Housing Finance in Tunisia

Introduction

Before the revolution of 2011, Tunisia was widely regarded as one of the best performing North African countries in terms of economic and human development.. After the political instability and associated slowdown in  economic growth, the country has rebounded with the adoption of a new constitution in 2014.

GDP grew by 1.2 percent[1] in 2016, up from 0.8 percent the previous year which had  the lowest economic growth since the 2011 economic slowdown. The recovery however is not mirrored in net national savings (as a percentage of gross national income) which has continued to drop from about – 3 percent (2015) to -6 percent (2016).[2] Analysts blame this trend on the absence of incentives to save and on little household trust in the economy.[3] Similarly, public debt is expected to keep increasing, from 54.9 percent of GDP at the end of 2015 to 63 percent of GDP at the end of 2016 and then to 63.8 percent of GDP by the end of 2017.[4]

The higher increase in GDP reflects however on the job market. The unemployment rate for 2016 was 14 percent, down from 15 percent in 2015.[5] 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 2015 it remained so.[6] 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.

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, including over 20 private commercial banks, in addition to the three state-owned banks.[1] Until the early 2000s, the publically-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 DT 100 000 (US$ 40 290). Maskan Al Baraka can finance up to 80 percent of the home value over fifteen years.

Overall, product offerings in this market have become largely undifferentiated, but conditions of access to housing finance have considerably expanded through the launching 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 subsidized 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 to 5.75 percent[3] for three different income eligibility brackets. These are targeted at households earning a regular salary between minimum wage and up to 4.5 times minimum wage. This compares to an average 7.23 to 7.57 percent rate for mortgages available at commercial rates in 2016.[4] In March 2017, the minimum wage was increased by 4.3 percent to DT 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)[i][7] limit loan-to-value ratios to below 80 percent (though up to 90 percent in social lending programmes, like 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.[8] 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[ii].

In February 2017, the Government of Tunisia launched the “programme premier logement” (“first housing” programme).[9] This programme, which benefits from a special account (initially funded with DT 200 million or US$ 80 million), targets middle class families (households earning between 4.5 and ten 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 Government list of available houses. The loan can finance houses priced at DT 200 000 or less (about US$ 80 000) over up to 12 years with no repayment over the first five years.[10]

In terms of secondary markets, Tunisia has a stock exchange (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[11] (in 2005 and 2006 respectively, amounting to DT five million each, about US$ two million) by a single institution, the International Arab Bank of Tunisia (BIAT). 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 Micro-Finance 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 (CFE), and Advans Tunisie.[12]

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.

Housing 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. 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 – US$5 000, 24.9 percent between US$5 001 – US$7 500, 20.9 percent between US$7 501 – 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.[1] 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 75 square metres built progressively on peri-urban land costed about US$14 000 (TD 21 746), or US$187.5 (TD 291) per square metre in 2012. 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 programme, FOPROLOS, 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 1-2 times minimum wage can purchase a unit below 50 square metres at US$25 500, with a loan of 90 percent LTV for 25 years, at 2.5 percent per annum.
• FOPROLOS 2: Households earning between 2-3 times minimum wage can purchase a unit below 75 square metres at US$32 100, with a loan of 90 percent LTV for 25 years, at 4.0 percent per annum.
• FOPROLOS 3: Households earning between 3-4.5 times minimum wage can purchase a unit of between 80-100 square meters 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 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 the attainment of its set objectives, thus prompting a spill over 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 largely underutilised 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 launch a reflection 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 will aim to increase access to affordable housing and should include an extension of the repayment terms as well as a decrease in the self-financing rate, as well as revise 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.

Housing Supply

The 2014 census and housing survey, released in September 2015[i], recorded a total housing stock of 3 289 903 units, an increase of 789 103 units since the last census in 2004. 79.2 percent of Tunisians own their home and an estimated 17.7 percent of these homes are vacantusually consisting of high-cost units purchased as secondary homes, luxury rental properties, or speculative investment properties.

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[ii]. 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, who tend to target middle to high-income groups.

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 is compulsory, free of charge, and state-administrated. The second regime involves voluntary applications to register land by land-owners, usually based on a notarial deed. The land registration system involves three main actors. Firstly, the Property Court, which is the competent judicial authority, intervenes at the onset of the registration process by issuing a registration judgement. Secondly, the Land Survey and Topography Agency (Office de Topographie et de Cadastre, OTC),undertakes boundary marking and allotment operations as well as establishing land plans. Lastly, the Landed Property Registry  (Conservation de la Propriété Foncière, CPF) 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 in order 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 134 square metres, 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 – 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 today. 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.

Housing Policy and Regulations

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 DT 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 (ARRU) and the National Programme for the Resorbing of Rudimentary Lodging (PNRLR).

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 intended to widen the scope and rationalise government housing aid, as well as the expansion 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.

Housing Sector 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 “variabilise” income levels. Demand for housing credits will grow in complexity and will less and less rely 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 impact the housing sector over the medium term.