Fast-growing North African economies are feeling the heat of a new rising star: real estate. Regional powers perceive the real estate sector, which is attracting fresh flows of foreign investments in the new millennium, as an important vehicle for economic growth. Real estate development is also seen as a potential cure to epidemic social ills like housing shortages and unemployment. As foundations for megaprojects and high-value real estate are laid across the Maghreb, governments are additionally investing in much-needed social housing units and the creation of new retail, manufacturing, and services ventures. Many real estate projects in development in the region are linked to increasing tourism, and serve the dual-purpose of attracting foreign investments and a steady stream of wealthy consumers.

Experts attribute the recent boom in North African real estate to new investment flows issuing from the cash-flush GCC. Gulf countries are seeking to diversify their economies away from dependence on oil exports, and regional investors, equipped with a petrodollar windfall in excess of $2 trillion, are looking out for high-value real estate investments at home and abroad. Since 2003 the excess liquidity created by rising oil prices in the Middle East has set the stage for oil-fueled investors, predominantly sovereign funds and wealthy families, to make record levels of global investments.

However, investments stemming from the Middle East’s economic boom are not everywhere welcomed with open arms. In 2006, the United States Congress opposed Dubai Ports World’s $6.8 billion acquisition of the British ports management company that handled strategic American ports, citing security concerns. Cultural bias in the developed countries, as well as the volatility of the US real estate market and the credit crunch, have led Arab investors to seek out more opportunities for investment within the MENA region. Many see this concentration of investments in MENA real estate as a private expression of Arab solidarity. Dubai-based Al Noor Holding is even planning to build two futuristic cities worth $200 billion in the unlikely locales of Yemen and Djibouti.

North African countries, with high potential for growth, but major lags in development in key areas like employment, housing and infrastructure, are an obvious destination for these investments. High-value real estate, already a relatively safe investment insofar as it is protected from sudden price surges in today’s volatile global markets, have the added value of promoting sustainable development and a brighter future for the integrating MENA region. In the unevenly developed Maghreb, where shantytowns often are side-by-side with luxury villas, a well-placed megaproject has the power to transform an impoverished area with unemployment into a bustling tourist hub with a services industry to soak up labor.

Morocco

Morocco undoubtedly holds the title of most promising market in North Africa. Experts like Khalid Alioua, CEO of the state-owned Credit Immobilier et Hotelier Bank, estimate that the real estate sector contributes as much as 7% to Moroccan GDP. At a recent conference Karim Baqqali, regional director for North Africa of the leading international real estate consultancy CB Richard Ellis, spoke of a revolution in Morocco’s real estate sector, lauding the sector’s “professionalism, internationalization, and progressive financing.” King Mohamed VI and his coterie of business-savvy technocrats have worked hard to encourage the sector’s development, offering bargains on land to court megaprojects and foreign investments, as well as pushing through legal reforms to open the sector.

The country is counting on the recent launching of numerous megaprojects to boost the kingdom’s economy and bring in more tourists. In 2005, the UAE’s Emaar Properties, one of the world’s largest real estate companies, announced its intention to invest more than $4 billion in shopping malls in the Arab world and the Indian sub-continent. At the time its president, Mohammad Al-Abbar, communicated that his company was particularly interested in Morocco. Soon after, Emaar joined with the Moroccan industrial and financial group ONA, which has close ties to the Moroccan monarchy, in a venture to create five large-scale luxury residential complexes throughout Morocco. The luxurious premises of Tinja, spread out over 300 hectares of land, will be flanked by the Atlantic coast on one side and by natural forest on the other. A short drive from Tangiers, Tinja will hold 2,500 houses in six separate neighborhoods, and is set to include sports clubs, hotels, and shopping plazas. Representing an investment of more than $1 billion, Tinja is widely regarded as one of the most important tourism venues under development in Morocco, and will be followed by four more Emaar mega-projects in the mushrooming Marrakech region, as well as in and around the kingdom’s capital city of Rabat. Aside from Emaar, other Gulf investors like Al Qudra Holding, Qatar Real Estate Partners, Dubai Holding, and Pearl of Kuwait Real Estate have all signed contracts and investment agreements for strategic investments in various regions of the kingdom.

The Arab-led development of residential and touristic complexes will help serve Morocco’s national objective of welcoming 10 million tourists by 2010. So will the national strategy Plan Azur, which outlines the creation of six seaside resorts dotting far-lying regions from Saidia on the northern Mediterranean coast to the virgin, dune-lined Plage Blanche on the southernmost Atlantic coastline. Despite light delays, Plan Azur’s execution has been smooth, with Spain’s Fadesa, the American Colony Capital, Belgian company Thomas & Piron et Colbert Orc, and South Africa’s Kerzner all winning contracts to build and develop sites. The projects, which feature golf courses, luxury hotels, and thousands of villas, are being marketed to French and British buyers, as well as the increasingly sought-after MREs (Marocains Residant a l’Etranger, Moroccans who live abroad). 

But while some companies are excitedly selling not-yet-built villas to wealthy buyers, many in the kingdom are more concerned with the unmet needs for affordable housing for the country’s lower and middle classes. Housing Minister Toufiq Hejira estimates the yearly demand for housing units at between 30,000 and 40,000. An enduring housing deficit, fed by rural exodus and haphazard urbanization, continues to have negative sociological and cultural effects throughout the kingdom, fueling crime and classism between the haves and the have-nots.

Hejira has implemented numerous reforms in the real estate sector to correct the deficit by building 130,000 social housing units by 2012. The state is relying on public-private partnerships to reach ambitious quantitative goals before deadline. Private-public partnerships, an increasingly popular means for doing business in Morocco, are seen as a way to translate the wishes of the monarchy into well-run initiatives, as well as to improve relations between the state and the private sector. The minister’s social housing projects, worth $2.2 billion, will offer units of 50-60 squares meters for around $19,000. New financing options, like the guaranteed loans program FOGARIM are accompanying the construction of social housing in order to assist target-income households (who earn less than $400 a month) settle into new developments. Additionally, the slum-free cities program is a state-led effort to eradicate over 1,000 slums throughout the kingdom and re-house inhabitants.

State-sponsored measures like these are of vital importance in confronting the blight of urban poverty, particularly as expressions of wealth like shopping malls and mansions become more common in Morocco’s big cities. But as the country rushes to meet quantitative goals for new low-cost homes and living environments, some are concerned that the quality of these accommodations is inadequate. Sociologist Jamal Debbaghi released a study in March 2008 warning that social housing projects run the risk of becoming ghettos, due to high density, unemployment and a lack of socio-economic diversity. Others report that black market developers are charging well above the set prices for housing units.

While most welcome the administration’s commitment to court megaprojects and supply social housing, a recent scandal shed light on negative aspects of the state’s involvement in the sector. In July, Miloud Chaabi, then-president of the Real Estate Federation and CEO of leading private industrial company Ynna Holding, resigned from his post at the federation, publicly accusing the administration of unethical practices and non-transparent handing over of land. He charged the state with favoring certain real estate promoters over others, through offering lucrative no-bid contracts and cessions of public lands at below-market prices to developers Addoha, CDG, and Al Omrane. These companies have denied the charges and local press reports that the administration may respond by suing Chaabi for defamation.

Scandals like this one could jeopardize Morocco’s hard-won reputation for particularly strong investment opportunities. Ranked 129rd among a total of 181 economies by the World Bank’s 2009 Ease of Doing Business rankings, the country ought to accompany the liberalization of its economy with higher standards for transparency within government and business practices.

Tunisia

Tunisia, less well-known in the sphere of global tourism than Morocco or Egypt, is making inroads in the sector through a series of projects aimed to raise its international profile and improve tourism capacities. With a population of just 10 million, Tunisia’s historic medinas, Mediterranean beaches, and friendly, well-educated public have the potential to attract higher levels of tourism. Meanwhile, the country’s steady economic growth, low inflation, and political stability are appealing to investors. Since the 1990s Tunisia has taken a series of steps to liberalize its economy and remove obstacles to international investment.

In 2007, Tunisia’s economy grew by 6.2%, its highest performance in 10 years, and tourism brought more than 7 million visitors to the country. The Tunisian economy ranked 73rd out of 181 on the “Ease of Doing Business” Report, up eight places from the year before. Over $20 billion worth of building contracts were signed in the country in 2006 alone, and Tunisians look forward to seeing an upcoming boom. The country is indisputably an up-and-coming property market.

As in Morocco, Arab financiers are actively seeking out investment possibilities in the country, which has a high potential for tourism development. FDI grew by an eye-widening 60% in the first trimester of 2008, reaching $491.5 million. Partially due to new investments in the services sector, this growth is also attributed to a new wave of investments in tourism and real estate. The Tunisian real estate sector, supervised by the Ministry of Equipment, Housing and Land Development, has become more open in recent years to foreign investments, since the passing of new legislation in 2005 made it easier for foreigners to purchase property in areas designated for “economic and tourist activities.” Increasing levels of private involvement, in particular flowing from Gulf-based companies, are leading to megaprojects and massive infrastructural renovations that target development of the country’s tourism capacities and services sector.

The Enfidha International Airport, which will have a capacity of 30 million passengers as well as an industrial zone, will serve as a platform for Tunisia’s emergence as an international pole for services, trade and tourism. The airport, scheduled to open in 2009, will be developed by a Tunisian subsidiary of the Turkish operator TAV Airports Holding, which in April 2008 received a loan of nearly $585 million to finance the project. The Tunis Financial Port, scheduled for completion in 2010 by the Qatari Gulf Finance House, will become the first off-shore financial center in North Africa, and will feature insurance, consulting, banking and corporate centers, as well as a marina and residential and commercial real estate.

Unexploited tourism potential has mobilized massive investments in several megaprojects throughout the country. Tunis Sports City, whose development was launched in May 2008 by the Emirati Bukhatir Group, is set to become a remarkable city of over 255 hectares. Nine different sports academies, and state-of-the-art stadiums, golf courses and swimming pools will be featured in this multidisciplinary paean to athleticism, where celebrated sportsmen will train young Tunisian and foreign athletes. Residential and touristic complexes will round out Sports City with luxury hotels, towers, high-value villas and shopping malls. The ubiquitous Emaar is transforming a semi-wasteland at Hergla into a $4.5 billion residential and tourist resort, and the construction of various marinas along Tunisia’s 800-mile long Mediterranean coastline will offer tourists an exotic alternative to the saturated French and Italian rivieras. 

Sama Dubai recently unveiled plans for its Porte de la Mediterranee, a $25 billion new city along the banks of Lac Sud. The Emirati company has gone to great lengths to convince Tunisia that the new city serves various national interests. The project is expected to give rise to estimated 350,000 jobs in the region and will serve as a vehicle for valorizing and preserving Tunisian architecture and culture. It is also seen as a means for improving human resources capacity in the country. “Sama Dubai will make every effort to use available local competencies and resources, as much as possible. We are currently working on the lookout for local talent who will contribute not only to the general development of the project, but who will also benefit individually from promotions within their own careers,” Sama Dubai’s CEO Farhan Faraidooni was quoted at a reception celebrating the inauguration of the city’s new sales office.

But many Tunisians worry that foreign investment is already causing dangerous rises in real estate prices. Unlike Morocco, Tunisia does not face a housing deficit and the most recent census stated that more than 80% of Tunisians own their own homes. First-time buyers, however, have limited financing options at their disposal, and are thus poorly equipped to deal with high-interest rates and sizable down payments. With Gulf investments causing land and construction prices to shoot up, in March 2008 President Zine El Abidine Ben Ali pressed the Central Bank to cut interest rates on home loans. A development plan with a horizon for 2011 is aimed at the construction of 300,000 new housing units, 70% of which will be set aside for low-income households.

Algeria

Algeria has drawn a distinctly smaller share of new investment, due to ongoing security concerns and its cumbersome, slow-moving government. Recent attacks on foreign targets like the United Nations headquarters are a major impediment to development of tourism, and thus the investments that are coming in are mainly devoted to infrastructure, not to real estate.

Furthermore, even as the administration publicly invites foreign companies to invest in Algeria, the state has passed measures hostile to FDI. “We call on Arab investors to come up with serious and feasible projects and we commit ourselves to facilitating their entry into our market,” Finance Minister Mourad Medelci told a conference of 200 Arab businessmen in 2006. But the government’s 2009 budget calls for a 20% tax on capital gains on the sale of shares or parts of businesses by non-residents. In a separate move, Algeria is now requiring local and foreign investors to invest a portion of their profits into local markets over the next four years. This waffling is probably due to Algerian economists’ fears that foreign investments, rather than boosting the national economy, could have the harmful effect of exporting capital from the country. Until it manages to impose higher standards of administration, Algeria will see little of the petrodollar windfall that is boosting real estate in Morocco and Tunisia.

Over the last two years, Dubai’s real estate sector has recorded the largest improvement in transparency of any market in the world, according to a recent Jones Lang Lasalle report. The study classified 82 markets into five tiers, the first being ‘highly transparent’ and the last ‘opaque’. Dubai was one of only eight markets to move up a full tier from ‘low transparency’ to ‘semi-transparent’. In the global ranking, Dubai moved from 46th place in 2006 to 32nd in 2008 and it currently heads the three most transparent markets in the MENA region — Dubai, Bahrain and Abu Dhabi — which are the only MENA markets in tier three. Additionally, Dubai’s level of transparency is currently on par with Russia and ahead of the other BRIC countries Brazil, India, and China.

Indicator of openness

With the globalization of real estate markets and the increasing growth in the sector, the transparency index has become a key indicator in measuring the openness and ease of doing business in a particular market. Blair Hagkull, managing director of the MENA region at Jones Lang Lasalle, told The National that transparency “ultimately provides the foundation for the investment climate.” Transparency is very important for tenants, investors, and other real estate stakeholders. It lowers the risk for investors as well as the volatility of the market cycles. At the same time it increases sales activity, foreign participation and leads to stronger demand for corporate real estate.

Dubai’s lead in transparency is mostly due to the Freehold Law issued in 2002 that opened up the market to foreign ownership and resulted in a 12-fold increase in real estate transactions over the last six years. Starting in 2001, foreigners, who make up more than 80% of Dubai’s population, were allowed to take up leases on apartments and villa properties in Dubai for a period not exceeding 99 years. In 2006, a new freehold law allowed foreign buyers and investors to own property for life in large parts of the city, as well as lease, sell, or rent at their own convenience. According to the Dubai Land Department, as quoted in the Jones Lang Lasalle report, real estate transactions at the end of 2007 reached $125.3 billion, up from $10.6 billion at the end of 2002. The freehold law was described in the report as the “single most important factor driving the growth of the real estate sector in recent years.”

Even though the freehold law did a good job in strengthening the market and was by itself a sufficient driver for growth, the government of Dubai did not stop there. In August 2008, a new mortgage law was issued. Marwan Ahmed Bin Ghalita, the CEO of Dubai’s Real Estate Regulatory Authority was quoted by Business Intelligence-Middle East as saying the law will regulate the mortgage process in order to protect the rights of borrowers and lenders and to improve transparency. Additionally, the Regulating Initial Property Registration Law introduced a system of pre-registration for off-plan sales contracts at the Land Department. It also provides the basis for implementation of some of the provisions for Dubai’s new mortgage law. All unregistered off-plan sales will be invalid under the new law and all developers that do not comply with its provisions will be reported to the relevant authorities for investigation.

Speedy Gulf development

According to the Jones Lang LaSalle report the regulatory and legal environment is one of the main drivers of Dubai’s market growth. Craig Plumb, head of research (Middle East and North Africa) at Jones Lang LaSalle, recently said that Dubai’s development is very fast compared to mature cities like London and Hong Kong, which took decades to develop. Additionally, he stated, Dubai should improve the transparency of its real estate market by introducing more property performance indices, making more information available, and offering indirect ways for investing in real estate. If these improvements are made, Dubai is expected to be in tier two by 2010.

Abu Dhabi, another emerging real estate market in the UAE is also witnessing a significant improvement in transparency. The National quoted Hagbull as saying, “Abu Dhabi is three to four years behind Dubai’s real estate boom and what it has achieved in terms of transparency is remarkable.” Abu Dhabi’s main setback is the existence of foreign ownership limitations that keep the market relatively closed and limit the city’s proportion of foreign investment coming to the UAE. Freehold ownership for non-GCC investors is not allowed on Abu Dhabi Island itself. It is limited to 99-year leasehold interests in approved investment zones, like Reem Island and Raha Beach. The city’s environment is expected to gradually liberalize by introducing “structural reforms and more outward oriented business policies,” said Hagbull.

Bahrain’s real estate market is classified in the third tier somewhat less transparent than Dubai but better than Abu Dhabi. Like Dubai, Bahrain also issued new legislation in 2006 enabling foreigners to own property in certain residential buildings, which have been classified as zones A, B and C. The law was then extended to enable foreign ownership in the many new tourist development projects throughout Bahrain. This allows for increased real estate investments by expatriates who have come to live and work in the kingdom and who represent a strong element in the country’s population. The real estate markets in Bahrain and Abu Dhabi were both considered in Jones Lang Lasalle’s report as having “governments and regulatory authorities […] recognizing the importance of improving transparency to enhance their competitiveness.” Continuous efforts are made to strengthen this sector since investors driven by increasing globalization are always in search of new and better opportunities. This creates a strong incentive for governments to open up the markets and allow a free flow of capital in hope of attracting new investments and developing their economies.

The rest of the MENA region remains in the fourth and fifth tiers and is ranked as the world’s least transparent, although it has witnessed the biggest progress since 2006. Egypt and Saudi Arabia (both in the fourth tier) rank among the world’s ten most improved markets, while other countries like Algeria, Syria and Sudan (in the fifth tier) show little or no improvement at all. However, these markets continue to open up and are expected to attract regional interest and make some progress in the next few years.

The up and coming real estate sector of Oman is impossible to ignore. Supported by various positive ingredients, the burgeoning economy of the sultanate faces a bright future in major sectors, and real estate is at the top of the list. The rather liberal Omani government plays a positively emphatic role in opening up the state’s economy through its rigorous modernization, diversification, and liberalization plans.

Coined Oman 2020, the government has devised a reform plan to diversify its economy to make it less dependent on oil production. In order to attract foreign investment, the government passed a law in 2006 allowing foreigners to purchase freehold property throughout tourism-designated resorts across Oman — illustrating its candid attempts towards heterogeneity. Projects such as The Wave, Blue City (Al-Madina al-Zarqa), and Salam Yiti are headlining real estate news in the sultanate, as foreigners are flocking in just to purchase residential properties at comparatively — relative to its GCC neighbors — low prices. The Omani government is also helping locals purchase homes by imposing caps on banks for personal loans (including home loans), at 40% to 45%. Since the demand of available space has outstripped supply, Oman is facing an increase in rental and purchasing prices. According to the Oxford Business Group (OBG), there has been a “shortage of about 2,500 residential units in Muscat annually, and as a result unit prices in Muscat have doubled over the past three to four years, increasing from around $195-250 per [square meter] in 2004 to $390-520 in 2007.” To contain this problem, the Omani state has been notably generous in the distribution of land to mammoth developers, at especially low rental rates for long-term leases. Clearly the government is creating tremendous incentives for both foreigners and locals alike to acquire real estate in Oman.

Analysts predict that the value of demand for Omani real estate will top $20.8 billion by 2010. Eqarat.com market research reveals that total investments into the real estate sector have reached $4.2 billion in 2007, up from a low $750,000 in 2005. Currently, residential properties are the highest fruit-bearing investments within the sultanate. In 2007, the average price per square meter grew by 253%, rising to an average of $135 per square meter — a dramatic increase from a mere $42.35 in 2006. Many foresee Oman’s long-term investments into commercial activities, such as manufacturing and tourism, as major drivers on the demand for real estate this year. Other key forces to the proliferation of the real estate sector include: significant population growth, with quite a young demographic — approximately one third of Omani’s population is under the age of 15 — influx of expatriates, stream of international companies, incentives for foreign investors, low cost of land, as well as the luminous growth potential of the sultanate’s economy. With such promising drivers on its side, financial backing from regional heavyweights is sure to increase sooner than later.

So long as the Omani government aspires to diversify its economy and lessen its dependency on high oil prices, the potential of its real estate market will continue to shine brightly. Without a doubt, the Omani real estate sector is bound for exponential growth and great success.