Morocco

Excerpt from Africa Housing Finance Yearbook 2016

 Overview

Morocco is a lower-middle income country in North Africa with one of the most diversified and developed economies in the continent. Despite its exposure to a succession of crises in recent years (the global financial crisis of 2008, protracted low growth in its European trading partners since 2009, and  the onset of the Arab Spring in 2011), the Moroccan economy has remained resilient. Morocco has a number of comparative advantages that provide reasons for optimism for the country’s future. These include relative security compared to the rest of the region, an attractive geographical position for investors, a relatively diversified economic base, and a large pool of young workers.[1]  While the country does not have any hydrocarbon wealth, it does have an estimated 70 to 75 percent of the world’s reserves of phosphates, and is the third largest phosphate producer after the US and China. The phosphate and auto industry are the country’s top exports.

Analysts expect Morocco’s economic growth will slow down significantly over 2016 to approximately two percent (compared to 4.4

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Excerpt from Africa Housing Finance Yearbook 2016

 Overview

Morocco is a lower-middle income country in North Africa with one of the most diversified and developed economies in the continent. Despite its exposure to a succession of crises in recent years (the global financial crisis of 2008, protracted low growth in its European trading partners since 2009, and  the onset of the Arab Spring in 2011), the Moroccan economy has remained resilient. Morocco has a number of comparative advantages that provide reasons for optimism for the country’s future. These include relative security compared to the rest of the region, an attractive geographical position for investors, a relatively diversified economic base, and a large pool of young workers.[1]  While the country does not have any hydrocarbon wealth, it does have an estimated 70 to 75 percent of the world’s reserves of phosphates, and is the third largest phosphate producer after the US and China. The phosphate and auto industry are the country’s top exports.

Analysts expect Morocco’s economic growth will slow down significantly over 2016 to approximately two percent (compared to 4.4 percent in 2015), as agricultural production collapses on the back of a drought. The all-important agricultural sector accounts for close to 15 percent of Morocco’s GDP and employs close to 40 percent of the Moroccan workforce. On the upside, exports will continue to outperform, and investment will remain elevated, as the country pushes forward with its plan to become a regional exporting hub between Europe and Africa.[2] Morocco is currently ranked 75 on the World Bank’s Doing Business index – an improvement of five places from its ranking of 80 in 2015.

Despite relatively good growth prospects, the country remains in the bottom half of the group of countries with medium human development. Key reasons behind this low score are the extremely low literacy rates (about 65 percent), and relatively high unemployment rates (10.1 percent in general and 21.4 percent among the youth and 33 percent in urban areas). There are still significant differences in the living conditions of urban and rural communities. Poverty rates are on average three times larger in rural areas. Educational opportunities are lower in rural places, where many children drop out of primary school.[3]

Given prevailing market conditions, Morocco’s property markets continue to slow, with property prices rising only slightly. That being said, the government appears to remain committed to providing affordable housing. Over the past decade, the government has implemented numerous projects and initiatives; crowded-in private sector investors, and mobilized thousands of hectares of available land for social housing purposes.[4]

Access to finance

In recent years, Morocco’s banking sector has deepened (with total bank assets reaching 140 percent of GDP), and become more complex (including a rapid expansion into Sub-Saharan Africa). Banks are well-capitalized and profitable and benefit from stable funding sources. As of the end-2014, in aggregate, the capital adequacy ratio stood at 13.8 percent, well above the Basel III requirements, and bank profitability has been stable despite slower lending activity. However, since 2012, the non-performing loan ratio has been rising due to weaker economic activity and strains in the corporate sector, reaching 7.5 percent in November 2015.

In June 2015, there were 19 commercial banks, 35 finance companies, six offshore banks, 13 microfinance associations and nine money transfer companies as well as the Central Guarantee Fund that fell under the supervision of Bank Al-Maghrib, Morocco’s central bank. It is expected that in 2016, Morocco will start issuing Islamic Bank licenses, relying on a centralised regulatory approach.

This year marked the start of a series of historic financial reforms that will be implemented by the Central Bank. The Moroccan financial sector is in the process of transitioning to a new exchange rate and monetary policy regime.  The Dirham is pegged to a basket of Euros and Dollars, and the Central Bank has recently changed the weights (60 percent Euros and 40 percent Dollars) in order to further deepen the country’s financial markets and help the economy absorb external shocks while preserving its competitiveness. Going forward, authorities will begin to increasingly rely on inflation targets.[5] Furthermore, a new banking law was adopted in November 2014, further implementing Basel III that enhances the systemic risk surveillance.   A draft law, which is being discussed and has not yet been sent to Parliament for discussion will further strengthen the Central Bank’s independence and transparency and extend its supervisory powers. It is expected this law will be submitted during 2016.

Morocco has the most advanced and diverse housing finance market in the region. There are a range of sources for mortgage lending in Morocco, from public and private commercial banks, as well as consumer credit companies and microfinance institutions. Typical terms are 15-25 years and housing finance can be between 50 to 100 percent of the property’s appraised value. Up to 70 percent of residential properties have fixed interest rates.  In March 2016, the Central Bank cut its key interest rate by 25 basis points to 2.25 percent- its lowest rate since 2000. In 2015 the size of the mortgage market contracted by 24 percent of GDP (down from 25.6 percent in 2014). In February 2016, the annual value of property loans outstanding increased slightly by 0.9 percent to MAD 240.81 billion (US$ 24.37 billion). These figures comprise of two elements – housing loans outstanding (75 percent by total property loans) and property loans to developers outstanding (25 percent of all property loans).[6]

In 2013, the sector launched a price transparency initiative to make more clear changes over time and in 2014, a white paper was published with plans to reach 3.2 million customers by 2020. Partnerships between banks and the government make lending more accessible to middle and low income families, through the FOGARIM mortgage guarantee fund. Launched in 2004, FOGARIM guarantees 70 percent of a mortgage loan made to a household with an informal income for the purchase of a unit worth less than MAD250 000 (US$25 303). The level of monthly instalments are capped around US$200 (upper income threshold) and 40 percent of the households’ income (lower threshold). [7] This Fund guarantees approximately 1 200 new beneficiaries each month. Another guarantee programme, FOGALOGE, targets moderate income civil servants, middle class independent workers and non-resident Moroccans buying or building houses up to about MAD 1 Million (US$ 102 041) in value.

In 2014, Morocco continued to develop the law for covered bonds that is intended to diversify funding sources and overcome maturity mismatches for the rapidly expanding mortgage market. In this law, only banks will be authorised for issuance, where the total amount of covered bonds must not exceed 20 percent of the total assets of the bank and the net present value of the cover portfolio must be, at any time, more than 105 percent of the net present value of the covered bonds. Selected loans for the cover portfolio must have a remaining capital under 80 percent of the value of the asset.

Morocco maintains promising capital markets for housing finance, with a diversity of financial institutions beyond banking. This includes a dynamic insurance sector, growing pension funds and the Casablanca Stock Exchange. Growth in the microfinance sector has been rapid in Morocco since the Microfinance Act was passed in 1999. The two largest microfinance institutions, Al Amana and Attawfiq, control 72 percent of the market and focus on women, who represent almost 80 percent of micro-borrowers in Morocco. MFIs together with the Moroccan government have set high goals for growth, 3.2 million clients and MAD25 billion (US$2.53 billion) in loans by 2020. Loans are given not only for the development of income-generating enterprises but also for housing purchase or construction as well as for connections to basic utilities. There are MFIs that offer non-collateralised housing finance micro loans The Moroccan Postal Service also plays a key role as a provider of depository, payments and other retail banking services for small savers via Al Barid Bank.  With more than 1 800 branches, the postal service serves about 13 percent of the population, though it represents only two percent of total financial sector assets.

Affordability

Affordability remains an important challenge for housing in Morocco, a country where disparities remain high (income Gini coefficient of 40.9 in 2009). According to World Bank data from 2007, approximately nine percent of Moroccans live in absolute poverty, while another 12 percent of the population are living just above the poverty line.

Between 2014 and July 2015, Morocco increased the minimum wage by 10 percent, to US$266 a month, the highest rate in Africa. Average monthly incomes of households in Morocco were recorded at U$996 in 2012 by Euromonitor’s World Consumer Income and Expenditure Patterns Report.

The 2013 Finance Law had set the nominal price for middle income housing at MAD6 000 per m² (US$607), for units ranging from 80m2 to 120m2. That price included all taxes. The 2014 Finance Law increased this maximum price to MAD6000 per m² excluding taxes, which gives a maximum price of US$74 457 for a 120 m² apartment. This type of housing is aimed at people earning up to US$2 068 a month.

The Moroccan government defines two types of affordable housing units, both commonly called “social” housing and differentiated by their maximum price: the first one was created by the 2008 Finance Act with a capped price of MAD140 000 (about US$14 286). It is between 45 m² and 60 m² and targeted at individuals who earn less than twice the minimum wage (now MAD2 570 a month (US$ 260), up from MAD2 455 (US$ 248) as of July 1st 2015) or US$531 a month.

The second type of social housing started with the 2010 Finance Act. The covered surface area of these apartments is defined by law from 50 m² to 100 m² but developers usually build them closer to 50 m² as the sale price and tax exemptions are not linked to the surface area but only to the maxim sale price of MAD250 000. Its price is capped at MAD250 000 (about US$25 303) but there is no maximum income requirement to purchase those “social” housing units. Important tax incentives have made this type of housing very popular among real estate developers.

morocco

Housing Supply

According to the Ministry of Housing and Urban Planning, the housing shortage between 2012 and 2016 is estimated at 834 500 units. Since 2000, over two million social housing units having been built. Housing demand has been increasing by 150 000 units every year, while annual housing production is only around 100 000 units.

Almost 6.4  million (20 percent of the population) struggle to afford decent housing.  Low-income households account for around 75 percent of the total households without access to adequate housing. In contrast, the high-end market is well supplied with around 820 000 units (20 percent of the urban stock either vacant or used as secondary or vacation homes.  In order to deal with this demand, the government has implemented several housing projects over the past decade, including social housing and the mobilisation of available land. The Ministry of Habitat and Urban Planning has provided incentives for private real estate developers to invest in social housing projects, and as a result these investors have committed to building 900 000 units by 2020.

There is widespread use of public private partnerships between government and private sector, to facilitate housing production. This was clearly seen in the Villes sans bidonvilles programme that ran from 2000 to 2010. The private sector supplied the majority of the 154,000 housing units developed. In the decade since it was launched, 52 cities have been declared free of slums and the programme has improved the living conditions of 1.24 million people. The success of this programme was also underpinned by an innovative financial model that simultaneously attracted private sector participation, while alleviating the access to finance constraints for the majority of the poor through targeted subsidies. The programme was financed through the following means: 40 percent from the general budget, 30 percent through beneficiary household contributions; a tax of US$12 per tonne of cement; profits earned from upper-income house sales; as well as international donor contributions.[8]

Since 2004, the government has started establishing  new master-planned suburbs and cities to better channel further population growth and limit urban sprawl (especially in its biggest cities of Rabat and Casablanca). Some the country’s largest housing projects in Casablanca include: a 60 000 housing unit development 20km to the south-west the city (being developed by Al Omrane); and an eco-city that is expected to accommodate 300 000 inhabitants and be completed by 2030 by Societe d’Amenagement Zenata. Saudi-Moroccan real estate developer, GARAN is developing a new urban pole in Bouskoura that will accommodate 150 000 people and is set to be completed by 2016. Other developments include Tamesna, just outside Rabat, which is expected to house 250 000 inhabitants. Chrafate, located 18km from Tangier will develop 30 000 housing units by 2020 and accommodate 150 000 people. While Tamansourt, which is 10km from Marrakech is now designed to accommodate as many as 250 000 people (a five-fold increase from its existing 50 000 residents).[9] Furthermore, the International Finance Corporation (IFC) has also committed to investing US$5 million in Moroccon construction company Alliances Group to boost affordable housing builds. Alliances Group aims to construct 110 000 affordable housing units.

New supply of affordable housing tends to be apartment-buildings of typically three to five levels, in large-scale projects located on government provisioned land in peripheral locations. In addition to the cost of land, the average middle class self-built house will cost MAD2 800 – 3 000 per m² (about US$ 283- US$ 304) for a villa, and MAD2 000 – 2 500 per m2 (US$202-253) for a traditional Moroccan home, and take eight months to construct.

Property market

Morocco’s law requires the registration of land rights. Two systems of land registration exist: a formal and relatively sophisticated land market maintained by the Land Registry and found predominantly in urban areas, and a traditional system maintained by local leaders. Approximately 30 percent of the land in Morocco (almost all in urban areas) is registered under the formal system. [10]The country has made significant progress in streamlining its registration process. According the World Bank, it takes approximately five procedures, 30 days and costs almost six percent of the property value to register a property.

In 2016, Morocco’s property market continued to slow, with property transactions remaining depressed and only nominal increases in prices. This is part of the general drop in real estate activity following the global financial crisis that marked an end to the sector’s boom years.  The real estate price index (REPI) (which gives  detailed information on all formal property transactions in the country)  only rose by 0.9 percent annually  in 2015, while all land prices increased by 1.7 percent over the same period. Property prices increased in the cities of Rabat, Fez and Tangier, while Casablanca and Marrakesh experience slight drops in their overall property prices.

According to the Central Bank, the number of registered residential property transactions dropped by 7.1 percent in 2015. By property type the number of apartments sold fell by 6.9 percent year-on-year in 2015. Over the same period, house sales fell by 7.6 percent while villa sales declined by 12.8 percent. Urban land transactions also dropped by 2.8 percent in 2015. Of the total real estate transactions, apartments represented approximately 59 percent of total sales, 27.2 percent urban land, houses 4.9 percent, and villas 1.2 percent.[11]

However, the real estate industry does show signs of sustained recovery. The sector continues to be buoyed by the government’s incentives to attract affordable housing developments for low- and middle-income earners. This is also supplemented by a range of mix-use projects and master planned cities described above. Furthermore, transparency in the sector is improving with the quality label and pricing reference that was introduced in 2014.

Policy and regulation

The Government has devoted significant human, financial and technical resources to implement its national urban strategy. The government considers cities as engines for regional and national growth plans and central to the country’s overall competitiveness. The government has encouraged investments in skills and connective infrastructure and has focused on the development of new towns.

In recent years, considerable efforts have been made to increase transparency in the sector, in terms of pricing, oversight and contracts. In 2014, the Ministry of Habitat and Urban Planning introduced a new regulation making written leases mandatory. This was complemented by the work of the Ministry of Economy and Finance that adopted a pricing reference for real estate transaction, which bases taxation on the minimum price per square metre for different types of real estate. And, as mentioned above, REPI, which was developed by the Central Bank in cooperation with the Land Registry, has helped reduced disparities and price gouging.

Policies that directly or indirectly have an impact on affordable housing include:

  1. Constitution of 1996:
    • Guarantees private property rights.
  2. Strategie Nationale de Developpement Urbain:
    • Emphasis on the creation of regional growth poles and competitive cities while prompting social cohesion and the efficient use of resources.
  3. 2015 Finance law:
  • Rental housing targeted at the low and lower middle-classes benefited from tax exemptions with the condition to respect a ceiling rental price.
  • For the MAD250 000 type of social housing, the maximum rent was increased from MAD1 200 to MAD2 000 a month.
  • For the MAD140 000 type of social housing, the maximum rent was increased from MAD700 to MAD1 000 a month.
  • Those incentives, that previously had little impact on the rental market, did not change the situation any further when improved.
  1. 2014 Finance law: The sale price per square meter of housing for the middle class was limited to MAD6000 all taxes included in the 2013 Finance law. The 2014 Finance law increased this maxim price to MAD6000 excluding taxes.

Opportunities

Over the longer term, Morocco’s economic prospects are among the most promising in the Middle East and North Africa region. The country has a young and growing population, an improving business environment, and is well-placed to serve as a manufacturing hub for exporters to Europe and rapidly-growing economies in Sub-Saharan Africa.

While the real estate and construction sectors are currently experiencing a slower period, demand for affordable housing is still high, particularly among the low and middle-income population. This demand, coupled with government led initiatives and incentives, could continue to present opportunities for investors.  Although slow to develop, covered bonds will be another significant innovation for Morocco, opening up the market for longer and more affordable housing finance.

Sources

AfDB, OECD & UNDP(2016). African Economic Outlook: Sustainable Cities and Structural Transformation.

Al Aissami, N. and H. Talby. (2013). Morocco covered bonds project. in European Bank for Reconstruction and

Bank Al-Maghrib (2014). Annual Report.

BTI (2016). Morocco Country Report.

Business Monitor International (2016). Morocco Country Risk Report. (4 February 2016).

Business Monitor International (2016). Business Market Overview: Morocco. (19 January 2016).

Delmendo, L.C. (2016). Morocco’s property market remains weak. Global Property Guide (22 May 2016)

Development, Laws in Transition 2013.

Economist Intelligence Unit (2016). Country Report: Morocco. (June 2016).Erbas, N. Nothaft, F. (2005). Mortgage Markets in Middle East and North African Countries: Market development, poverty reduction, and growth.

EuroMonitor (2014). World Consumer Income and Expenditure Patterns: 14th Edition.

Hassler, O. (2011).Housing and Real Estate Finance in Middle East and North Africa Countries.World Bank.

Hofinet (2016). Morocco Questionnaire. (2 June 2016)

IMF (2016). 2015 Article IV Consultation- Press Release; Staff Report; and Statement by the Executive Director of Morocco. IMF Country Report No.16/35 (February, 2016).

Martin, J &Mathema, A (2008). Housing Finance for the Poor in Morocco: Programs, Policies and Institutions. USAID

Ministère de l’Economie et des Finances (May 2015). Tableau de bord des indicateurs macro-économiques.

Oxford Business Group (2014). The Report: Morocco 2014.

USAID. Morocco: Property Rights and Resource Governance.

World Bank (2016). Doing Business.

Websites

www.bkam.ma

www.ccg.ma

www.mfw4a.org

www.mhu.gov.ma

www.aujourdhui.ma

www.finances.gov.ma

www.ft.com

www.globalpropertyguide.com

www.imf.org

www.immobilier-maroc.com

www.lemag.ma

www.moroccoworldnews.com

www.numbeo.com

www.selektimmo.com

www.wm-urban-habitat.org/eng/morocco/

www.youtube.com