By Hicham Bennani
By Hicham Bennani
Casablanca – “Under the table” or “the black”, as Moroccans like to call it, are recurrent terms in real estate transactions.
It’s no secret that both small developers and real estate tycoons used to ask for 15% to 30% cash, under the table, of the sale price of real estate properties. By doing so, the developers reduce their EBT (Earnings before tax), and thus pay lower taxes.
Moroccan authorities were aware of non-collected tax money due to this practice, or must I say, this tax fraud. Moroccan treasury has long suffered from the underestimation of the sale prices of real estate properties leading to a huge tax shortfall.
Under Mr. Benkirane term, the government had the courage to tackle a very sensitive issue and face the real estate lobbyists, by introducing a real estate Argus “Référentiel des prix des transactions immobilières”.
This Argus divided the cities into several neighborhoods, and each neighborhood was given an estimated value per m² for apartments, villas, and lands. In fact, and for a long time, real estate lobbyists benefited from a lenient tax system, but things have changed now in favor of the tax authorities.
With the Argus introduced, the property seller will be taxed on the value estimated in the Argus. If the estimated value for recent apartments is 15,000 DH/m² for a certain area, whether you declare it at 10,000 or 12,000 DH /m², you will be paying the taxes as if you sold it at 15,000 Dh/m².
How does the Argus benefit the market players?
Firstly, by fixing the value of every property in Morocco, the government can control very effectively the tax proceeds coming from the sale of any property. In other words, whatever the price you decide to sell or declare your property at, the authorities have already fixed the taxes you will be paying.
Secondly, banks do not give more than 100% of the value of the property that is written in the sale contract. If the price is fully declared, the buyer can go to the bank and borrow 100% of the acquired property value. When the price is not fully declared, the buyer should have an advance payment which is paid under the table. In this case scenario, many households cannot acquire a house because they do not have that advance cash.
Is the Argus the solution to the “Black”?
As good as it might seem, the Argus has two major setbacks:
Firstly, The Argus gives the same value for properties for a specific neighborhood. But, is the value of an apartment with a boulevard view and an apartment with a patio view, the same? Is the value of two 400 m² plots, one with of 12 m façade and another with 25 m façade, the same? Is the value of two apartments in the same building, one on the fifth floor with a beach view and one in the ground floor with no view, the same? Surely not. In fact, each property has its own specifications (area, quality of materials used, exposure to the sun, master plan…etc), and this is not taken into consideration in the Argus.
Secondly, with the current real estate crisis, there are developers with huge level of debt who are willing to sell at discounted prices to pay off their outstanding loans. These developers are in the horns of a dilemma. Tax authorities do not care if the developers sell at prices below the market, even though they fully declare the sale price, because they will charge them according to what the Argus says.
It is true that we must praise the authorities for tackling such a burning dossier; however, the Argus in its current form is not fair at all to the real estate developers or to individual sellers.
The Argus can be a starting point for a better solution, where neighborhoods shall be given a value range instead of a fixed value, where specific characteristics of the properties can be taken into account.