Against the backdrop of a large government homebuilding programme, state banks are stepping up the role they play in housing and real estate finance. Outside of the public housing segment, cheap long-term mortgages are available, in particular from public banks, though retail mortgages are dwarfed by state spending on housing and supply remains an issue. Property and real estate financing is also emerging as a promising new segment in the leasing market.
NEW FINANCING MODEL: Under a plan launched three years ago to address the country’s chronic housing deficit, the government aims to build a total of 800,000 units by the end of 2014, or 200,000 units a year, spurred by around 1.5m requests for public housing. Previously, the government directly funded most public housing construction. However, in a move signalling that the authorities are now shifting towards a new model under which state-owned banks play a larger role in financing, the director-general of the Credit Populaire d’Algérie (CPA), Mohamed Djellab, in May 2013 announced that the public banks will together finance the construction of around 300,000 housing units at a cost of AD1.2trn (€11.4bn) by the end of 2014.
The announcement covered two financing agreements. The first of these was a deal signed by the CPA on behalf of the country’s public banks to fund the building of 150,000 units under an agreement with Entreprise Nationale de Promotion Immobilière; the units are of a type known as “public promotional housing” (logements promotionnel public, LPP) aimed primarily at middle-class customers who earn too much to be eligible for social housing. The figure included a financing deal signed by the Agency for the Improvement and Development of Housing with public banks for the construction of more than 100,000 public housing units.
MORTGAGE MARKET: Government spending on social housing significantly outstrips private mortgages on homes; commercial housing loans by banks to individuals were worth $1bn in 2012, while the government spent $4bn on building social housing and various forms of other government aid to the housing sector. Nevertheless, state-owned institutions are also active in the private mortgage market, in which they are able to offer long-term mortgages at low interest rates thanks to their high levels of liquidity. As a result, unlike in many emerging markets, a lack of available long-term credit is not an issue in Algeria – in fact, longer terms are available than in many Western markets. “You can get a 40-year mortgage in Algeria,” said Ramz Hamzaoui, managing director at Citibank Algeria.
PROPERTY LEASING: Commercial property leasing is also emerging as an important segment in the leasing market. Speaking to OBG, Nadir Idir, deputy CEO of Arab Banking Corporation Algeria (ABCA), which is one of Arab Leasing Corporation’s (ALC) main shareholders, described the potential in the property leasing segment as “immense”. “We are in the phase of trying to popularise the product; currently few firms offer it,” said Abdelhakim Djebarni, deputy CEO of ALC. “It could be especially promising for professionals such as doctors and lawyers. It does not require a lot of funds and prices are rising in the property market, so it can be hard for customers to finance a purchase. It is also one of the least risky products for a leasing firm to get into as buildings are not generally subject to the same kind of risks as cars or equipment, for example,” he said. Construction activity is also keeping leasing firms occupied in the form of the leasing of vehicles and equipment. “Projects in the housing sector alone could keep all the current leasing firms in the country busy,” said Djebarni.
SUPPLY SHORTAGE: However, a shortage of available land and housing remains an obstacle for the development of property and housing financing. “There is a great deal of focus by the authorities on housing and real estate finance. There is, however, still an issue with supply,” said Hamzaoui, adding that the government was bringing in foreign firms to build more housing units to address the problem. A shortage of zoned industrial land and high prices also pose challenges for many businesses seeking to acquire real estate in Algeria.