- Access to Finance
- Housing Affordability
- Housing Supply
- Property Markets
- Housing Policy and Regulation
- Housing Sector Opportunities
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2017 edition, which has up-to-date profiles for 54 African countries.Download yearbook
North Africa has undergone a monumental transformation in the past few years, since the revolution of the Arab Spring that was set off by Tunisia’s ousting of Ben Ali in January 2011. The five countries that border the Mediterranean: Morocco, Algeria, Tunisia, Libya, and Egypt, are home to around 192 million people (with the region a prosperous one.
The economic outlook for North Africa in 2015 grew by 3.5 percent compared to 1.7 percent during 2014. The regional GDP growth is projected at 3.3 percent and 3.8 percent in 2016 and 2017 respectively, on par with growth projections for the entire continent (3.7 percent in 2016).
In North Africa, the macroeconomic situation remains uneven. In Libya, disruption in oil production and ongoing political conflicts and uncertainty led to another fall in real GDP. Ending the fighting between rival militias and establishing a national government is key for an economic recovery. Tunisia achieved only modest growth in 2015 boosted by good harvests, while production in other sectors remained weak. Mining and industry sectors were adversely affected by weak exports and tourism, which had recovered gradually, declined once again after terrorist attacks. In Algeria, growth remained steady thanks to a rebound in oil production. Morocco achieved the highest broad-based growth in the region supported on the demand side by private consumption and investment and on the production side by the construction sector and agriculture, which benefited from good weather conditions and past investment in irrigation. Tourism was also adversely affected by security problems in the region but to a much lower extent than in Tunisia. In Egypt, growth strengthened as the political scene stabilised and business sentiment improved.
To maintain competitiveness, central banks in Algeria, Egypt, Morocco, and Tunisia allowed their currencies to depreciate by four – eight percent against the U.S. dollar in the first three months of 2015. In trade-weighted terms, their exchange rates depreciated modestly.
Access to Finance
In most North African countries, there is a long history of heavy state involvement in the financial sector. This tradition, combined with excess liquidity provided by oil wealth, macroeconomic instability and challenging bureaucracies, has hindered the development of financial systems in the region. However, the past decade has prompted all countries to explore agendas for opening up of the banking sector to more private sector and foreign participation, which is creating new opportunities, albeit at different rates of progress. In 2013 and 2014, Tunisia continued to prepare, with the support of the IMF, a series of financial sector reforms focused on improving the soundness of the banking sector through the restructuring of three publically-owned banks. As a result, by June 2016 the IMF has approved a four-year, US$ 2.9 billion loan for Tunisia to support the authorities’ economic agenda aimed at promoting more inclusive growth and job creation, while protecting the most vulnerable households.
Across the region, monetary policy is focused on containing inflation which reached 7.6 percent in 2015 (projected at 6.3 percent in 2016 and 6.7 percent in 2017), while supporting export diversification strategies (Morocco and Algeria) for more inclusive growth and more job opportunities in the region.
Lack of financial support and inadequate structure of banks affect the construction industry and households in North Africa. Lack of mortgage institutions and inadequate administrative structures of commercial banks prevent firms from financing mass housing. In North Africa the mortgage market is much more developed with Morocco at 16.9 percent and Tunisia at 12 percent.
According to the Global Competitiveness report (GCR 2015/2016), Morocco is ranked the highest among North African countries in terms of competitiveness at 72/140, followed by Tunisia at 92/140 and Egypt at 116/140.
Emerging Capital Partners (ECP), an international private equity firm focused on investing across the African continent, announced that it has acquired controlling stakes in two North African construction sector businesses. The equity investments in Shoresal and Almes, totalling US$ 26.2 million, are part of ECP’s strategy to expand its North Africa portfolio. ECP has invested before in Algeria and Morocco US$13.8 million and US$ 12.4 million respectively in construction sector.
The housing finance sector in the region has long been dominated by state-owned housing banks, offering long-term loans on concessionary or heavily subsidised terms, often crowding out market-based financing. All countries in North Africa have worked on expanding their mortgage systems in the past decade, moving toward more market-based solutions. Housing finance is most developed in Morocco and Tunisia, where mortgage lending is equal to 17 percent and 12 percent respectively of GDP, and continuing to expand at rates of between five to 11 percent per year. Access to housing finance in Morocco is enhanced through state guarantees, targeted at different market segments.
Egypt was one of the first countries to reform its mortgage framework in 2001. Other North African countries have taken concrete steps to establish secure mortgage systems and improve access to secondary markets to enable long-term lending and greater access to housing finance for low-income groups. For example, in March 2015, Morocco’s Central Bank published regulations for a Mortgage Refinance Company, which would promote secondary mortgage market activity and the availability of long-term finance. Credit ratings agencies are helping to extend coverage for those in the formal sector by enabling banks to better understand risks in the market. Furthermore, Algeria has designed comprehensive strategies to modernise its mortgage laws, but with limited results, as state housing finance programmes still dominate.
Housing microfinance is also growing in the region with a lot of support from international donors, particularly for the development of local SMEs. This form of credit access has the potential to provide a viable alternative to conventional mortgage lending. Specific products for housing microfinance have emerged in Tunisia, Egypt and Morocco. In 2014, Lafarge, an international building materials supplier, announced a partnership with Al Amana and Attawfiq, two leading microfinance providers to deliver housing microfinance solutions from US$200 to US$6 000 to low-income Moroccans.
In spite of the high levels of homeownership (up to 80 percent in Tunisia, and over 90 percent in Libya) and negative slum growth, affordability is a major problem across North Africa, particularly for low and middle income households. Housing prices are rising in all North African countries. As a result, housing is becoming difficult to afford due to steady demand and undersupply which caused a housing shortage. In Algeria, prices are rising and rental yields are expected to remain stable. In Tunisia, prices rose at eight percent per annum. In addition, Libya is facing the same problem with significant undersupply which is hampering affordability and caused a shortage of about 350 000 to which the government is attempting to respond with US$11 billion worth of large-scale residential projects in the pipeline. Furthermore, the cost of formal housing in Egypt exceeds the payment capacity of the majority of households. In Morocco, during Q4 2015, urban land prices declined slightly by 0.4 percent from the previous quarter but increased 1.7 percent from the same period last year, according to Bank Al-Maghrib.
Morocco, for instance had a housing deficit of about 650 000 units in 2014, according to the Oxford Business Group. Housing demand is increasing by 150 000 units every year, while annual housing production is only around 100 000 units.Estimates of the affordable housing shortage in Algeria range from 1.2 million to two million dwellings based on an occupancy rate of five people per unit. They are also addressing this supply shortage with large-scale housing construction, with 1.6 million units planned over the next five year term, from 2015 – 2019.
As a result to these problems, the governments in North Africa are trying to intervene to make housing habitable, affordable and accessible to low income especially in Morocco, Algeria and Egypt. In Morocco; the government has decided to stand as guarantor which enables low income borrowers to borrow from banks. On the other hand, Algeria and Egypt are using other solutions such as building social housing units at low prices with payment facilities. In Algeria, the government is committed to building 1.6 million social housing units between 2015 and 2019.
Housing price pressures are exacerbated by urbanisation from arid interior regions to littoral cities, as well as the young population demographic of North Africa, which is pushing up demand for urban housing. Low affordability is having direct social consequences, including overcrowding, with the number of occupants per household as high as 5.5 in Algeria, as well as impacting the age for marriage as many young people will wait until they can purchase their first home, before they marry.
Both the number and the proportion of slum dwellers (from 20 percent of total population in 2000 to 13 percent in 2013) in North Africa have decreased in the last twenty years. Egypt, Morocco, and especially Tunisia have been the most successful countries in this respect. These three countries reduced their collective slum populations from 20.8 million in 1990 to an estimated 11.8 million in 2010. The decrease is largely due to the successful implementation of housing policies and programmes that have increased low-income housing supply and systematically improved slums and informal settlements.
Several countries have demonstrated a noteworthy improvement in affordable housing and slum upgrading over the last two decades. Furthermore, many African governments are gradually adopting and implementing policies and strategies aimed at making housing habitable, affordable and accessible which offers some promise for expanding access to low and middle income households.
While overall housing supply may appear sufficient in most countries, housing prices on the private market are quite high and there are a large number of vacant, high-end units, small rental sectors and difficulty to access housing for lower-income households.
According to Econmonitor report, it shows that there is a positive outlook for houses prices in Algeria Libya, Tunisia and Egypt. Furthermore, it shows that most of North African countries suffer from undersupply in residential real estate like Algeria, Libya and Egypt, and only Tunisia is in balance between supply and demand.
Morocco is popular as an investment destination because it is in close proximity to Europe. This means companies like to use it as a launch-pad into Africa. Tunisia, the smallest nation in North Africa’s commercial property sector is dominated by holiday houses.
Housing supply from the Net-Oil Importing Countries of North Africa (Morocco, Tunisia and Egypt) has pushed toward supporting a formal real estate sector and facilitating private sector investment in the property market. Yet, affordable housing where profit margins are small and risks are high requires substantial government incentives, which have not been adequate in Tunisia, resulting in only the state-owned developer, SNIT, participating in the low-income target market. In contrast, Morocco has been successful in offering attractive tax rebates and land at subsidised rates to create a thriving private sector, and the government has committed to 900 000 additional units worth US$30 000 before 2020.
Across North Africa, most subsidies escape the poorest, and housing demand for low-income groups is delivered by the informal sector.
A lack of private land supply is the main constraint In North Africa. Land is a bottleneck in the supply chain and the main cause of high real estate prices in North Africa. Privately held land in Algeria, Libya and to a certain degree, Egypt, is a rare commodity relative to demand, which tends to magnify the pressure on prices and encourage speculation. Rigid land development regulations and complex registration procedures for titles have led to a scarcity of legally developable land and have contributed to the region’s affordable housing shortfall. Most countries in North Africa ranked poorly in terms of property registration in the World Bank’s 2016 Doing Business Report, with Morocco (109th), Tunisia (126th), Algeria (174th) and Libya (185th) performing worst.
Egypt and Morocco stand out as the largest commercial property markets in North Africa. Tunisia stands out as a tourist driven property market, according to Africa Property News.com. Egypt is the third biggest economy in Africa. A large portion of its real estate is state-owned but there are opportunities in the country for new developments.
Morocco’s property market continues to slow, with property prices rising only a little. Also, property transactions remain depressed. During 2015, the nationwide residential real estate price index (REPI) rose by 0.9 percent from the previous year, according to Bank Al-Maghrib, Morocco’s central bank. On a quarterly basis, residential property prices increased 0.7 percent in Q4 2015. The Tunisian real estate development industry is fragmented, with a large number of developers for a comparatively small market. Property and especially land prices have seen consistently strong growth in recent years, but 2015 was a difficult year for developers due to factors such as rising construction costs, land shortages and reduced banking sector liquidity; however industry figures indicate that revenues could improve in 2016 as several important projects under construction come on-line. This is expected to affect the property market negatively in North Africa as it will cause increasing the prices which will decrease the affordability of the people and this will lead to a depression in the market.
Price appreciation in the property market is becoming problematic, driven by a lack of confidence in money markets or alternative investment opportunities. This is particularly severe in countries with limited capital markets and high volume of oil wealth. Wealthy North Africans tend to invest in real estate as it is perceived as the most secure store of money, particularly while the banking sector is weak and inflation is high.
Most property markets in North Africa have limited international integration, so are somewhat shielded from international financial dynamics. Morocco is the exception, with its markets being much more open to foreign direct investment. As a result, Morocco experienced more deeply the impact of the global financial crisis and slow-down in the Euro-zone. To help policy-makers and investors monitor these dynamics and develop resilience in the property market, Morocco has been the first country in the region to introduce a real estate price index that is formulated quarterly by the Central Bank and National Land Agency.
Housing Policy and Regulation
Housing remains at the forefront of the agenda for most North African governments. The link between affordable housing, economic development and social inclusion has been clearly recognised, particularly as many protests across the region have been linked to poor living conditions caused by failures in housing policy.
The housing sector in North Africa still tends to be over-regulated with the public sector playing a primary role. Home-ownership is prioritised over rental or alternative tenure options, which has resulted in small rental markets. However, there is growing interest in lease-to-own programmes, such as those being used and expanded in Algeria, to avoid the difficulties in accessing mortgage finance.
To attract private sector investment into the development of affordable housing, the government provides both tax breaks and subsidises land. To qualify for the incentives, developers must commit to a minimum number of housing units.
Net-Oil Exporters have committed large amounts of budget resources to respond directly to housing demand and uphold constitutional mandates toward a citizen’s right to housing, crowding out private sector activities in the process. Net-Oil Importers tend to have been more prudent and focused on development of resilient and accessible financial systems, and implementing policies to increase private sector investment in housing.
Housing Sector Opportunities
In 2015, the outlook is optimistic for much of North Africa. Improving the affordability of housing is a priority for governments, who have all been assertive in preparing national housing policies and programmes, with varying degrees of priority placed on immediate delivery needs versus long term viability and sustainability. Yet, maintaining security in many of the countries of the region remains the primary hurdle, before efforts toward diversifying and opening up economies and long-term policy reforms that will support affordable housing finance will be able to gain any traction.
In the long-run, the regions real estate sector is expected to perform well and remain an attractive destination for investors. Future demand will be sustained by the increasing urbanization trend (at ±60% in 2013) and the commitment of almost all governments to provide financing for primary housing. Once security constraints are resolved, rising influx of tourists (71 million in 2013, up two percent year-on-year) to the region (this figure is a collective for the Middle East and North African region – known as MENA) will keep supporting the hospitality industry and attract top-retailers. Also, the large fiscal buffers (~3tn in sovereign wealth funds) will sustain government spending in most economies, supporting economic growth and maintaining financial stability.
The real estate and construction sector is an important contributor to North Africa national GDP and employment. It creates a lot of jobs by the construction and settlements sector. The housing sector also accounts for high percent of revenues of the state via taxes collected from rental and property management, VAT generated by construction and local land taxes. So it is a good opportunity for the governments to pay more attention to property market. Also, it is a good opportunity for the private sector to focus more on this sector and compete with the government in the delivery of appropriate units.
As North African countries stabilise and investor confidence returns, there are new opportunities for developing cooperation and partnership within the region. An increasing openness to both knowledge exchange and economic integration has clear benefits, particularly in affordable housing, as many North African states are facing similar challenges. Measures that facilitate the supply of land for residential developments for low-income groups or promote market-based housing finance solutions and private sector participation can be shared and transferred between the countries of this region in order to strengthen each individual country’s efforts.