Housing Finance in Tunisia

Macroeconomic Overview

Following the 2011 revolution and the adoption of a new constitution and the election of a new government in 2014, there was an expectation that there would be increased growth in the economy. While the economic growth has not yet matched expectations, there are signs of recovery. Tunisia also still ranks highly in North Africa in terms of economic and human development.

In 2017, GDP grew by 1.9 percent, up from about 1.1 percent in 2016.[1] Net national savings (as a percentage of gross national income) declined from about six percent (2016) to 0.1 percent (2017).[2] Public debt deteriorated from 61.9 percent of GDP in 2016 to 69.9 percent of GDP in 2017, mainly due to the growth in external debt.[3]

The higher increase in GDP reflects on the job market. The unemployment rate dropped from 14 percent in 2016 to 13 percent in 2017.[4] Women, youth (ages 15-24) and graduates continue to have higher unemployment rates than average.

Housing is traditionally the second largest item of expenditure for Tunisian households after food. In 2017 it remained so.[5] Although housing is increasingly available, its affordability is increasingly problematic, especially since 2011. Increased demand, more onerous liquidity requirements for mortgage lenders, and the limited availability of housing microfinance inhibit the growth of the housing finance market. The depreciation of the Tunisian Dinar as well as the rise in inflation also raised the cost of living and affected the ability of households to access finance.[6]

[1] World Development Indicators (2018).  Tunisia. http://databank.worldbank.org/data/reports.aspx?source=2&country=TUN (Accessed 25 July 2018).

[2] Trading economics.  https://tradingeconomics.com/tunisia/adjusted-savings-net-national-savings-percent-of-gni-wb-data.html (Accessed 19 July 2017).

[3] Nourou, M.A. (2018). Tunisia’s Public Debt reached nearly 70% of GDP in 2017, https://www.ecofinagency.com/public-management/0503-38152-tunisia-s-public-debt-reached-nearly-70-of-gdp-in-2017 (Accessed 25 July 2018).

[4] Indexmundi (2018). Tunisia Unemployment Rate.  http://www.indexmundi.com/tunisia/unemployment_rate.html (Accessed 20 July 2018).

[5] Euromonitor (2018). Economies and Consumers Annual Data. www.euromonitor.com (Accessed 25 July 2018).

[6] Aliriza, F. (2018). ‘Two Classes left – Rich and Poor’: Sinking Tunisia’s currency. http://www.middleeasteye.net/news/sinking-tunisia-s-currency-63299104 (Accessed 25 July 2018).

Access to Finance

Tunisia has a reasonably well-developed financial sector, which is regulated by the Central Bank of Tunisia. Over the past four decades, a sophisticated mortgage-based housing finance system has developed. There are a large number of financial institutions offering loan products for housing. By the end of 2016, there were about 23 domestic banks and eight microfinance institutions among other formal financial institutions. There are also a number of financial access points available to consumers including 1 774 bank branches, 73 of which were opened in 2016.[1]

Until the early 2000s, the publicly-owned Housing Bank (Banque de l’Habitat), established as a result of the National Housing and Savings Fund’s shift to Universal Bank, had been the single player in the mortgage market. The de-compartmentalisation and deregulation of the banking sector (pursuant to the Law No. 2001-65 on credit institutions) have allowed new actors to strategically position themselves in this market. This move was mainly due to the declining performance of the Housing Bank whose share of the home purchase savings collection market dropped from over 80 percent in 2003 to less than 60 percent in 2014, as well as the increasing attractiveness of the housing finance market. Strategic interest in this market has led to fiercer competition between credit institutions that frequently launch dedicated promotional campaigns such as the Maskan Al Baraka advertising campaign. Maskan Al Baraka is a sharia compliant housing loan for people who have accumulated home savings for four years at least. It can be used to finance a home purchase, land acquisition, construction, or extension of an existing home. The housing loan amount that can be given under Maskan Al Baraka is twice the amount of accumulated savings with a ceiling of TD 100 000 (US$40 290). Maskan Al Baraka can finance up to 80 percent of the home value over 15 years.

Overall, product offerings in this market have become largely undifferentiated, but conditions of access to housing finance have considerably expanded through the launch of specialised products tailored to various categories of clients including high and middle income, salaried workers, but also lower income families who can benefit from subsidised loans.[2]

While private lending is focused on high to middle income households, there have been savings-for-housing programmes for the formally employed since the 1970s. The Housing Bank is the exclusive manager of a state-subsidised housing loan for low income salaried people called FOPROLOS (Fonds pour la Promotion des Logements aux Salariés or Housing Promotion Fund for Salaried People). Loan rates for mortgages range from 2.5 percent to 5.75 percent[3] for three different income eligibility brackets. These are targeted at households earning a regular salary between the minimum wage and up to 4.5 times the minimum wage. This compares to an average 7.23 percent to 7.57 percent rate for mortgages available at commercial rates in 2016.[4] In March 2017, the minimum monthly wage was increased by 4.3 percent to TD 352.534 (US$142). [5]

According to the Central Bank’s 2016 annual report,[6] the total value of housing loans decreased between 2015 and 2016. Mortgage lending is approximately equivalent to 8.6 percent of GDP. Rules modified in 2007 (circular 2007/25 dated November 19, 2007)[7][8] limit loan-to-value ratios to below 80 percent (though up to 90 percent in social lending programmes, such as FOPROLOS), and a maximum term of 25 years. Part of this law also requires long-term liquidity matching requirements for loans over 10 years and a requirement that interest rates must be fixed for housing loans longer than 15 years. This requirement means that many banks are funded by sovereign bonds and are hesitant to offer loans beyond 15 years. Current challenges include a lack of liquidity and a high level of non-performing loans, which was reported to have increased from 12 percent in 2010 (pre-revolution) to 14.4 percent in 2016.[9] It should be noted that the Supplementary Budget Law of 2015 included measures to treat debts held by beneficiaries of housing credits issued as part of social housing initiatives.[10]

In February 2017, the Government of Tunisia launched the “programme premier logement” (“first housing” programme).[11] This programme, which benefits from a special account (initially funded with TD 200 million or US$80 million), targets middle class families (households earning between 4.5 and 10 times the minimum wage) that wish to purchase their first home. “First housing” helps them finance their down payment (up to 20 percent of the total price of a house, from a list of available houses from the state. The loan can finance houses priced at TD 200 000 or less (about US$80 000) over up to 12 years with no repayment over the first five years.[12]

In terms of secondary markets, Tunisia has a stock exchange (La Bourse des Valeurs Mobilieres de Tunis – BVMT) and, in 2001, developed the legal framework for securitisation to facilitate access to long-term funding for mortgage finance. However, activity has been extremely limited with only two transactions[13] (in 2005 and 2006 respectively, amounting to TD five million each, about US$2 million) by a single institution, the International Arab Bank of Tunisia. There is also an alternative capital securities market for Tunisian companies that cannot be listed on the main market.

The Decree-Law No. 2011-117 on microfinance institutions of 5 November 2011 opened the way for new entrants. As a result, the microfinance sector has evolved over the past years with more players coming in. Today, six microfinance institutions operate in Tunisia: Enda Tamweel, Microcred Tunisie, Zitouna Tamkeen, Taysir Microfinance, Centre Financier aux Entrepreneurs, and Advans Tunisie.[14]

Zitouna Bank was the first institution in 2009 to launch a Mourabaha product. The government is working with the Islamic Development Bank to issue its first Sukuk bonds, which has been presented as a cheap means to access long-term finance. Ultimately, only an estimated 4.1 percent of Tunisian households have access to housing loans.

The government of Tunisia also offers subsidised finance for residential property developers. The Housing Bank can finance up to 80 percent of the total cost of a project if the housing units are “social” units at 6.78 percent per annum, and up to 70 percent if they are “economic” or “high-standing” units, at 7.28 and 8.28 percent per annum respectively. This financing system was introduced as part of the National Housing Strategy (1988) that saw the private sector as an important housing producer.

[1] Banque Centrale de Tunisie. (2016). Annual Report 1016. https://www.bct.gov.tn/bct/siteprod/documents/RA_2016_en.pdf (Accessed 20 July 2018).

[2] Housing Finance Information Network (HOFINET) (2013). Tunisia Country Profile. http://www.hofinet.org/countries/description.aspx?regionID=5&id=168 (Accessed 20 August 2017).

[3] Banque de l’Habitat (2017). Le Crédit FOPROLOS

https://www.bh.com.tn/credit_foprolos.asp (Accessed 19 July 2017).

[4] Banque Centrale de Tunisie (2017). https://www.bct.gov.tn/bct/siteprod/documents/RA_2016_fr.pdf, (Accessed 20 July 2017).

[5] Highlights (2017). Highlights. http://highlights.com.tn/tunisie-voici-nouveaux-montants-smig/ (Accessed 20 July 2017).

[6] Banque Centrale de Tunisie(2017). https://www.bct.gov.tn/bct/siteprod/documents/RA_2016_fr.pdf (Accessed 20 July 2017).

[7] Law No. 2007-12 issued on 3 January 2007 amending the law establishing FOPROLOS.

[8] Banque Centrale de Tunisie (2017) https://www.bct.gov.tn/bct/siteprod/documents/cir87_47n(1).pdf (Accessed 20 August 2017).

[9] The Global Economy (2017). http://www.theglobaleconomy.com/Tunisia/Nonperforming_loans/ (Accessed 20 July 2017).

[10] The Supplementary Budget Law for 2015 was adopted by the Assembly of the People’s Representatives (ARP) on 5 August 2015.

[11] Called “programme premier logement”.

[12] Huffpost (2017). Tout savoir sur le programme “premier logement”.  http://www.huffpostmaghreb.com/2017/02/03/logement-tunisie-_n_14594908.html  (Accessed 19 July 2017).

[13] All Africa (2016). Tunisie: L’indispensable réforme de la loi sur la titrisation.

http://fr.allafrica.com/stories/201610180556.html (Accessed 20 July 2017).

[14] Concours Tunisie (2017). Concours Tunisie. http://concours-tunisie.tn/2017/05/03/liste-institutions-de-microfinance-tunisie-institution-microfinance/ (Accessed 20 July 2017).

Affordability

According to the Brookings Institution, the size of Tunisia’s middle class reached more than 40 percent of the total population in 2010, up from 25 percent in 2000. In 2010, the middle class may have made up almost 70 percent of the population, although this has dropped significantly since the revolution in 2011.[1] Euromonitor currently estimates the middle class in Tunisia to make up 36.3 percent of the population.

Consumer expenditure per household decreased from US$13 009 in 2014 to US$10 360 in 2017.[2] Consumer expenditure on housing per household also dropped from US$2118 in 2014 to US$ 1735 in 2017, making up about 17 percent of total consumer expenditure per household.[3] It remains the second highest expenditure for households in Tunisia.

The majority of the population, 69 percent of 2.8 million households are homeowners.[4] Of the 2.8 million households that are homeowners, 96 percent do not have a mortgage while the other four percent maintains a mortgage. Twenty-six percent of Tunisian households rent their homes. This suggests that although the majority of the population own their homes and do so without a mortgage, there are at least 26 percent of the population who stand to benefit from affordable housing finance.

Annual disposable income in 2017 was TD 71.6 billion (US$26.9 billion), up from TD 66.6 billion (US$25 billion), 72 percent of which is earned in the urban areas of the country. Per capita spending averaged US$2 360 a year in 2010, which ranged from US$1 496 in the Centre West region to US$3 228 in Tunis. In 2012, 1.2 percent of households had expenditure of less than US$2 500 a month, 12.8 percent spent between US$2 500 and US$5 000, 24.9 percent between US$5 001 and US$7 500, 20.9 percent between US$7 501 and US$10 000 and 40.2 percent above US$10 000. Due to progressive housing policies since independence in 1956, housing is more affordable in Tunisia compared to other countries in the region and the overall price-to-income index is often quoted as five. However, this number does not reflect the reality for low income households, a growing market segment as youth unemployment remains high at above 35 percent.[5] These households usually cannot qualify for housing loans and do not have the capacity to pay for even a modest unit.

In terms of affordability, a 2012 analysis by UN Habitat calculated that a house of 75m² built progressively on peri-urban land cost about US$14 000 (TD 21 746), or US$187.5 (TD 291) per square metre. Such a unit has a price-to-annual-income ratio close to nine for the lowest decile households. Assuming 30 percent of income could be mobilised for monthly housing payments, the repayments required on the cheapest housing loan makes this unit unaffordable to 30 percent of Tunisian households.

The government FOPROLOS programme was designed in 1977 to provide housing finance for low income groups and is still the main tool assisting access to affordable housing. There are three main categories:

• FOPROLOS 1: Households earning between one and two times the minimum wage can purchase a unit below 50m² for US$25 500, with a loan of 90 percent loan-to value (LTV) for 25 years, at 2.5 percent per annum.
• FOPROLOS 2: Households earning between two and three times the minimum wage can purchase a unit below 75m² at US$32 100, with a loan of 90 percent LTV for 25 years, at four percent per annum.
• FOPROLOS 3: Households earning between three and 4.5 times the minimum wage can purchase a unit of between 80-100m² at less than US$43 400, with a loan of 85 percent LTV for 25 years, at 5.75 percent per annum.

However, in recent years, the cost of a FOPROLOS home has become inaccessible to its original target groups, with housing costs at around US$510 a square metre. Qualifying criteria do not enable households with irregular incomes to participate. Furthermore, loan ceilings have not increased with the cost of production, so it is difficult for developers to offer a housing supply to match the subsidised financial product. There are clear indicators that, in its current shape, this mechanism is not suited for attaining its set objectives, thus prompting a spillover of the demand into the informal sector. According to data from the Tunisian Ministry of Equipment, Land Development and Sustainable Development (Ministère de l’Equipement, de l’Aménagement du Territoire et du Développement Durable), the share of approved FOPROLOS housing units offered by private developers only represented on average six percent of the total approved housing units between 2004 and 2013.  FOPROLOS remains mainly underused due to a lack of adapted supply rather than a lack of resources. The cumulative surplus (unspent resources) of FOPROLOS reached almost US$230 million at the end of 2013.

This prompted the government of Tunisia to reflect on possible reform of the FOPROLOS mechanism, which is widely regarded as obsolete. This formed part of the  new Housing Strategy presented to the Prime Minister in October 2015. The upcoming reform aims to increase access to affordable housing and should include an extension of the repayment terms, a decrease in the self-financing rate, and a revision of the eligibility criteria. The strategy also provides for a new guarantee fund mechanism aimed at promoting access to housing finance, including through FOPROLOS, to low income households that are not affiliated to social security or do not hold a bank account. A removal of the de jure monopoly of the Housing Bank on subsidised FOPROLOS loans is also under consideration.

[1] Aliriza, F. (2018). ‘Two Classes left – Rich and Poor’: Sinking Tunisia’s currency..

[2] EuroMonitor (2018). Income and Expenditure, www.euromonitor.com (Accessed 25 July 2018).

[3] EuroMonitor (2018).

[4] Ibid.

[5] Huffpost (2017). Rapport mondial de l’OIT sur le chômage des jeunes: Où se place la Tunisie? http://www.huffpostmaghreb.com/2016/12/19/oit-rapport-chomage-jeune_n_13720084.html (Accessed 20 July 2017).

Housing Supply

The 2014 census and housing survey, released in September 2015[1], recorded a total housing stock of 3 289 903 units, an increase of 789 103 units since the previous census in 2004. A total of 79.2 percent of Tunisians own their home and an estimated 17.7 percent of these homes are vacant usually consisting of high-cost units purchased as secondary homes, luxury rental properties, or speculative investment properties. Most developers in Tunisia  have also been focussed on developing  houses for the mid to higher range segments as the cost to construct social housing units outstrips its property price ceiling. [2]

Of the annual demand, estimated at 77 000 units per year, around 40 percent is built informally on an incremental basis on quasi-formally subdivided land – the land is bought and acquired through notary deed. A total of 42 587 building permits were issued in 2013[3]. Of the formal units, approximately 80 percent are constructed by individual households (responsible for 28 000 building permits and 38 300 units per year), two percent by public developers and 18 percent by registered developers, which tend to target middle to high income groups.

[1] National Institute of Statistics – Tunisia.

[2] Oxford (2017). The Report: Tunisia 2017. https://oxfordbusinessgroup.com/tunisia-2017 (Accessed 11 September 2018).

[3] MEATDD data

Property Markets

There are two land registration systems. The first regime was established by the Decree-Law of 20 February 1964 on the registration of agricultural lands. This land registration is compulsory, free of charge, and state-administrated. The second regime involves voluntary applications to register land by landowners, usually based on a notarial deed. The land registration system involves three main actors. First, the Property Court, which is the competent judicial authority, intervenes at the onset of the registration process by issuing a registration judgement. Second, the Land Survey and Topography Agency (Office de Topographie et de Cadastre),undertakes boundary marking and allotment operations as well as establishing land plans. Lastly, the Landed Property Registry  (Conservation de la Propriété Foncière) is responsible for issuing, updating, and maintaining title deeds.

The real estate and construction sector is an important contributor to national GDP and employment. In the first quarter of 2016, the number of jobs in the construction and settlements sector was measured at 459 800, which represented 13.5 percent of total employment. The housing sector also accounted for three percent of the revenues of the state via taxes collected from rental and property management, VAT generated by construction and local land taxes.

Prices in the formal real estate market have been increasing at a rate of eight percent an annum since 1990, and have continued to rise following the revolution. The rental market has experienced increased demand, and higher rentals, due to Libyan immigrants who have settled in Tunisia to escape the political situation in their home country. According to the Ministry’s Housing Observatory, in 2010 the average price of a housing unit was US$36 180 at a size of 134m², or US$270 per square metre. Meanwhile, the Global Property Guide reports that the average sale price for a house in Tunis can reach as high as US$2 100 to US$41 00 a square metre.

The number of registered real estate developers continues to increase in Tunisia after the regulatory framework for the profession was put in place in 1990. There are more than 2 700 registered developers at present. However, this number is not indicative of an increase in the production of housing, as many investors register as developers to benefit from tax incentives for property construction.

Policy and Regulation

While the total government budget increased by 10.7 percent between 2016 and 2017, the budget of the Ministry of Equipment, Housing and Land Development increased by 55 percent to TD 1 641 million (US$662 million).[1]

In force for more than 40 years, government financial assistance mechanisms for the housing sector mainly consist of financial subsidies, such as subsidised interest rates and tax exoneration on home saving accounts. For instance, the National Fund for Housing Improvement (Fonds National d’Amélioration de l’Habitat) finances loans and grants for home improvements for people who earn less than the minimum wage. The fund was established by law in 2004 but has only been effectively operating since 2007.[2] To a lesser extent, there are land subsidies through the Housing Land Agency (Agence Foncière d’Habitation), which also has the objective of reducing land speculation. This regime was enhanced in 2007 through the issuing of direct subsidies by the National Solidarity Fund (Fonds National de Solidarité), targeted to benefit households wishing to purchase social housing. Complementary mechanisms were established in the 1980s in the form of slum upgrading schemes managed by the Urban Rehabilitation and Renovation Agency and the National Programme for the Resorbing of Rudimentary Lodging.

In 2014, the Ministry of Public Works, Housing and Settlements undertook a comprehensive review of its housing policy, particularly in terms of exploring public-private partnerships. The review also looked at possible reforms of the subsidy programmes aimed at widening the scope and rationalising government housing aid, as well as expanding of the mandate of FOPROLOS. Preliminary recommendations for a new National Housing Strategy were presented by the government in September 2014 and included revitalising the role of the Housing Land Agency in land provision.

[1] ilBoursa (2016). épartition du budget de l’Etat pour 2017 par Ministère.  http://www.ilboursa.com/analyses/arp-repartition_du_budget_de_l_etat_pour_2017_par_ministere-50. (Accessed 20 August 2017).

[2] République tunisienne (2017) Ministère de l’Equipement, de l’Habitat et de l’Aménagement du Territoire. http://www.equipement.tn/index.php?id=271&L=1 (Accessed 20 August 2017).

Opportunities

Despite a slowdown in the pace of new constructions (as evidenced by a 6.5 percent decrease in the demand for cement in the first quarter of 2015, according to the Ministry of Industry), and as the outlook of capital markets and the banking sector remains uncertain, Tunisians continue to put their money in real estate as housing in Tunisia is still considered a secure and profitable form of investment. The construction boom can be seen in both the informal and formal sector, particularly apparent in the high cost of land and construction materials. However, continued price rises may not be sustainable, and there is a risk of this further excluding low to middle income households from homeownership.

Contribution of the housing sector to GDP was estimated at US$2.8 billion in 2014, representing 6.6 percent of GDP. Removing restrictions on foreign ownership of property and the rise in demand for Islamic housing finance may allow the sector to grow significantly.

A slight upturn in the population growth rate will help to drive the market’s expansion. With regard to solvency of the demand, the impact of the economic changes experienced by the country since 2011 will tend to make income levels instable. Demand for housing credits will grow in complexity and will rely less and less on traditional products, which will impact the evolution of the nature of demand.

Economic growth in 2017 is expected to accelerate (2.3 percent compared to 1.0 percent in 2016). Projections for the next years continue to be positive with a 2.8 percent economic growth in 2018 and 3.2 percent in 2019.[1] While the main drivers of the expected economic growth do not include construction and housing, an improved economic context should also boost the housing sector over the medium term.

[1] The World Bank.  (2017) Tunisia’s Economic Outlook- April 2017. http://www.worldbank.org/en/country/tunisia/publication/economic-outlook-april-2017  (Accessed 20 August 2017).

Websites

www.bct.gov.tn.

www.bh.com.tn.

www.cgap.org

www.ins.nat.tn

www.mehat.gov.tn

www.mfw4a.org

www.mixmarket.org