Morocco: house prices are now falling, demand is static
Last Updated: January 20, 2017
Morocco's property market is experiencing a pause from its previous headlong growth, as a result of Morocco's economic slowdown.
During the year to Q2 2016, the nationwide residential real estate price index (REPI) fell by 1.1%, following a decline of 0.3% a year earlier, according to Morocco's central bankBank Al-Maghrib.
Things were very different during the previous decade, when the domestically-owned property market surged on the back of high-GDP growth years such as 2001 (GDP growth of 7.6%), 2003 (6.3%), 2006 (7.8%), 2008 (5.6%) and 2011 (5%).
Morocco's 2016 economic growth was the lowest in 17 years, at 1.8%, sharply down from a GDP growth rate of 4.5% in 2015, according to the International Monetary Fund (IMF). But the economy is expected to accelerate in the next two years, with projected GDP growth rates of 4.8% this year and 4.2% in 2018.
- House prices dropped 2.4% y-o-y in Q2 2016, worse than the annual decline of 0.2% seen in Q2 2015. Quarter-on-quarter, house prices fell by 1.1% in Q2 2016.
- Apartment prices dropped 1% y-o-y in Q2 2016, worse than the annual decline of 0.5% seen in a year earlier. Quarter-on-quarter, apartment prices fell by 1.2% in Q2 2016.
- Villa prices increased 2.7% y-o-y in Q2 2016, an improvement from an annual rise of 0.8% seen in Q2 2015. Quarter-on-quarter, apartment prices increased 0.7% in Q2 2016.
There were wide local variations:
- In Rabat, Morocco's capital city and political hub, property prices rose by 2% y-o-y in Q2 2016. In a quarterly basis, property prices increased 1% in Q2 2016.
- In Tangier, the country's most important port city on the Strait of Gibraltar, property prices increased 1.4% in Q2 2016 from a year earlier and by 1% from the previous quarter.
- In Casablanca, Morocco's biggest city and the economic capital, the average property price fell by 3.8% in Q2 2016 from a year earlier and by 2.3% from the previous quarter.
- In Marrakesh, home to mosques, palaces, and gardens, property prices fell 5.7% in Q2 2016 from a year earlier but actually increased 1.6% from the previous quarter.
- In Fez, Morocco's second largest city, property prices dropped slightly by 0.2% in Q2 2016 from a year earlier and by 1% from the previous quarter.
REAL ESTATE PRICE INDEX (REPI), Q2 2016
|Source: Bank Al-Maghrib|
Residential transactions were down 1.2% y-o-y in Q2 2016, according to Bank Al-Maghrib. The number of houses sold fell by 5.5% y-o-y, apartment sales fell 0.8%, while villa sales dropped 4.7%. Urban land transactions also fell 3.2% y-o-y in Q2 2016.
Land price variations by city:
- In Rabat, urban land prices surged by 13.7% in Q2 2016 from a year earlier and by 5.7% from the previous quarter.
- In Tangier, land prices increased slightly by 1.1% in Q2 2016 from a year earlier and by 3.3% from Q1 2016.
- In Casablanca, land prices dropped 5.6% in Q2 2016 from a year ago and by 2.9% from the previous quarter.
- In Marrakesh, land prices plunged 15.5% in Q2 2016 from a year earlier, but increased 3.7% from the previous quarter.
- In Fez, urban land prices increased 2.5% in Q2 2016 from a year earlier, but dropped slightly by 0.3% from Q1 2016.
The housing market slowdown has also been reflected in riad prices. Based on Global Property Guide research conducted in October 2016, riad prices in Marrakech have fallen to around US$2,400 per sq. m., as compared to the US$3,000 or sometimes up to US$4,000 per sq. m. in mid-2009. Riads now cost between US$200,000 to US$1 million, depending on the size. A 500 sq m. riad, which might then have sold for the equivalent of US$1.5 million, would now fetch US$1.2 million. Older riads are offered in the market for US$200,000 or even less.
Riads are traditionally-shaped Moroccan houses, with grand salons giving onto a central tiled courtyard, often with a garden at the center.Previously, the majority of riad buyers were French. However, other foreigners such as Belgians, Britons, Italians, Americans, and a few Australians have joined the market, till the Riad market finally over-reached itself.
There are no restrictions on foreigners' owning land in Morocco, except for areas designated for agricultural purposes.
Attractive rental yields
Gross rental yields in Morocco remain attractive based on recent Global Property Guide research conducted in October 2016.
In Marrakech, apartments have rental yields of between 6.5% and 7%.
In Casablanca, rental yields of apartments range from 5.5% to 6.5%. Houses in Casablanca (between 450 to 1,000 sq. m.) have lower gross rental yields, ranging from 3.7% to 4.1%.
However, round trip transaction costs are high in Morocco.
Interest rates continue to fall
In the third quarter of 2016, the average interest rate for real estate loans in Morocco stood at 5.34%, down from 5.44% in the previous quarter and 5.68% in the same period last year, according to the Bank Al-Maghrib. In fact, it was the lowest interest rate for real estate loans since Q3 2008 when it stood at 5.31%.
Interest rates for real estate loans in the country averaged 6% from 2008 to 2015.
In March 2016, the Bank Al-Maghrib cut its key rate by 25 basis points to 2.25%, the lowest rate since 2000.
Mortgage market shrinking gradually
Morocco's mortgage market expanded rapidly from just 6.9% in 2001 to 25.3% in 2011, mainly due to the surge in Morocco's GDP growth during 2002-2008, which caused housing demand to rise rapidly. From 2002 to 2010, the value of property loans soared by an average of 23.4% per year.
However in 2015, the size of the mortgage market contracted, and by 2016, the mortgage market was estimated at about 24% of GDP.
In November 2016, the total value of property loans outstanding increased by 2.2% to MAD247 billion (US$24.55 billion) compared to the same period last year, according to Bank Al-Maghrib. That is composed of two elements - housing loans outstanding (76% by value of total property loans), which rose by 5.4% y-o-y to MAD188 billion (US$18.69 billion) in November 2016; and property loans to developers outstanding (24% of all property loans), which fell 6.3% y-o-y to MAD56.4 billion (US$5.61 billion).
Morocco has the most advanced and diverse mortgage market in the region, according to the Center for Affordable Housing Finance in Africa (CAHF). There are a wide range of sources for mortgage lending, including private commercial banks, public banks, consumer credit companies, and microfinance companies. The typical term period is 20 years, and the loan-to-value ratio can reach 100% of the property's appraised value.
Shortage of affordable housing
Despite a significant reduction in poverty in recent years, about 20% of the country's population (or 6.4 million Moroccans) struggles to afford decent housing. In contrast, the high-end market is well-supplied with around 820,000 units either vacant or used as vacation or secondary homes.
To deal with the situation, the government has implemented numerous housing projects over the past decade, including social housing initiatives and the mobilization of thousands of hectares of land. The Ministry of Habitat and Urban Planning has given real estate developers incentives to invest in social housing projects, and developers have committed to build 900,ooo units by 2020. Social housing sales are VAT exempt (for areas between 50 sq. m. and 80 sq. m.).
Also in 2013, the government passed the Finance Law, which sets the price of middle-income housing at MAD6,000 (US$625) per square metre (sq. m.) for units ranging from 80 sq. m to 120 sq. m., according to the Center for Affordable Housing Finance in Africa (CAHF). Middle-income housing is open to Moroccans with a monthly net income of MAD20,000 (US$2,083) or less.
To meet the increasing demand, the area for social housing was subsequently reduced to less than 80 sq. m., from 100 sq. m. The price of a social housing unit was capped at MAD250,000 (US$26,039).
Lending for middle- and low-income families is accessible through partnerships between the government and banks:
- The Fogarim mortgage guarantee fund guarantees 70% of a mortgage loan made to a household with an informal income, to buy a housing unit worth less than MAD250,000 (US$26,039), helping about 1,200 new beneficiaries every month.
- Another guarantee program, FOGALOGE, guarantees loans to middle-class independent workers, moderate income civil servants, and non-resident Moroccans purchasing or building houses up to about MAD1 million (US$100,000) in value.
As a result, Morocco's housing deficit fell to about 642,000 units in 2014, according to the Oxford Business Group. To further improve the situation, the government plans to build an additional 170,000 units every year to bring down the deficit to around 400,000 this year.
Like other Middle Eastern countries, Morocco has experienced social and political unrest. But unlike other countries, Morocco's political achievements, as well as the authorities' responsiveness, have reduced the scale of the unrest. It has certainly helped that Morocco has not experienced a single period of economic contraction during the entire period since 1997. This can partly be attributed to King Mohammed VI's economic reforms.
There have also been notable social programs to reduce poverty, improve foreign relations and strengthening parliament, and a series of constitutional reforms aiming to improve democracy in the country:
- A number of new civil rights including social equality for women, and constitutional guarantees of freedom of expression, etc.;
- Additional powers to the office of the prime minister, replacing the king as head of government and president of the council of government, as well as the authority to appoint government officials and to dissolve the parliament. The King is also obliged to appoint the prime minister from the winning party in the parliamentary elections;
- The parliament now has the power to grant amnesty;
- Independence of the judiciary system from executive and legislative branches;
- The King, however, remains commander-in-chief, holding complete control over the armed forces. He is also the chair of the Council of Ministers and the Supreme Security Council, and the highest religious authority in the country;
- Berber was made an official language in Morocco, alongside Arabic;
- The Arab-Hassani Language and Morocco's other linguistic components are preserved as part of the national heritage.
However, unemployment remains quite high. Morocco's sustained economic growth throughout the years caused unemployment to decline from 15.4% in 1997, to 8.9% in 2011. However unemployment has since risen to 10.2% in 2016, according to the IMF.
Despite positive achievements under King Mohammed VI, corruption remains very prevalent, reaching the palace itself. Royal involvement in business is a major topic in Morocco, unsurprisingly as the King is the Kingdom's leading businessman and banker, and the royal family has one of the world's largest fortunes. Decisions on big investments in the Kingdom are taken by only three people: the King, his secretary Mounir Majidi, and the monarch's close friend, adviser and former classmate Fouad Ali Himma. Corruption originating in the royal palace especially affects the housing sector, as Wikileaks documents released in 2010 showed.
Inflation averaged 1.6% during 1999 - 2016, based on figures from the IMF. In 2017, inflation is expected to slow to just 1%.
Budget deficit falling gradually
To dampen popular protests at the time of the Arab spring, the King went on a spending spree in 2011, raising public sector wages and pensions, as well as subsidies. Expenditures increased to 29.9% of GDP, from 27.4% in 2010, according to the African Development Bank. The budget deficit widened to 6.7% of GDP in 2011, from 4.4% in 2010 - a dramatic contrast to the surpluses in 2007 (0.6% of GDP) and 2008 (0.4% of GDP). The budget deficit rose further to 7.4% of GDP in 2012.
Morocco's budget deficit was reined in to about 3.5% of GDP in 2016, down from 4.3% of GDP in 2015, 5% of GDP in 2014, and 5.5% of GDP in 2013 - its lowest level since before the Arab uprisings that toppled other leaders in the region. This year, the budget deficit is projected to fall further to 3.1% of GDP, as planned in the 2017 draft budget.
To counter the effects of EU's slowdown and oil price swings to their economy, the Moroccan government sought help from the IMF, and was granted a loan worth US$6.2 billion. In exchange, the government will reform the pension system.
Regional terrorist attacks are putting off the tourists
The government's tourist development plan, Vision 2010, achieved 9.3 million visitors in 2010, and aims for 20 million tourists by 2022. In 2013, tourist arrivals exceeded the 10 million mark, and in 2014, tourist arrivals rose 2.3% y-o-y to 10.28 million people, according to Ministry of Economy and Finance. Morocco's "open skies" agreement with the European Union in 2006 has boosted air travel growth, with passenger numbers doubling in six years to 15.5 million in 2010, from 7.7 million in 2004. Lower ticket prices and more domestic routes are being introduced by Royal Air Maroc. Meanwhile, a Casablanca - Tangier high speed rail project started in 2011 is expected to be fully operational by June 2018. France accounted for about one-third of the total number of tourists in Morocco, followed by Spain, Arab countries, Germany, Italy and the United States.
However in 2015, Morocco welcomed only an estimated 10.18 million tourists, down by 1% on the previous year. Then during the first three quarters of 2016, the number of foreign tourists fell by 3.6%.
"Since mid-2014 with the appearance of Isis and then with the two attacks in Tunisia, and with the Charlie Hebdo attack in France [in January], we have seen a dwindling of the number of tourists," said Tourism Minister Lahcen Haddad.
"It is not highly significant in the overall picture, but very important for the French market, where we had a drop starting in mid-2014 - and it is still happening," added Haddad. During the first three quarters of 2016, tourist arrivals from the UK, Germany, and France dropped 7%, 3%, and 2%, respectively. However, these declines were somewhat offset by increases in tourist arrivals from Russia, China, Netherlands, Belgium, and Spain.
To boost tourism, the government is investing in several projects in 2017, particularly to increase air flights into the country, to build new air bases in cities such as Fez and Agadir, and to promote Morocco as a leading tourist destination online, according to the Moroccan National Office of Tourism (ONMT).
"Several companies have programmed Morocco as a destination, including the return of Air France on the Paris CDG - Marrakech route," said Abderrafie Zouiten, Director of the ONMT. "This is also the case for other low-cost airlines such as Air Arabia, EasyJet, Ryanair and Wizz Air, which recently launched a Warsaw-Agadir line, all equivalent to nearly 500,000 visitors in 2017."
Plan Azur continues
Under the Vision 2020, Plan Azur will continue, focusing on 6 seaside resorts, namely: Mazagan Beach Resort (in El Jadida province), Mediterrania Saidia (in Berkane province), Mogador (in Essaouira province), White Beach (in Guelmim province), Port Lixus (in Larache province), and Taghazout-Argana (in Agadir province). To ensure balanced regional development, Plan Azur Extension will add three more resorts including Chbika, Ouarzazate Lake City, and Dakhla.
The work on the Mediterrania Saidia resort and Mazagan Beach Resort was completed in 2009, according to a Vision 2010 review from the Ministry of Economy and Finance's Financial Forecasts and Studies division (Division des Etudes et des Prévisions Financières, DEPF). Mogador Essaouira resort opened in late 2011, while Port Lixus opened in 2012.
Aside from re-launching Plan Azur, other programs were also launched under the Vision 2020. This includes: a sustainable development plan (ecotourism), a cultural heritage programme, more developed leisure and health activities, and business tourism.
Source: 7th International Tourist Conference handbook, Fes 2007
The attraction centres of Morocco
The cultural and physical attractions of Morocco centre on its traditional cities as Marrakech, Fes, Meknes, Casablanca, and Essaouira and on its one coastal resort, Agadir.
Marrakech was built in 1070 A.D.. It is famous for its palaces, open markets, and gardens. It is an extraordinarily exotic city, with its drama heightened by a location at the foot of the Atlas Mountains.
Marrakech has a complete tourism zone, Aguedal. A public transport system carries tourists from the district into the city centre for its souks and traditional markets selling copperware, wool merchandise, and carpets and kaftans. There are no less than 27 5-star hotels in Marrakech.
Marrakech is also considered as the country's best and largest golf destination, with more than 10 different golf courses designed by famous names like Robert Trent Jones, Kyle Philips, Jack Nicklaus and Colin Montgomerie, among others. In fact, the International Association of Golf Tour Operators (IAGTO) has recently named Marrakech as the 2015 Golf Destination of the Year for Africa & Gulf States.
For over 400 years, Fes was the capital of Morocco. Founded in 789 A.D, it is the world's oldest medieval city, and the largest. Considered Morocco's intellectual and religious capital, it is a UNESCO world heritage site.
It was at the peak in the 14th century, and saw a fresh burst of glory in the 17th century. Narrow streets prevent the entry of cars into much of the city.
Here the French built a city in a French idiom, heavily influenced by the architecture of the Arab-Andalusian Empire. The city centre has a modernist grandeur, with plenty of space and light. Casabablanca is large, modern, and agreeable, with five golf courses less that an hour away.
Meknes was recognized as a World Heritage Site in 1996. Its physical location, on a plateau, made it Morocco's trade crossroads. Its magnificent architecture was built by the 17th century Ruler, Sultan Moulay Ismail. Over 55 years he built palaces, mosques, gardens, and lakes. At his death the unfinished buildings including the royal palace - the Versailles of Morocco - which fills most of the old city.
Agadir is Morocco's main seaside destination. Beautiful beaches, luxurious hotels, an ultra-modern airport are all combined with a moderate climate. Agadir's beach is spectacular. 10 kilometres in length, it is clean and wide. Agadir enjoys a continuous breeze from the Atlantic, so that the temperature is pleasant all day.
A major earthquake completely destroyed the city in 1960. It was rebuilt from scratch. Agadir today is a modern city.
Tangier has a louche reputation dating from the 1920s, when it was an outpost for British paederasts. Then in the 1950s, beats, dropouts and writers like Burroughs and Bowles, Ginsberg and Kerouac, Leary and Eldridge Cleaver came to Tangier. It is a messy, rather ugly city. Now its coastline is being covered with resorts and new developments.
Essaouira is popular with independent travelers. This is partly because of its long beach, and partly because of its laid-back atmosphere. The town has long been magnet for Moroccan poets and creative talent. In the Place de Lâ Indpendence, which is the main square in the centre of Essaouira, there are dozens of caf s and restaurants. It is a pleasant place to eat, drink, and watch the world go by.
- Morocco’s property market remains weak - May 22, 2016
- Morocco is now a buyers' market - February 20, 2015
- Morocco's property market stable, tourism growing - December 03, 2012
- Morocco goes all-out to push housing market growth - February 01, 2010