North Africa’s construction market is in good health. Egypt’s largest cement producer, Suez Cement, announced in July that it would be importing 25,000 tonnes of clinker – a raw material used in cement production – from Croatia and Cyprus to keep its five domestic plants operating at full capacity this year. In Tunis, work is under way on the new commercial zone of Tunis Financial Harbour. In Libya, the first tenants have moved in to the new Palm City residential complex just outside the capital Tripoli, which will eventually offer 408 residential units.
Demand in the Gulf real estate construction sector may have slowed this year because of the global financial downturn, but investment is continuing in North Africa.
Major new projects continue to move ahead, underpinned by ambitious government planning and a need for more housing. In Morocco, there is an estimated housing shortfall of 1.1 million units. In Egypt, in urban areas alone,
1 million new homes are needed. In Tunisia, the shortfall is 330,000 units.
This strong demand makes North Africa an attractive location for Gulf investors seeking to diversify away from their home markets. Developers such as Emaar Properties, Al-Futtaim, Al-Qudra Holding and Tameer Holding – all of the UAE – and Kuwaiti National Real Estate Company are all active in the region.
Business conditions in the Middle East today are a vindication of their strategy. While the Gulf real estate firms have to put up with weak demand and pricing in their home markets, they can look forward to steady growth in North Africa, which has been much less affected by the global crisis.
The resilience of the North African economies is also apparent in the commercial real estate sector.
In June, Tunisia’s President Zine el-Abidine Ben Ali last month laid the foundation stone of the $3bn Tunis Financial Harbour project, which is being developed in the capital’s Raoued suburb by Bahrain-based investment bank Gulf Finance House (GFH). It is modelled on the financial harbour now under construction in Bahrain, for which GFH was a key financier, and incorporates a business school, bank and offices.
Since the lifting of US-led trade sanctions against Tripoli in 2004, there has also been significant investment in commercial developments in Libya. The largest project is Madinat al-Hanaa, a $20bn mixed-use office and residential complex that is being developed through Tameer International, part of Dubai-based Tameer Holding, and the Kuwait-based Arab Fund for Economic & Social Development through a joint venture, Tatweer Property Company. Sited 25 kilometres east of Tripoli, Madinat al-Hanaa will have its own hospital, university and leisure facilities.
Algeria is another country that had almost slipped off the investment and tourism map in the wake of years of civil conflict, which ended in 1999. It is now seeking to revive its international appeal beyond its hydrocarbons sector. In Algiers, work is under way on the site of Dounya, a 4.5-square-kilometre park that will be surrounded by luxury housing, shopping centres and offices. The $5.2bn project is being developed by Abu Dhabi-based Emirates International Investment Company (EIIC).
But it is Egypt and Morocco that hold the greatest appeal for Gulf investors. Both countries are popular holiday destinations for GCC citizens, and much of the investment from Gulf companies is in the tourism sector.
Major ventures in Egypt include Emaar Properties’ Marassi mixed-use residential and tourism project on the Mediterranean coast and the $1bn Cairo Nile Corniche Towers residential scheme being developed by Qatari Diar.
In Morocco, Dubai International Properties and Emaar have been collaborating on the development of the $5bn Tinja resort near Tangiers, which will include 2,500 residences.
The scale of Gulf investment is such that two years ago it seemed North Africa’s property markets might be swamped by Arabian petrodollars. But the pace at which Gulf-funded mega-projects have come on stream has fallen short of the early hype.
This is partly explained by the slowdown in Gulf economies, which has forced many Arab real estate companies to cool their overseas ambitions. For example, Egypt’s Gamsha Bay resort project, which is being developed by UAE-based Damac Properties near Hurghada on the country’s east coast, has been put on hold. In 2008, Egypt attracted only£E4.5bn ($6.4bn) in foreign direct investment (FDI) from Gulf companies, across all business sectors, compared with£E22bn the previous year.
Alongside the Gulf companies, European investors represent a significant force.
In Morocco, for example, Spanish property groups including Fadesa, Mixta and Marinador are all active, attracted by strong demand for both leisure facilities and domestic housing. “Morocco is stuffed with opportunities for foreign investors,” says Christian Vande Craen, senior management adviser at Belgian real estate firm Thomas & Piron.
The different North African markets have distinct characteristics. In Tunisia, the agenda is dominated by city business projects, such as Porta Nova, backed by the Abu Dhabi Investment Authority, and the Financial Harbour development.
The Algerian and Libyan markets are at an earlier stage of development. For investors, Algeria and Libya offer some of the attractions of the Gulf a decade or two ago – strong demand for housing and office space for both expatriates and locals, underpinned by strong hydrocarbons-based economic growth.
In Morocco, a 1.1 million shortfall in housing is driving investment. Bahrain-based real estate investment firm RealCapita has formed a partnership with the local Jet Group for a $496m project to build 16,000 affordable homes in several towns and cities. At Bouznika, between Rabat and Casablanca, Dubai-based Al-Futtaim is developing 40,000 homes, a third of which will be priced for those on lower incomes. On a smaller scale, Spain’s Merke has a $36m scheme to build 300 low-cost homes at Safi.
Development agencies are also getting involved. The Abu Dhabi Fund for Development is building 17,000 mainly middle and low-income flats in the coastal town of Kenitra.
Rabat underpins the provision of affordable housing with incentives for developers and subsidised mortgages. Developers willing to build homes costing less than MD200,000 ($24,865) benefit from land allocations and tax breaks, and the government has set up a fund that guarantees low-interest bank loans.
In Egypt, the balance of development is even more heavily oriented towards the provision of affordable housing for local families. Ismail Sadek, construction analyst at Beltone Financial in Cairo, tells MEED that the country needs 500,000 new homes each year.
“Population growth is 1.7 per cent a year,” he says. “Some 59 per cent of the population are aged under 30, and 20 per cent are aged between 20 and 30 – marriageable age.”
Most Egyptians are not affluent, says Sadek, so the majority of new homes need to cater for those on middle or low incomes. Prestige urban projects may attract publicity but the real weight of development is concentrated on more modest housing schemes.
To bring new homes within the reach of those on lower incomes, the government has also established a programme of mortgage finance support. The authorities provide guarantees so that if a housing company defaults, buyers are not left without a home.
The pace of development is also helped by the nature of a society where consumers have a strong culture of saving, and banks can finance most of their lending through the local deposits they hold. This means the flow of cash to support developers and homebuyers has not been significantly squeezed by the global downturn.
“Real estate finance is much less of an issue in Egypt than in some other Middle East markets,” explains Constantinos Kypreos, Egypt banking analyst at ratings agency Moody’s Investors Service. “There has been no Dubai-style property bubble. The market is driven by local property demand.
“The speculative pressures in the property market were relatively low. Egyptian banks have of course funded some real estate activity. But although we expect to see some market correction, the consequences for the banks will be limited.”
Sadek draws a sharp contrast with Gulf economies where the residential real estate sector has been driven by speculation about hoped-for future growth. “People have money, so they pay for the growth themselves,” he says. “That is why it is sustainable.”