Morocco: good returns, promising economy
Lalaine C. Delmendo | March 15, 2019
From a landlord's perspective the returns on property investment - the rental yield earned – are good. And over the last year there's been a strong surge in domestic residential demand, reflecting the growing economy. Yet local residential property prices have been static, and the price of riads, the traditional dwellings foreigners like to buy, has been falling. Which raises the question: How much longer can property prices lag behind the good news?
Morocco's economy expanded by a healthy 3.2% in 2018, after growing 4.1% in 2017, 1.1% in 2016, 4.6% in 2015 and 2.7% in 2014, according to the International Monetary Fund (IMF).
The economy is expected to grow by 3.2% this year, and by another 3.8% in 2020.
Yet during 2018 the nationwide residential real estate price index (REPI) increased by only 0.8%, following zero growth a year earlier, according to Morocco's central bank Bank Al-Maghrib.
By property type:
- House prices rose by a meagre 0.8% in 2018.
- Apartment prices rose by 0.6% y-o-y in 2018.
- Villa prices rose by 5.9% y-o-y in 2018, after falling last year by 2.6%.
- In Rabat average property prices rose by 3.7%.
- In Casablanca property prices increased 1.5%
- In Marrakesh property prices fell 5.5%.
- In Tangier property prices rose 1.7%.
- Urban land prices fell by 2.4% in 2018, after rising by 1.8% in 2017 and 6% in 2016.
Things were very different during the previous decade, when the property market surged on the back of high-GDP growth years such as 2001 (GDP growth of 7.3%), 2003 (6%), 2006 (7.6%), 2008 (5.9%) and 2011 (5.2%).
There are no restrictions on foreigners' owning land in Morocco, except for areas designated for agricultural purposes. The Dirham, Morocco's currency, is relatively stable.
Morocco: rental yields range from around 3.7% to 7.0%.
Gross rental yields in Morocco can be good, so long as you are renting out an apartment. But yields on houses are really low.
Yields in Marrakech are a little lower than in Casablanca, reflecting the fact that rents are not dissimilar but the price of properties is somewhat less in Marrakech.
Round trip transaction costs are high in Morocco. See our Residential property transaction costs analysis for Morocco and Residential property transaction costs in Morocco compared to the continent.
Moroccan income tax rates
rise progressively to 25.2%.
Rental Income: Net rental income is obtained by taking 40% off the gross rental income. The tax rate rapidly progresses from 0% to 38%, so that the top rate of tax is actually 24% of gross income.
Capital Gains: Profits on the sale of property are taxable at 20% of any profit, but with a minimum tax of 3% of the sale price.
Inheritance: There are no inheritance taxes in Morocco.
Residents: Residents are subject to progressive income tax rates on their worldwide income.
Total transaction costs are low in Morocco
Round trip transactions costs, i.e. the total cost of buying and selling a property, are around 12.50% to 17%. The buyer pays all the transaction costs. Additional expenses are involved in buying non-titled property.
Buyers need to be very careful when considering purchasing property in Morocco. In the main, it is not advisable to purchase any land that is not titled (as "Muhafida"). There are at least 3 types of land titles, and most of them are very doubtful. There are also in Morocco many nice-seeming but dishonest advisors. Clear titles can be very difficult to find, at least at a fair price.
The law in Morocco is pro-landlord
Rent: The rent can be freely agreed between the parties. The landlord can also ask for a guarantor to be named, who is legally obliged to pay the landlord for any debts owed by the tenant.
Government: significant reforms, but significant corruption tooLike 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, causing unemployment to decline from 15.4% in 1997, to 9.5% in 2018.
The country's relative stability can partly be attributed to King Mohammed VI's economic and constitutional reforms:
- New civil rights including social equality for women, and constitutional guarantees of freedom of expression;
- Berber made an official language, alongside Arabic;
- The Arab-Hassani Language and Morocco's other linguistic components are preserved as part of the national heritage;
- Additional powers to the office of the prime minister, who the King must appoint from the winning party in parliamentary elections;
- Parliament now has the power to grant amnesty;
- Independence of the judiciary;
- 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.
Yet 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.
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. The budget deficit widened to 6.7% of GDP in 2011, up from 4.4% in 2010, according to the African Development Bank - a dramatic contrast to previous surpluses. The budget deficit rose further to 7.4% of GDP in 2012.
Morocco's budget deficit has since been reduced to 3.5% of GDP in 2018.
Inflation has however accelerated to 2.4% in 2018, up from an average of 1.5% during 1999-2017. Privatization and improving governance of public companies will help the country generate about MAD 8 billion (US$833.73 million) revenues this year.