While the boom in North African real estate continued through most of 2008, a downturn in global financial markets could put the brakes on the burgeoning sector in 2009. Algeria’s unstable security situation and fickle political climate continued to scare off investors and any significant growth in the sector over the past year, but Tunisia and Morocco pushed forward with ambitious state-sponsored public housing projects, as foreign investment flows helped finance the development of tourism projects, upscale properties and numerous mega resorts.
Analysts have predicted that the financial crisis will have little direct influence over the Tunisian and Moroccan economies. However, as the crisis worsens, regional real estate insiders are calculating the indirect influence they may see in the coming years, as these countries’ economic dependence on affected economies like those in Western Europe becomes a greater liability.
For instance, Tunisia and Morocco, like so many other developing economies in the globalized world, have come to rely heavily on the economic boost that remittances from workers living abroad send home. Out of the estimated $5 billion that is sent to Morocco in remittances, as much as 86% is invested in real estate. Now, as layoffs increase in developed economies and consumption trends dip to dangerous new lows, remittances to developing economies will sharply decline as the Moroccans and Tunisians living abroad tighten their belts.
Land of the second home
In addition, Tunisia and Morocco have had great success in marketing to second-home buyers in Western Europe and other regions. Offering lower real estate prices than the northern Mediterranean countries, year-round sunshine and hundreds of miles of undeveloped Atlantic and Mediterranean coastlines, both countries have became seductive destinations for Europeans interested in a vacation home or secondary residence. The region’s real estate boom, which most agree began in 2006, was further reinforced by the recent arrival of new low-cost airline carriers like Ryanair and Jet4You, which increased routes between exotic North African cities and European capitals and offered more competitive prices on fares. Analysts expect a sharp decline in demand for second-homes and vacation properties in these countries as financial conditions abroad grow worse.
As for the domestic real estate market, Tunisia’s outlook is bright for the following year with local demand largely met. Though many locals may complain of rising prices, the government implemented a strategy to promote national home ownership by preventing foreigners from participating in the property market until national ownership reached approximately 80%. Tunisia currently has the highest home ownership rate in Africa and one of the highest in the world. Morocco, on the other hand, with its much larger territory and whose population is nearly three times that of Tunisia, suffers from an ongoing housing deficit for which Housing Minister Taoufiq Hejira is finding no easy solutions. The development of the kingdom’s upscale market and tourism industry have by all means proved an economic windfall, but climbing prices of residential real estate in many areas have now reached peaks that are well beyond the reach of most Moroccans.
Due to a somewhat late entry on the international property market scene, Tunisia remains much less well-known than Morocco as a real estate investment destination, with an up-and-coming property market that is just beginning to attract a great deal of attention from investors in Europe, Asia, and the Gulf. In 2005, new legislation made it easier for foreigners to purchase property in areas designated for “economic and tourist activities.” Prices in Tunisia are still low, especially compared to some regions of Morocco (namely the much hyped Marrakech, a longstanding staple on the jet-set scene), where thirty years of foreigners buying villas have raised real estate prices to European levels. If prices continue to rise and they begin to lose their competitiveness with areas like southern Spain, buyers will choose properties in markets north of the Mediterranean, which have vastly superior infrastructures and identical climactic conditions.
The Moroccan administration is firmly in favor of economic liberalization and Hejira has proclaimed the state’s intention to completely withdraw from real estate development within five or ten years, entrusting the industry entirely to the private sector. But the administration continues to demonstrate a willingness to step in when necessary, making new land available at strategic moments in order to combat real estate speculation and sponsoring the development of 170 new urban zones. The proliferation of shantytowns is a painful and highly visible reminder that a healthy rate of economic growth and low inflation are not changing the kingdom’s high rates of poverty and unemployment as quickly as many would hope.
Social housing is currently a top priority for the public sector, which it is trying to pass on to the private sector. The Ministry’s ambitious plan to provide 130,000 social housing units by 2012 seemed like the ideal way to resolve the housing deficit (annual demand is officially estimated at 30,000 – 40,000 units). But while private-public partnerships formed the backbone of the state’s strategy to meet demand, the private sector has become more reluctant recently to invest in this bracket of housing, in spite of tax breaks and land incentives offered by the state. Social housing units, which must be priced at around 200,000 MAD ($23,000) to meet buyers’ capacity, are less and less economically feasible, since rises in construction and land costs over the past year have practically erased the profit margin for private developers.
Samir Benmakhlouf, President of Century 21 Morocco, thinks that domestic demand could carry the real estate market through the turbulence of the crisis period. When asked if the real estate boom could be over, he replied: “The demand is still there and the demand is much bigger than the supply. There is a readjustment period that we have to go through, but we still have a lot to build. We still have a more than one million housing unit deficit. The demand is very big and the opportunity is still very big. However there is a stagnation that is causing a lot of people to think twice about coming to the sector.” As he pointed out, a period of stagnation could actually prove beneficial to the market over time: the sector’s rapid growth and the promise of huge profits led to a great deal of speculation and under-the-table deals that have plagued the sector’s development and inflated prices. A period of calm will allow professionals to regain control of the sector and weed out some of the greed and corruption. Also, a stagnation of property prices is already boosting the rental market, which is sorely in need of a transition from the informal to the formal economy and whose development would help address the country’s massive housing deficit.
The rise of the rental
Benmakhlouf pointed to rising interest and profitability in the overlooked and underdeveloped rental market saying, “Our network has been receiving a lot of people throughout this crisis; we’re actually making record revenue throughout this stagnation period — record transactions, because a lot of them are rental, when people cannot afford to buy, they rent, there is a trend now to go towards rental.” Reports indicate that the state will soon pass legislation protecting owners rights and extending their control over property, which will boost the rental market, as owners currently cannot evict tenants who fail to pay rent. Benmakhlouf added, “If you look at cosmopolitan cities around the world, you find that two-thirds are rented and one-third is owned by the person who is living there. In Morocco it is the opposite, right now its one-third renters and two-thirds owners, but we are moving towards the rental market.”
Mega-projects in the course of development by Gulf companies Emaar, Al Qudra Holding, Sama Dubai, Qatar Real Estate Partners and others will also support the sector’s sustained growth in Morocco and Tunisia in 2009. Since 2003, climbing oil prices created an excess liquidity in the Middle East that oil-fueled investors, mainly sovereign funds and wealthy families, have used to make record levels of global investments. Pursuing a forward-thinking strategy of diversifying their economies away from dependence on oil exports, these regional investors, equipped with a petrodollar windfall in excess of $2 trillion, invested heavily in the North African region. Tunisia and Morocco, thanks to sustained political stability, solid economic outlook and carefully crafted investor-friendly environment, received the bulk of the region’s megaprojects, most of which have been channeled into tourism-related developments and luxury residential real estate.
These projects also have a modernizing influence that will pay off over the next decade in terms of job creation, urban renewal and the transformation of unused plots of land into hubs of tourism and industry. Projects in Tunisia such as Tunis Sports City and Mediterranean Gate ‘Century’ City, both funded by Dubai investment at $25 billion and $5 billion, will feature golf courses, state-of-the-art sports academies, marinas, luxury hotels and thousands of residential units.
In Morocco, the renovation of the Rabat-Sale Bouregreg River, currently nearing completion, is considered an axis of the kingdom’s strategy to update its social and economic conditions, starting with the capital city. The project, which is being carried out in partnership with the United Arab Emirates, includes a tramway, a port on the Atlantic, a marina and a facelift to monuments and historical features of Morocco’s administrative center. And while Casablanca, the economic capital of Morocco, is still waiting for a comprehensive urban renewal program, it is at least experiencing a boom in commercial real estate. Two thousand and eight saw the breaking of ground on the Morocco Mall project, which will be the largest mall in Africa, featuring an Imax theater and over 200 name-brand stores.
Several large-scale infrastructural works are underway in Tunisia and Morocco, as both countries update their airports to increase capacity for tourism and modernize their train transport system. Tunisia awarded a contract to build its seventh international airport at Enfidha to the Turkish holding company Tepe Aksen Ventisres (TAV) in 2007 and plans to award a contract to build a deep water port in the same region. In November 2008, Morocco received a 625 million euro ($804.6 million) loan from France to fund a high-speed TGV route between Casablanca and Tangiers. Although much remains to be done, particularly in the areas of public transport and urban planning, investments in national infrastructure prove that Morocco and Tunisia, often known for corruption and misuse of public funds, are very serious about achieving a goal-oriented long-term sustainable economic development.
