Rabat- Since 2003, after the Casablanca bombers were found to be inhabitants of the city's slums, Morocco's officials sought to eliminate insalubrious housing units that until then eased out some of the country's housing deficit, which was estimated at the time at 1.2 million units.
Rabat- Since 2003, after the Casablanca bombers were found to be inhabitants of the city’s slums, Morocco’s officials sought to eliminate insalubrious housing units that until then eased out some of the country’s housing deficit, which was estimated at the time at 1.2 million units.
The government then came up with a plethora of “contrat-programs” designed to eradicate the phenomenon and make housing available and affordable to all citizens regardless of their income. For the poorest, there was the program of 140,000DH/unit, followed by 250,000DH/unit and finally housing units for middle-income families whose price was fixed at 5,000DH/m². But what happened ten years later, is a housing bubble that made real estate ever more unaffordable for the average Moroccan (and even those who are not so average).
So why did it happen? Why despite good intentions and ambitious state’s planning the housing situation is worse today than 15 years before? The answer is not simple and cannot be summarized easily. A number of factors contributed to the problem and their interactions made the situation even more complex.
In this post I try to enumerate the different reasons behind the housing bubble in Morocco. It should be noted that contrary to Spain or the United States, the bubble here didn’t explode. The prices continued to raise even as international housing markets were being torn apart in 2008 and 2009. In fact, housing prices significantly increased in Morocco throughout this period and only began to stall in early 2013 but, without falling.
Tourism and retired foreign residents
Tourism, old and wealthy foreign residents significantly contributed to making the demand for housing reach all-time highs. The 2003-2007 touristic boom and the subsequent state’s aggressive strategies to encourage the sector, naturally made property appreciate. This was particularly the case in cities like El Jadida, Marrakech, Agadir, Tangiers, Casablanca and Rabat.
In order to stabilize the current account balance and inflate foreign investment numbers, the state sought to encourage retired European baby-boomer (especially the French) to buy homes and settle in the country by offering a large number of generous tax rebates, resulting in a first wave of excess in demand. Again the phenomenon impacted specifically the same touristic cities. There is also the significant increase in the number of Moroccan immigrants in the 2000s and the subsequent rise of their real estate investment because of favorable economic conditions in Europe at the time.
Policy of internal demand
Over the same period and after determining insufficient demand as a hindering factor for Morocco’s growth, the country significantly increased the salaries of state employees. The increases were very abrupt and sizable; for example a policeman’s wage went from some 3,500DH/month in 2003 to 7,000Dh/month today. Just over 2007-2012 the monthly salary for a state employee went from ~5,000DH to some 7,300DH while inflation remained negligible.
Since state employees represent some 1.12 million people, a portion of home buyers suddenly gained in purchasing power. Unable to move to the upper housing segment since, in the meantime, it was made expansive because of tourism/foreign residents, they downgraded to the layer below normally bought by middle-class private-sector workers—who didn’t witness the same wage increases—making those downgrade to social housing, built originally for poorer classes.
What happened next is very illustrative of the shortcomings of such central planning schemes. The middle-class private-sector workers entered the social housing market propelling the demand in this sub-market. Many real-estate developers just couldn’t resist the temptation to raise prices which were fixed by the state at 250,000DH as part of the infamous contrat-programs, and started demanding money off the table. The practice became pervasive and typically a social housing unit would sell for 50% more than its official price. This means that there were less social housing units for the originally targeted population than previously anticipated, which meant more contrat-programs to meet the demand.
Adding to the strain on supply explained above, were administrative rigidities. Ill-design of the program and the poor coordination between the various Moroccan administrations, some of which are already plagued with pervasive inefficiency, further pushed the demand up and the supply down.
In 2013, there were some 120,000 housing units from the lowest segment of 140,000DH, finished and ready but unsold. Not because there weren’t enough buyers but the administrative process to prove that one was eligible for that market segment was burdensome and complex. Once proved eligible, other steps were required before actually finalizing the acquisition transaction.
The potential buyer becomes trapped between the bank, the notary, the court, the al Omrane agency, the housing ministry and the developer. The latter doesn’t deliver when paid but when the state refunds the value added rebate, which is not validated until the notary registers the transaction in the court, which is busy and takes months to respond, and beforehand he must get social housing paper work from the bank, al Omrane and the housing ministry, who don’t coordinate much and are also busy. In the meantime the bank starts charging their monthly loan repayments and the poor buyer finds himself in the situation of having to pay a rent for the home he lives in and a rent-equivalent debt for the social apartment he doesn’t own yet, all of this from the already meagre salary.
Lack of land
Since its independence from France in 1956, Morocco’s economic activity (and therefore jobs and demographic growth) were concentrated in a handful of cities which over the years didn’t develop satellite cities or suburban areas, with the adequate transport and infrastructure facilities to absorb the excess demand that resulted from demographic growth and rural exodus. But until recently this wasn’t really a problem.Throughout the 2000s, money hoarding habits amongst the country’s rich was encouraged by low inflation, low taxation on capital and high interest rates fueling an investment and risk averse sentiment. This resulted into a low number of available constructable land—in the already dense urban centers— since the wealthy land owners preferred to keep their estate as savings.
Then there is the way in which Al Omrane operates. Given the lack of constructable land, the state is the largest land provider. The developers who build the contrat-program fixed price social units get the land for a symbolic price but those outside these schemes buy it relatively at a higher price. The national agency then uses these funds to finance the building of social housing units. The normal-process operators—who probably build the majority of housing units—are therefore buying expensive land resulting in more expensive housing units
Lack of incentives to sell/rent
There is simply not enough, to no incentives, for property owners to sell or rent. Unlike Europe, taxes are very low on unoccupied apartments and there exists low protection against people defaulting on their rent.
Some 5 km west of Marrakech lies Tamansourt, a gigantic urban center of unoccupied “parked” homes. Less than 20% of homes there were sold since the project finished a few years ago, but prices didn’t budge, still showing a typical 1,600,000 DH/unit. There are many cases like Tamansourt all over Morocco, a lot of “parked” buildings of empty apartments.
In many city centers some of them even have furniture and are closed most of the year, rented only to the rare tourists willing to pay higher than the hotel rates for the extra space, comfort and privacy. These owners have converted these apartments into a “touristic residence”, another package of fiscal incentives from the Moroccan state to encourage tourism, which in the case of lack of potential buyers, makes renting by the day a lot more attractive than either lowering the selling price or long term rentals. In practice, this acts to lower supply of housing units for sale and rental.
International property markets
Even though the Moroccan economy has a very low level of integration in the World’s economy, the spike in international housing market impacted the country mainly through foreign investors but also through tourism, European baby-boomers and a surge in prices of building materials.
In fact, the country attracted seasoned real estate developers such as some large Emirati firms. This companies know how to heat-up a market, create the media hype and trigger institutional enthusiasm.
The international environment also pushed the prices of building materials up, which further appreciated because of the surge in oil prices.
So why hasn’t the price gone down despite years of recession? And why hasn’t this resulted in the Spanish scenario? The answer lies on many levels.
First when the bubble is on the verge of exploding, for instance when the Emiratis pulled out of many gigantic housing and tourism projects, and unlike Spain or the US, the Moroccan state prevented the crash. Instead of letting the private investor who made a bad investment choice and over-indebted himself, deal with his problems which would result in a mass panic-sale of the estate in the massive unfinished projects at whatever price they could get and depressing the market in the process, institutional investors (like the CDG, Caisse de Dépôt et de Gestion) intervene and generously buyout these projects and refinance them.
On another level, there is simply not enough fiscal incentives to sell or rent in Morocco, as taxes on unoccupied apartments are very low. Additionally, the Moroccan market being a French model, isn’t as free to move as Spain or the US. Market rigidities thus significantly slow the price slump movements that would result from a change in supply and demand.For these reasons and because Morocco’s real-estate crisis started only recently (about a year ago), it is unlikely to witness a sudden plunge in prices. Instead prices will probably stagnate over the coming years while steadily declining but only at very moderate levels. Unexpected shocks could of course alter this scenario.
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