Maghreb governments are seeking to plug an investment gap left by the impact of the downturn in the Gulf and the exodus of developers from their real estate markets
Compared to some of their counterparts in the Gulf, the Maghreb countries are emerging from the global economic downturn relatively unscathed. Gross domestic product in Algeria, Tunisia and Morocco all grew by at least 2 per cent in 2009. Limited exposure of their economies to the global financial system insulated them from the worst effects of the banking crisis, there was no bursting of property bubbles, and no threat of major debt defaults.
“North Africa has had a relatively smooth ride through the downturn,” confirms Charles Seville, director in the sovereign group at ratings agency Fitch Ratings.
- $25bn - Value of Tunisia’s Mediterranean Gate project, the largest proposed real estate scheme in the Maghreb
- 6 - The number of new tourist resorts Rabat is seeking to build by the end of 2010
- 1.2 million - The number of new homes Algiers wants to build by 2014
- $2bn - Value of Sama Dubai’s Amwaj project in Morocco, from which it withdrew in January
Unfortunately, the region has not proved immune to the secondary effects of the downturn on the Maghreb’s real estate projects market. Most major real estate projects tabled for development in the Maghreb are under the direction of Gulf-based developers. But the appetite of these companies for projects outside their core region, particularly those still in their early stages, has all but vanished.
As a result, almost all of the major real estate projects in the Maghreb have been delayed, down-sized or frozen completely. The latest instance came in early January, when developer Sama Dubai announced it was pulling out of the $2bn Amwaj project in Morocco and freezing its other Maghreb projects.
“Gulf investment is a major issue,” says Hakim El-Karoui, director at Rothschild bank with responsibility for North Africa. “Most of it has stopped.”
“The projects the developers are committed to, they will finish. But it is less certain that new projects, or even new phases of existing projects, will be taken on,” says another source close to the market.
Beyond this general trend, local forces are also exerting an influence on the performance of the real estate markets of the three Maghreb countries – Morocco, Tunisia and Algeria.
Projects developers are committed to, they’ll finish. But it is less certain new projects will be taken on”
The relative expense of Morocco as a tourist destination, for example, has meant that the kingdom’s tourism receipts have been hit harder than those of Tunisia by the downturn, further discouraging new developments.
“Tunisia attracts Algerian and Libyan tourists, as well as Europeans,” says El-Karoui. “There was no financial crisis in Algeria and Libya, so they continued to travel to Tunisia, especially for medical reasons. Morocco attracts upper middle class tourists, and there is overcapacity in that market.”
Over the course of the downturn, Morocco has fallen behind its target, introduced in 2001 under its Vision 2010 scheme, to increase tourist numbers to 10 million a year by 2010. It enjoyed a growth in annual visitor numbers from 2.3 million in 2000 to 8.3 million in 2009, but the current market situation makes it extremely unlikely that it can make up lost ground in the coming year.
Tunisia’s government also wants to increase visitor numbers to 10 million a year, from 6 million currently, says a senior banking source in Tunis. Even Algeria, 80 per cent of whose foreign visitors are business travellers, has plans to develop its tourist sector by 2025. Egyptian consultancy Hamza Associates completed feasibility studies into a range of potential resorts two years ago. Although the development of resorts is unlikely to take place for several years, renovations are under way at the Sheraton Club des Pins and the El-Aurassi hotels in Algiers. The US’ Marriott International announced in November last year that it will open its first hotel in the country by 2012.
But Algeria’s attempts to attract private investment in real estate are constrained by the introduction in the past two years of government regulations that are unappealing to foreign investors. Most recently, a decree has been published stipulating that international firms’ foreign currency earnings in Algeria must exceed dinar earnings throughout the lifetime of their project – a situation that would be unlikely to arise for a real estate developer selling in dinars. The measure is both restrictive and confusing, say senior legal and financial sources in Algiers, who attribute the withdrawal of Emaar and other Gulf companies from the Algerian market as much to the difficult regulatory environment as to their own financial problems.
“The [Gulf] developers’ business model, under which they got free land and tax breaks, doesn’t work any more”
Hakim El-Karoui, Rothschild
While private investment in real estate in the Maghreb is on the wane, there is still scope for the development of public projects, particularly in the housing sector. Morocco is suffering a shortfall in housing of an estimated 1.1 million homes, Tunisia has a deficit of 330,000, and Algiers has pledged to build 1.2 million new homes between 2010-14 under a $150bn infrastructure development programme. All three countries have introduced new regulations to support the housing sector.
“There is a huge shortage of housing in Algeria,” says a senior local banking source. “If you want to manage the political and social situation, you have to fight unemployment, you have to fight water shortages and you have to fight housing shortages. Housing is still at the top of the government agenda.”
Whether Gulf investment will return to the Maghreb is debatable. “I do not think things will pick up in the coming years,” says El-Karoui. “Dubai’s failure means that the developers’ business model, under which they got free land and tax breaks and asked the future owner to pay for units before the beginning of construction, just does not work any more.”
Others believe that, as the Gulf economy recovers, appetite to resume projects in the region will be renewed. “These Gulf companies have a strategy to diversify away from their home market,” says Philippe Dauba-Pantanacce, Middle East economist for the UK’s Standard Chartered Bank. “In the long term, this is what they will look to do.”
1 New city at Hassi Messaoud, $6bn
Canadian contractor SNC Lavalin has been appointed to carry out initial engineering work on a proposed new city to rehouse 15,000 oil and gas workers at the country’s major oil hub at Hassi Messaoud. The project is highly ambitious and unlikely to be realised in the near future, say industry sources.
2 Dounya Park (Emirates International Investment Company), $5bn
Progress is grinding to a halt on the 6.6-square-kilometre park and luxury real estate project in Algiers, say industry sources. “Not a great deal has been done, and last year it was almost stopped; nothing is happening,” says a senior local banking executive.
3 Colonel Abbas (Emaar), $5bn
The Colonel Abbas project is one of four major mixed use real estate projects proposed by Dubai’s Emaar before it closed its Algeria office in mid 2009 due to a “lack of progress beyond the company’s control”. The others, Sidi Abdellah new town, the Algiers Bay Waterfront development, and a healthcare city in Staouali County, were each also worth an estimated $5bn.
4 Bouinan Economic Development Zone (Gulf Finance House), $3bn
The estimated $3bn Bouinan Economic Development Zone project is another example of developers and the Algerian government failing to see eye to eye. “The project never really got off the ground,” says a source close to the project. “It has been suspended for a while. They did not get the agreement with the Algerian authorities they required.”
5 Alger Medina (Arcofina), $2bn
The Alger Medina commercial district project is likely to be significantly scaled down, following the withdrawal from the scheme of French supermarket chain Carrefour in February 2009, and a bond issue the same month by Groupe Dahli, a subsidiary of the local Arcofina, the developer, which raised less than 30 per cent of its $114m target. A Portuguese consortium of Edifer and Opway was awarded the E100m contract to build the first four towers in late 2008, but further phases of the development are likely to be frozen.
6 Quartier d’Affaires d’Alger (Agence de Gestion et de Regulation d’Alger)
The government has distributed land for the construction of company headquarters and hotels on the 70-square-kilometre development of this business district located to the east of Algiers and five or six buildings are complete, says a source close to the project.
1 Plan Azur (various clients), $5-10bn
Plan Azur involves the construction of six new tourist resorts by 2010. The government has said all six will be completed by the end of the year, but this is extremely unlikely. Only two of the projects – the $2bn Saidia resort being developed by Spain’s Fadesa and the Mazagan resort at El-Jadida developed by investors including the UAE’s Istithmar and Bahamas-based Kerzner – have been completed, and even they have struggled to sell their properties, say market sources.
2 Tinja (Emaar), $5bn
The estimated $5bn mixed use residential and commercial Tinja project is Emaar’s largest venture in the kingdom. Progress is slow and Emaar will struggle to meet its target to find buyers by the end of 2010, say industry sources in Tunis. Other Emaar projects are similarly delayed. They include the estimated $1.4bn Oukaimeden ski and golf development in the Atlas mountains and the $1.2bn luxury Bahia Bay development between Casablanca and Rabat.
3 Amwaj (Sama Dubai), $2bn
In early January, UAE developer Sama Dubai withdrew from the MD24bn ($3bn) Amwaj project, one of four phases in a mixed use mega-project on the banks of the Bouregreg river. Sama had a 50 per cent stake in the project in partnership with the local Caisse de Depot et de Gestion. Work has been at a standstill since the end of 2008. State agency Agence d’Amenagement de la Vallee du Bouregreg is understood to have been in talks with an Abu Dhabi developer over the possibility of taking over the Sama stake, but is also thought to be considering an open tender to allow bidders to form consortiums and dilute their risk exposure.
4 Royal Ranches (Gulf Finance House) $700m
The equestrian-themed Royal Ranches project is making progress, but continues to face challenges. “There was an agreement with a developer to take about 40 per cent of the land, but it reneged; and there are some problems finding buyers,” says a source close to the project. “It is still going ahead,” says the source. “They are working on the basic infrastructure, which will be completed in the next three to four months, and we are looking to parcel the land for sale to developers.”
5 Royal Resort Cap Malabata (Gulf Holding Company), $700m
Gulf Finance House was also the developer for a second project in Morocco, Royal Resort Cap Malabata, worth an estimated $700m, but transferred it to Gulf Holding Company at its inception to focus on the Royal Ranches scheme. Work is progressing slowly, says a source close to the project, with building work initiated purely to preserve the developer’s construction permit.
1 Mediterranean Gate (Sama Dubai), $25bn
Mediterranean Gate is the largest of the proposed real estate schemes in the Maghreb. No construction work has yet taken place on the project, which is scheduled for delivery in 2028. It is designed to house 500,000 people and to feature technology and light manufacturing zones. Industry sources are sceptical about its prospects of being revived.
2 Bled El-Ward – City of Roses (Al-Maaber), $10bn
This project to build a new city to the north of the capital, Tunis, is on hold, say industry sources.
3 Tunis Sports City (Bukhatir Group), $5bn
The $5bn Tunis Sports City project is slowly moving forward, according to industry sources. “It is going ahead, but is still in the initial stages,” says a spokesman for the scheme’s developers, Sharjah-based Bukhatir Group.
4 Marina Al-Qussor (Emaar), $2bn
The 442-hectare Marina Al-Qussor tourist project, located in the Sousse region in the south of the Gulf of Hammamet, is on hold, say industry sources.
5 Tunis Financial Harbour (Gulf Finance House), $3bn
There is still some momentum behind the $3bn Tunis Financial Harbour scheme, designed to be an offshore financial centre serving Europe as well as north and central Africa. “Unlike other Gulf investment projects, this appears to be going ahead, although it is only in the preliminary stages,” says a senior banking source in Tunis. “They received the land title deeds in late 2009,” says a source close to the project. “They expect to start infrastructure work fairly shortly, and then go on to the marketing of the land.
6 Taparura (Tunisian government), $500m-$1bn
Dredging has been completed on the 260-hectare Taparura project to reclaim industrial land near Tunisia’s second city, Sfax, says a source close the project. Infrastructure development is expected to begin on the scheme, part-financed by the European Investment Bank, this year, with the first units expected by 2011.
7 Les Berges du Lac
High-rise commercial and residential units on the Berges du Lac real estate development are “selling like hot cakes,” according to a senior banking source. “The buildings have been erected and I’ve not heard of the promoters s
8 Bouskoura (Compagnie Generale Immobiliere)
The Bouskoura new town near Casablanca, featuring sporting and spa facilities, is still in the early stages and the start of construction is likely to be delayed.
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