Filling the gap: Middle-class housing plan to reverse slowdown

Although the construction industry is generally one of Morocco’s most dynamic sectors, it witnessed a significant slowdown in 2013 due to a confluence of factors. These ranged from regional political instability, leaving foreign investors reticent about entering the Moroccan real estate sector, to a reduction in the number of new construction sites and a shortage of access to financing for property developments.

Nevertheless, the Ministry of Habitat and Urban Planning (Ministère de l’Habitat, de l’Urbanisme et de la Politique de la Ville, MHU) continued to help drive sector activity and provided strong financial incentives to real estate developers to invest in social housing. Indeed, the ministry has embarked upon an effort to reduce the housing deficit in Morocco. Obstacles remain, however. A slowdown has occurred in the luxury market and the middle class is increasingly unable to afford adequate housing, resulting in a poorly served mid-range segment, while a lack of access to financing for real estate projects has continued to hamper activity.

Administrative and legal reforms are also on the horizon, most notably a unified construction code currently in the pipeline, which will streamline administrative processes and increase legal oversight. The new code is expected to provide additional momentum to the sector. The industry is anticipating stronger growth in the medium term once financial incentives have been implemented for property developers.

BUILDING MATERIALS: The construction materials sector experienced various difficulties in 2013 due to a decrease in activity in the real estate market. The cement industry had a particularly challenging year, with a 6.3% drop in sales (see analysis). Cement consumption, which is considered a key performance indicator as 80% of it is dedicated to housing, dropped from 15.87m in 2012 to 14.87m tonnes in 2013. Sales, however, began to increase towards the end of the year, with a rise of 1.7%. Above-average rainfall levels also had an impact on the construction sector, reducing the number of new construction sites by 28%. A drop was generally anticipated by the sector, which contributed 6% to GDP in 2012. Around 234,000 housing units were built in 2013 versus 306,649 in 2012, representing a decline of 23.7%.

Cement sales were hit particularly hard in the Guelmim-Es-Smara region, dropping 42.5% with 157,195 tonnes sold. Casablanca sold 1.97m tonnes, down 8.9% against 2012 levels. The region of Doukkala-Abda sold 1.07m tonnes, up 9.5%, which was the biggest regional increase. Despite the recent downturn in activity, which resulted in smaller margins for cement producers, Morocco’s cement sector remains one of the most profitable in the industry. It is currently overproducing by around 5m tonnes of cement per year.

In addition, two new taxes introduced under the 2013 Finance Law led to an increase in prices for both steel rebar and sand, with a negative impact on construction firms and the sector as a whole.

EMPLOYMENT: The construction and public works sector is a major source of jobs, employing around 1m people. The sector suffered 21,000 job losses in 2012, and a further 55,000 in 2013, according to the High Planning Commission (Haut Commissariat du Plan, HCP). This compares starkly to 55,000 jobs created in the sector between 2008 and 2011. Job growth is expected to return in 2014 due to better weather over the year and government financial incentives for building projects.

SECTOR PLAYERS: Historically, the cement sector had been dominated by four main producers, but the field was shaken up when Ciments d’Atlas (CIMAT) entered the sector by the end of 2010. CIMAT has strong ambitions, aiming to become one of the top producers in Morocco, and is currently expanding its operations in West Africa. Ciments du Maroc is the second largest producer in Morocco and a subsidiary of Italy’s Italcementi Group. Others include Lafarge Maroc, which is part of a French multinational, and has an annual capacity of 6.9m tonnes per year. Asmet Témara, a subsidiary of Portuguese firm Cimpor, is present in the market as well. Holcim, a subsidiary of the Swiss group, on average produces 4.5m tonnes per year. Despite the cement sector’s recent poor performance, the main industry players are forecasting more prosperous times ahead. In 2012, Holcim completed the expansion of its plant at Ras El Ma near Fez after investing Dh1.43bn (€128m). The plant has allowed the company to double its output of clinker, which is used in cement production, from 430,000 to 860,000 tonnes. Lafarge Maroc is also planning to expand its production capacity in 2016 with the opening of a new plant in Souss near Agadir in the south of Morocco. Finally, Ciments du Maroc began production at a new plant at Ait Baha in 2013, with an annual capacity of 2.2m tonnes.

REGULATORY REFORMS: The construction sector is governed by a range of authorities from the local to the national level, as well as many overlapping decrees and laws, creating confusion and inefficiency in the market. Therefore, the government will soon introduce long-awaited measures to reduce and simplify administrative procedures. A unified construction code is expected to come into force in 2014 in an effort to reduce legislative overlay as well as increase transparency and competition (see analysis).

SOCIAL HOUSING: Social housing has become the main driver of construction and real estate activity over the past few years, as unfavourable international economic conditions and ongoing regional instability have limited growth in the luxury segment. Addressing the lack of affordable housing for the low-income market has been a major priority for the MHU, and this has helped to generate significant interest in the segment.

The national housing deficit is around 650,000 units and the MHU is looking to add 170,000 units per year to reduce the shortage. While the government aims to cut the total deficit in half by 2016, the growth of the population continues to counterbalance its efforts.

Unlike the rest of the industry, the social housing segment has seen a slight uptick. Social housing saw an increase of around 8%, from 131,878 units in 2012 to 142,501 in 2013. At the same time, construction permit requests as a whole fell by approximately 60%. Informal construction projects, which represent around 25% of the market, also slowed in 2013 following more stringent conditions for authorisation of such projects.

Extensive efforts have been made to reduce the number of slums in Morocco under the government’s “Cities Without Slums” programme. Launched in 2004, the initiative aims to eliminate slums in 84 cities and relocate 340,000 households to new urban areas. Currently, 47 cities have been declared free of slums. Due to the general slowdown in the real estate market, much of the social housing built in the last year has been focused on Casablanca, Rabat and Kenitra, at the expense of rural areas of the country.

CLOSING THE GAP: While the low-income housing sector has seen much of its demand met due to the MHU’s social housing programme in recent years, and the luxury market has been served independently by market forces, the mid-range segment has found itself temporarily ignored by both the state and developers. Affordability remains a major hurdle as many in the middle-income range have been unable to afford to buy. “The middle class is still relatively small. People tend to rent because they are unable to find what they need on the market in terms of price and quality,” Mehdi Ammouri, equity research analyst at CFG Group, told OBG. Estimates show a deficit in this segment of between 20,000 and 30,000 units. “For the moment, developers are waiting for financial incentives to tackle this segment,” Ammouri said. The government is planning to initiate a major building and investment campaign for mid-range housing.

Real estate developers have been given tax exemption for developments of more than 500 units. In 2010 the exemption began at a minimum of 1500 units, but developers considered the ceiling too high to enter the market. The government reduced the ceiling to 500 units, sparking a building boom in the social housing segment. The high level of activity was also fuelled by the 2020 deadline, after which the state’s social housing scheme will end. This has also contributed to numerous land purchases and building construction by the major real estate developers. In addition to tax exemptions for developers, lower-income buyers were encouraged to become homeowners through a value-added tax exemption on a new acquisition. Many lower-income buyers lacked stable revenues as well as bank accounts, preventing them from receiving bank loans. The government, therefore, launched a mortgage guarantee fund that is financed by a tax on cement.

Currently, discussions are ongoing between the private sector and the MHU. “The hope is to implement the same type of incentives for mid-standing developments as exist for low standing. The right financial model hasn’t been found yet, in which both the state and developers can benefit. But there is strong will on both sides to reach a deal,” Anas Berrada, director of resources and finance at Groupe Addoha, told OBG.

FINANCING: The real estate market faces constraints due to a lack of access to credit. Moroccan banks continued to face liquidity issues, and lending has slowed financing in particular due to the banks’ high level of exposure to the real estate market. This is due in large part to developments in the tourism sector, which received a major boost in funding under the Ministry of Tourism’s Vision 2020 plan to increase the number of tourist arrivals to 20m by 2020. Moreover, credit provided to the real estate sector declined in 2013 to 5% of the total from 5.5%.

MIXED SPACE & OFFICES: Several major mixed-use and office space developments will soon be delivered. Tanger City Centre, located in Tangiers in the northern part of the country, is a mixed-use development from the Spanish group Inveravant. The Dh2bn (€178m) investment houses 800 apartments, 10,000 sq metres of office space, a four- and five-star hotel, as well as a 45,000-sq-metre shopping mall space with 117 stores. To help Tangiers better integrate its new projects, the state will invest Dh7.6bn (€677.3m) towards urban restructuring to support urban activity. Part of the funds will be allocated to building a third highway, a coastal road and bypasses such as connecting the Atlantic to the Mediterranean. Four clinics and several sports facilities will be constructed. Two major projects are currently being built in the Greater Casablanca region.

A new mixed-space zone in Casablanca will cover 4.5m sq metres, of which 2.5m sq metres will be reserved for housing, 1.3m for business and leisure activities, as well as a 124-acre park. One of its defining features will be a Dh1.5bn (€133.2m) financial district, named Casablanca Finance City. Further to this, the second project, known as the Casablanca Marina, will offer a business centre, 60,000 sq metres of shopping space, hotels, a convention centre, an aquarium and a marina. “Given the expanding upper-middle class as well as the evolution of urbanisation patterns, demand for mixed-use construction, especially products catering to the upper-middle class such as qualified facility management services, should continue growing steadily over the next few years. Indeed, they will gradually come to make up the greatest part of the real estate market,” M’Hammed Elmerini, managing director of Al Manar Development Company, told OBG.

TOURISM PROJECTS: The government aims to attract a total of Dh150bn (€13.32bn) in investment by way of public-private sector projects for tourism between 2010 and 2020. The Tagazhout resort near Agadir, which is the most ambitious to date of the Ministry of Tourism’s Plan Azur to make Morocco a leading beach destination, is preparing to receive some Dh10bn (€888m) to expand by constructing more hotels and local public infrastructure. In Lixus, meanwhile, which is situated on the Atlantic coast south of Tangiers, around Dh3bn ($266.4m) will be injected into the expansion of the seaside resort.

Furthermore, the luxury segment of the local hotel industry is also expected to see several new projects. A range of international chains will be opening new four-and five-star hotels over the next few years, including Mövenpick, which has 11 properties in total; the Four Seasons and Hilton, which have two properties each; as well as Marriott International and Ritz-Carlton.

PUBLIC INFRASTRUCTURE: Since the beginning of the decade the transport sector has received a major injection of public financing in the form of public-private sector initiatives. A 185-km high-speed rail line between Tangiers and Kenitra is expected to open in 2016. The line will be extended to Casablanca, which will bring the total investment for this line to Dh20bn (€1.8bn). The state and Office National de Chemins de Fer (ONCF) will have Dh33bn (€2.9bn) set aside for rail projects, with Dh20bn (€1.8bn) for high-speed rail and Dh13bn (€1.1bn) for modernisation of the rail network, between 2010 and 2015. Morocco intends to add a total of 1500 km of high-speed railway by 2035.

Road works also started in 2013 on the 143-km El Jadida-Safi highway, located in the south-west. It is financed by the European Investment Bank and the Arab Fund for Social and Economic Development. Morocco has set a target of 1800 km of highway to be constructed by 2015. In anticipation of a major influx of foreign travellers to Morocco, Terminal 1 of Mohamed V International Airport, located outside Casablanca, is being expanded. The project, which started in 2009 and is expected to finish in 2014, will boost passenger capacity from 6.5m to 21m by 2020. Airport expansion plans are under way in Marrakech, Fez, Nador, Tétouan, Zagora and Beni Mellal. Authorities expect to expand overall passenger capacity in 2016 to 46m from 23.5m.

Tangiers is undergoing a transformation, in part due to expansion of the city’s port. In 2015 the port’s second terminal, Tanger-Med II, which involves investment of Dh8.4bn (€748m), will become operational. This will add 5.2m twenty-foot equivalents (TEUs) in capacity and bring the total to 8.2m TEUs. Tangiers is also in the process of completing the 300-ha Tangiers Automotive City industrial zone, which will involve a total of Dh850m (€75.7m) in investment and create 35,000 jobs. “As one of the main catalysts for economic growth in Morocco over the past few years, public investment in infrastructure has been instrumental in enhancing the competitiveness of Moroccan export-driven industries in Tangiers. Even though public investment has experienced a slowdown in 2013, it should rebound in 2014 as several mega projects geared at further upgrading Morocco's logistics sector re-start following administrative delays and budget restrictions,” Ali Bencheqroun, managing director of Bymaro, told OBG.

The construction of a new port in Safi began in 2013 with public sector backing. The port has a Dh4bn (€356.5m) budget and will have an annual capacity of 14m tonnes. It aims to improve transport for the chemicals and energy sectors, notably coal and phosphates, and is scheduled to be operational in 2017. Port projects will receive Dh160bn (€14.2bn) between 2012 and 2016. The National Port Agency expects maritime traffic to increase considerably, to 290m tonnes by 2030.

INDUSTRY PROJECTS: Office Chérifien des Phosphates (OCP), one of the world’s leading phosphate producers, will invest Dh3.5bn (€310.8m) in Safi to construct an industrial site, known as the Safi Industrial Hub. A thermal energy station is also planned to be constructed in Safi to provide power for the industrial site and its environs. The 1320-MW plant will receive Dh1.9bn (€169.4m) for construction and will be built by Nareva Holding and Japanese firm Mitsui. It will be operational in 2015. OCP also intends to build a pipeline between Gantour and its Safi site. From 2010 to 2020 the OCP is embarking on a Dh130bn (€11.6bn) investment drive in its infrastructure so as to double its mineral and triple its chemicals production. Two fertiliser factories began production in 2013, which will produce 2m tonnes. The factories were constructed by the American firm Jacobs Engineering and Turkish Tekfen.

The kingdom aims to build a total of five wind energy parks and several solar parks to produce 4000 MW of its energy, 14% via solar and 14% via wind, and a total of 42% of the country’s energy needs via renewable sources by 2020. The first phase, a Dh7bn (€650m) solar park, is under way in the Ouarzazate region. It is part of the Morocco Solar Plan, which aims to attract $9bn in investment by 2020 to build five solar energy plants across Morocco. The first phase is currently being built by ACWA Power and its partners, Spanish engineering firm Aries IS and TSK EE. The second phase will be completed in 2015 and will bring the total output capacity to 500 MW. In 2013, the French firm GDF Suez and the Moroccan firm Nareva Holding were selected to build a Dh11bn (€976.8m) wind energy park in the region of Tarfaya, Africa’s largest, which will be operational in 2014 and produce 300 MW. Of the project’s financing, 80% is from debt and the rest has been provided by GDF and Nareva through equity. The sector seeks to invest Dh31.5bn (€2.8bn) between 2010 and 2020 in wind energy. Also in 2013, the Canadian firm Bombardier began construction of a 13,935-sq-metre factory in the Midparc Free Zone, which is situated in the Nouaceur industrial zone outside of Casablanca. The $200m factory will produce integrated aircraft components and is scheduled to begin production in 2014.

OUTLOOK: The sector is expected to rebound in the medium term, with growth of 4% projected. In the longer run, the sector should see an uptick in growth as European economies begin to improve. The introduction of a unified construction code will help by providing clearer legal and administrative procedures.

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The Report: Morocco 2014

Construction & Real Estate chapter from The Report: Morocco 2014

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