algeria grew by 16.3%, the second-fastest expansion in the world after Egypt at 18.9%, according to market research firm Euromonitor. The loan recovery rate in Algeria has improved significantly since 2009 when 21% of loans were non-performing, compared to 11.4% in 2016. The national mortgage payment rate is currently 98%. Despite these improvements in mortgage financing, the market is still relatively underdeveloped. In 2015 mortgages amounted to $31.4m, accounting for approximately 1% of GDP.

Commercial Real Estate

Latest available official statistics from late-2016 indicate that some 18.4% of the Algerian real estate market is composed of commercial and industrial properties. Prime office space have remained concentrated in Algiers, and rents have remained largely stable at an average of $30 per sq metre per month, due to a general lack of properties for foreign firms, according to Knight Frank ’s “Africa Report 2017/18”. Many international companies, especially firms in the banking sector, are moving out of the capital’s Hydra and city centre districts and are heading east towards the new commercial districts of Bab Ezzouar and Alger Medina.

Leisure & Retail

As the country seeks to develop its tourism sector, it has paid particular attention to addressing its comparatively underdeveloped accommodation industry. The country is estimated to have 0.1 hotel rooms per 100 people, which places it 111th out of 136 countries worldwide in this measurement. In September 2017 the Ministry of Tourism and Handicrafts announced the approval of over 1810 hotel projects, which will collectively increase total capacity to 240,000 beds, up from 100,000 at the time of the announcement.

In the retail sector the predominance of an informal market has left substantial opportunity for the development of modern sales infrastructure. French distributor Carrefour, for instance, announced in November 2017 its intention to open the doors of two more shopping centres in Sétif and Oran after its successful re-entry into the country in 2015 with a supermarket in Algiers. Although the 51:49 rule necessitates that foreign players must enter into joint ventures with domestic partners, preventing foreign companies from having a majority stake and presenting a barrier to entry, the prospects for developments in this sector are significant.

Clearing Land

In March 2018 the Ministry of Energy and Mining announced the establishment of a commission intended to develop standards for the granting of industrial land. Pending an executive decree to further articulate the criteria, the commission determined that the type of activity, potential job count and value of investment would all be factors considered. This effort to facilitate and clarify the process of granting industrial land comes as part of a nationwide programme championed by the presidency that aims to develop 12,000 ha across 39 wilayas for industrial purposes.

In addition, the government has made moves to ensure that existing industrial real estate is developed by serious and motivated buyers. In June 2017 officials issued 330 formal notices to investors with projects in the wilaya of Ouargla that had failed to deliver what was promised. In April 2018 in the wilaya of Medea 84 investors who failed to move forward with stated plans after a statutory period of three years had their concession decrees cancelled. This clean-up operation of industrial property aims to stimulate new and productive investment by making these lands available for new development.

In November 2017 the state also announced its intention to recover undeveloped farmland. Commissions at the wilaya level have been vested with the power to withdraw land allocations for unexploited farmland, which will be made available to new investors with dynamic development plans.

Outlook

In September 2018 the MHUV announced intentions to construct 200,000 new public housing units in the following year, showing its commitment to sustaining a high level of funding for social housing in the short to medium term. However, in July 2017 the state had articulated its desire to shift away from direct provision of housing units and towards a model that incorporates private developers at the level of affordable housing to a greater extent. After the elections in 2019, the state is likely to pursue this policy with more rigour. As the government has also stated its intention to begin a shift away from foreign contractors to instead favour local construction firms in housing development, it will necessitate alternative forms of investment from international players.

The World Bank’s “Doing Business Report 2018” ranked Algeria in the categories of “dealing with construction permits” and “registering property” 129th and 165th, respectively, out of 190 countries, pointing to challenges in the sector. Nevertheless, the continued commitment to liberalise the economy and attract foreign investment into the country’s underdeveloped sectors such as retail and tourism, while improving financing options bode well for the future.