New legislation and investments create opportunities in Morocco's real estate sector

While Morocco’s real estate sector has fallen after a boom that peaked in 2007 and 2008, recent years have shown signs of a modest recovery. Although the luxury real estate segment has remained depressed as a result of the global economic downturn in 2008-09, government-sponsored financial incentives aimed at attracting developers and builders to the mid-range and affordable housing sector, which is marked by a persistent deficit, has boosted the industry.

In an effort to reduce urban sprawl, master-planned suburbs and areas are also under development in the country’s largest cities. New legislation allowing for the creation of real estate investment trusts (REITs) is set to attract greater foreign investment in segments that have previously lagged. And while the residential market continues to lead the real estate sector, a growing retail sector amid rising household purchasing power bodes well for commercial real estate.

Growth

Morocco’s real estate sector expanded throughout the 2000s, peaking in 2011 when foreign direct investment (FDI) hit Dh8.2bn (€751.8m). However, this growth trend began to see a reversal in 2012 and 2013. Since 2014 growth has picked up again, and in 2015 FDI in the sector rose 7% year-on-year (y-o-y) to Dh11bn (€1bn), up from Dh10.7bn (€981.1m), according to the Ministry of Housing and Urban Policy (Ministère de l’Habitat et de la Politique de la Ville, MHPV). While there is plenty of latent demand in the market, sales activity for housing remained low in 2015, with the number of registered residential real estate transactions down 7.1% y-o-y, according to fourth-quarter 2015 figures from the central bank, Bank Al Maghrib. All three property types tracked by the bank saw a fall in transactions, with the number of apartments sold dropping 6.9% y-o-y, houses by 7.6% and villas by 12.8%. Villas are differentiated from houses by the fact that they have a garden. Urban land sales also decreased in 2015 by 2.8% y-o-y. Only office sales saw a y-o-y uptick of 1.9%.

Despite the reduced sales volumes, real estate prices in the kingdom saw a slight rise in 2015. According to Bank Al Maghrib, the nationwide residential real estate price index rose by 0.9% y-o-y, with apartment prices up by 0.8% in the fourth quarter, house prices by 1.1% and villa prices by 1%. In urban areas overall land prices grew by 1.7% y-o-y in 2015.

Regional Level

Price fluctuations varied between cities, with Casablanca seeing prices rise by 5.8% from the third quarter of 2015, although prices in the city were down 0.4% y-o-y, according to Bank Al Maghrib. Apartment prices dipped by 0.2%, houses saw a rise of 1.7% and villas fell 8% in the fourth quarter of 2015, compared to the same quarter in 2014.

In Rabat, the capital, there was a 3.2% y-o-y increase in real estate prices in the final quarter of 2015 and 3.8% rise compared to the previous quarter in 2015, according to Bank Al Maghrib. Overall real estate prices in the capital increased by 3.2% y-o-y in the fourth quarter of 2015, and went up 3.8% on the third quarter of 2015. In terms of the three main segments, apartment prices saw growth of 2.2%, house prices were down 11.1% and villa prices were up by 9%.

Marrakech, the country’s most popular tourist destination, saw a y-o-y drop in urban land prices of 6.7% in the fourth quarter of 2015, according to Bank Al Maghrib. Apartment prices were up 0.5% y-o-y, house prices rose by 4.6% and villa prices fell 5.3%. Compared to the third quarter of 2015, the fourth quarter saw a quarterly drop of 0.9% across all segments in the city. Property prices rose by 2.9% y-o-y in Fez, Morocco’s second-largest city, in the fourth quarter of 2015, and increased by 1.9% on the third quarter of 2015. While apartment prices fell just 0.9% y-o-y in the fourth quarter of 2015, villa prices dropped 8.1%. House prices, however, shot up by 32.1%.

Regulatory Framework

A series of reforms to simplify real estate transactions are currently under consideration as part of an effort by the government to reduce the complexity of land use and permitting policies. In December 2015 a range of recommendations were discussed by the government, legal professionals, developers and property investors at the National Land Law Policy Conference. Recommendations included tackling the issue of land rights of Soulaliyates – a term referring to unmarried women or widowed women in rural areas who have traditionally held no rights to communal land, but who in recent years have asked to receive compensation for the sale of communal land. In a royal address to the conference, the king suggested completing the transaction of ownership free of charge and paving the way for broader revisions of traditional land law.

Currently, land use policy is fragmented between local, national and traditional sources of law, with a variety of texts, legislation and customs dictating ownership and transfer rights. According to a 2011 US Agency for International Development profile, ownership in Morocco ranges from private freehold, which accounts for 28% of the country’s land and is guaranteed under the constitution, to state-owned, in both public domain and private usage, which accounts for 30% of the land. Most of the remainder is owned by communities, in trust with the state, including usufruct and heritable rights. Foreigners are allowed to own land outside of agricultural areas, and agricultural land can be leased for up to 99 years.

Like ownership, registration varies: there is a formal system run by the Land Registry and a traditional system upheld by local tribal leaders. While around 30% of land in Morocco is registered under the formal system, primarily in cities, the process can be burdensome. According to the World Bank’s 2016 “Doing Business” index, registering property in Morocco requires five procedures and takes 30 days, with costs involved representing 5.9% of the property value. By comparison, in neighbouring Tunisia it involves four procedures, takes 39 days and costs 6.1% of the property value. Morocco ranked 76th in the index overall, just outside the top third in the MENA region.

Making Changes

The government has also enacted new reforms to improve transparency in transactions. One such effort focuses on the vente en état futur d’achèvement (VEFA), or sale of uncompleted, off-plan properties, which have been the subject of several civil cases in which developers have not delivered the units paid for. According to global law firm DLA Piper, this type of contract is defined in the Obligations and Contracts Decree and does offer protections for buyers by stipulating when payments can be collected. However, in practice developers often call for payments in advance, which has caused contention. In January 2016 Morocco’s House of Councillors, the upper chamber of parliament, passed a law governing VEFA transactions that requires building permits to be obtained before contracts are signed, stopping the practice of reservation agreements. Under the new law, developers can receive a downpayment as soon as the building permit has been obtained, even before the preliminary contract is signed, whereas previously they were required to obtain the permit and build at least the foundation before they could begin receiving money.

Financing

Access to credit remains a challenge for the sector, particularly for developers, although the situation has seen a moderate improvement in recent years. While Moroccan banks have been hesitant to finance new projects due to high exposure in the market (see Banking chapter), individual household financing has consistently increased. In 2015 the total value of outstanding credit to the real estate sector reached Dh242bn (€22.2bn), up from Dh238bn (€21.8bn) in 2014, according to the MHPV. This represented 27% of total credit to the economy.

To help further stimulate household lending for property purchases, the country has been looking to expand mortgage penetration. The government introduced the FOGARIM mortgage fund in 2004, which provides a 70% guarantee for mortgage loans to households with informal income when purchasing a unit worth less than Dh250,000 (€22,900). Between 2004 and 2015 a total of 125,512 households benefitted from the programme, with loans totalling Dh19.37bn (€1.8bn), according to the MHPV. In 2015 a total of 14,101 loans were disbursed under the programme, marking a decrease from 16,579 in 2014.

Another programme introduced by the government in 2009 is the FOGALOGE programme for middle-class households that are purchasing or building homes worth up to Dh1m (€91,700). The programme has seen more than 20,000 households benefit, with a total of Dh7.35bn (€673.9m) awarded between 2009 and 2015. In 2015, 5534 loans were awarded, down slightly from 5567 in 2014, according to MHPV.

REIT

Another form of financing that looks set to boost sector activity and was finally legalised in 2015 is the REIT. These instruments are generally used by institutional investors to generate income from real estate assets, meaning they often, though not exclusively, focus on commercial and retail properties. According to the new law, REITs must invest a minimum of 60% of their assets in real estate, while the remainder can be invested in other assets to diversify their portfolio.

In June 2015 the European Bank for Reconstruction and Development acquired a €45m equity stake in Vecteur LV (VLV), the subsidiary that is used as a real estate platform for Label’Vie, a local food retailer, to help pave the way for VLV to launch the country’s first REIT. According to Nawfal Bendefa, the CEO of VLV, while return on investment on real estate averages around 9% in Casablanca – double the average of 4.5% in Paris – investors have been slow to invest in Morocco’s commercial sector due to the high level of taxation that virtually eliminates the difference in return on investment.

“We have had foreign capital invest in residential developers and real estate, but not so much in commercial real estate,” Bendefa told OBG. “The commercial real estate segment has been dominated by user operators, who are basically operators in different industrial segments or other segments who own their own real estate. Obviously they can manage up to a certain size, but when these companies grow and start to focus more on their business they need to invest more in their business and have less capacity tied up in their real estate.”

Office

In 2015 Morocco’s office market, centred on its business centre, Casablanca, saw a slowdown in demand, according to real estate broker CBRE. This was the result of reluctance on the part of developers, who faced a drop in demand and a sluggish letting rate for newly delivered projects due to a mismatch between office stock and user needs. In Casablanca take-up levels fell by 49% and transactions were down 51%, according to Statimmo, an industry association created by real estate brokers Carré Immobilier, CBRE, Jones Lang LaSalle and Lance. Despite take-up levels dropping by nearly half, average rental levels in commercial real estate in Casablanca remained stable at Dh154 (€14.12) per sq metre. Take-up of office space continued to drop in the first quarter of 2016, by 25% from the fourth quarter of 2015.

CBRE data shows office supply rose slightly in 2015, with office stock in the Greater Casablanca area estimated at 1.6m sq metres by the end of 2015, an increase of 1.6% y-o-y. The segment was also marked by a drop in the number of deliveries with 26,000 sq metres delivered in 2015, down considerably from the 155,0000 sq metres in 2014, according to CBRE.

New commercial space has come primarily from large-scale developments, such as Casablanca Finance City, which will offer one of Casablanca’s largest AAA-grade office space developments with around 700,000 sq metres. Between 2016 and 2017 another 72,348 sq metres is expected to be delivered in Casablanca, according to CBRE, and with fairly little available supply the group expects the market to remain subdued. It is expected to pick up, however, with a probable supply of 248,600 sq metres in 2018 and 2019, and 256,000 sq metres after 2020, due in part to the expected completion of the first office buildings in the luxury Casa Anfa district, a 360-ha mixed-use project just outside the city centre.

Retail

Demographic trends also bode well for the retail segment, with a growing middle class now accounting for 30% of the population, according to the Higher Planning Commission, and 60% of Moroccans living in urban areas. The country has also seen a number of new shopping centre developments in recent years, including Morocco Mall, which has 70,000 sq metres of gross leasable area. However, with a dearth of dedicated retail property, the number of shopping malls under construction is expected to rise in the coming years, with seven new malls due to open by 2020, bringing the total number of malls to 18 and doubling the available retail space in the country (see Retail chapter). One of the largest pending projects is Mall of Rabat, a 6-ha shopping mall built as part of the $900m Wessal Bouregreg mixed-used mega-project. The development will include around 200 brands and retailers, a theatre, several hotels, commercial space and a marina.

Mixed-Use Developments

With land availability remaining a problem in Morocco’s larger cities along the coasts, new master-planned suburbs have been established in a government effort to limit urban sprawl and address growth more efficiently. With the largest housing deficit in the country, estimated at 265,000 units by a February 2016 MHPV survey, Casablanca has seen the biggest number of new cities and master-planned developments. In 2012 Saudi-Moroccan developer Garan signed an agreement with the Urban Agency of Casablanca to develop a new suburb on 250 ha in Bouskoura, outside of Casablanca. With an investment of Dh3.5bn (€320.9m), the project includes residential properties, an open-air shopping mall, schools and mosques. The first residents are due to move in during 2016 and the development is ultimately designed to house 150,000 people.

Around 20 km south-west of Casablanca is the Lakhyayta project, which is expected to include 60,000 housing units over 1300 ha. Developed by Rabat-based Al Omrane, the Dh37bn (€3.4bn) project will include hotels, a golf course and space to house 300,000 inhabitants. In addition, built along the Bouregreg River in Rabat and linking the capital and Salé, La Marina Morocco is a joint venture between state-owned l’Agence pour l’Aménagement de la Vallée du Bouregreg and Abu Dhabi-based private real estate investment and development company Eagle Hills. The project consists of residential and retail property, as well as hotels. Around 400 units are expected to be delivered by the end of 2016. Other regeneration and infill projects include the 26-ha, mixed-use Casablanca Marina project in central Casablanca. Launched in 2006 with an investment of more than Dh8bn (€733.5m), the project includes 130,000 sq metres of office space and 625 residential units, in addition to a shopping mall and convention centre.

Residential

The residential market continues to lead the sector in terms of the volume of transactions, with a growing middle class driving demand for mid-range housing. According to Bank Al Maghrib, apartments represented around 67.3% of total real estate transactions in 2015, while houses made up 4.2% and villas 1.6%. Urban land accounted for 19.1% of real estate transactions. As the government expects demand to increase by 150,000 units a year, the residential segment is expected to continue growing. Although the luxury segment has seen a slowdown amid a glut of supply, the kingdom has seen high demand for low- and mid-income housing.

Between 2010 and 2015 a total of 905 agreements were signed to build 1.43m mid-range social housing units, defined as properties worth Dh250,000 (€22,900) or less, according to the MHPV. The contracts were split, with 867 going to private contractors and 38 for public providers. In 2015 a total of 101 agreements were signed for 122,163 social housing units, a y-o-y increase of 36%. In the low end of social housing – defined as units worth Dh140,000 (€12,800) or less – construction began on 52,480 units and 35,061 were produced.

To attract investment in social housing projects, the MHPV has put in place incentives for real estate developers, including exemption from value-added tax on sales of social housing units of 50-80 sq metres. Furthermore, to address the housing shortage the government has implemented a number of programmes over the past decade. To combat slums, the Villes Sans Bidonvilles (City Without Slums) programme was launched in 2004 and aims to eliminate slums in 85 cities across the country, with 388,400 households to be relocated to urban areas. According to a 2016 joint survey by the MHPV and UN Women, since the programme was launched 55 cities have seen their slum areas cleared and 82% of households living in these slums have been able to acquire formal housing or are beneficiaries of ongoing projects.

High End

Meanwhile, the current oversupply at the top of the market has not stopped developers from proceeding with high-end developments. Les Tours Végétales, developed by local firm Yasmine Signature in the Casa Anfa district, is under construction, targeting the high-end segment. Now in the second phase, 100 more units are set to be ready by the end of 2018. Prices in Casa Anfa are around Dh25,000 (€2290) per sq metre, 10% higher than the high-end housing market in Casablanca, according to Mohamed Berrada, CEO of Yasmine Signature. Berrada expects prices to increase to around Dh40,000 (€3670) per sq metre in 10 years due to demographic trends.

“The next 10 years we will see growth of the market because of demographic trends, mainly in mid-range housing,” Berrada told OBG. “When we see the current age of Moroccans, the largest category is between 15 and 30 years, so these people are going to be in the market in the next seven to 10 years, and there will be growth of real estate in the high-end, mid-range and social housing segments.”

Outlook 

Although transactions remained down and prices saw only a slight increase, Morocco’s real estate sector has shown positive signs for improvement in the long term. The luxury real estate segment has remained depressed as a result of the global economic downturn, but government-sponsored financial incentives are likely to attract developers and builders to mid-range and affordable housing, both of which are segments that have seen a rise in demand. Demographic trends also bode well for the sector, with a growing middle class set to fuel growth of mid-range housing and boost the need for retail properties. In an effort to reduce urban sprawl amid increasing urbanisation, a number of master-planned suburbs and cities are also under development. While the office market, centred in Casablanca, will likely remain depressed in the short term, growth is expected from 2018, when new projects will come on-line and the current stock becomes outdated.

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The Report: Morocco 2016

Construction & Real Estate chapter from The Report: Morocco 2016

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