Addressing Algerian housing shortage remains key while investment in retail and tourism increases

 

A number of foreign and local private property developers are competing in Algeria’s real estate market seeking to tap into strong demand for property in the residential market, as well as retail, hospitality and tourism segments. Demand for affordable housing – largely due to a significant increase in urbanisation as well as a steady growth in population – has presented opportunities for private property developers but also brought in a set of challenges for the government.

With a current housing deficit of around 350,000 units, demand for government-sponsored low-income units has generally increased in line with population growth. However, lower hydrocarbons revenues have constrained the government’s budget for housing projects, and as available land is limited and delays in obtaining necessary permits can slow down execution, private investors face a number of challenges.

Still, the high level of demand in the nearly 40m-person country means the long-term outlook is encouraging, while a lack of grade-A office space and dedicated retail properties means there is ample room for development in the commercial, leisure and retail segments.

Changing Demographics

Algeria’s demographic fundamentals are putting pressure on housing stock. The annual population growth rate is estimated at 1.87% by the Centre for Affordable Housing Finance in Africa (CAHFA), while the urbanisation rate hovers at around 3%. An estimated 69.5% of Algeria’s 39.5m population lived in urban centres in 2015, largely located along the northern coastal region, according to CAHFA. More than half of the population thus resides in an area representing roughly 4% of the nation’s entire land area, while in comparison the south – a vast region covering 87% of the Algerian territory – is inhabited by only around 9% of the population.

Affordability

Affordability remains a major challenge in Algeria’s housing market. According to CAHFA, 60% of the population faces a distinct undersupply of affordable housing options due to property prices in the country’s major urban centres being close to equivalent to those in Europe. CAHFA reports that in 2016 the average purchase price per sq metre for an apartment was $1600 in the city and $920 outside of the city centre. The shortage of low-income property has also had a significant impact on affordability for tenants in the country’s urban centres, with average rental prices in areas such the Bordj El Kiffan district of Algiers doubling between 2011 and 2015, while in the neighbouring wilaya (province) of Blida they increased by 45% in the same period.

Market Prices

Prices fell by 10% in 2015, according to the National Federation of Real Estate Brokers, and the federation predicted a 30-40% decrease in the price of real estate in 2016. The prices have been falling mainly due to an increase in supply thanks to the government’s housing programmes as well as due to the slowdown in the market owing to speculation-led high prices. Still, owning a property remains out of reach for many Algerians. According to real estate firm Zebboudj Promotion Immobilière, mid-range apartments are priced on average between AD180,000 (€1489) and AD300,000 (€2482) per sq metre depending on location, size and quality. Social housing fetches AD40,000 (€331) per sq metre, while public housing (logement promotionnel public, LPP) rents are between AD80,000 (€662) and AD85,000 (€703). Sq-metre prices for high-end luxury apartments start at AD500,000 (€4140) on average.

Income Levels: 

CAHFA puts the 2015 ratio of home price to average annual income in the capital Algiers at 20.93. Additionally, the average annual household income was estimated at close to $12,000 in 2012, the latest year for which data is available, while the World Bank shows that GDP per capita in 2015 was $4206. Figures for poverty rates vary: while the Ministry of Social Action and National Solidarity reports that 700,000 Algerian families were living below the poverty line in 2015, the Algerian League for the Defence of Human Rights, a non-governmental organisation, reported in October of the same year that 35% of the population, or 14m people, were living below the poverty line, with a daily income of less than $1.45. Thus, those on low and middle incomes have more difficulty accessing housing on the market than high-income and expatriate buyers. In addition, low-income citizens often live in informal or low-quality housing. In Algiers alone, some 72,000 residents are considered to be living in inadequate housing or slums, with the government aiming to rehouse them by the end of 2016.

Subsidy Scheme

To help people onto the property ladder, the government offers a number of subsidy schemes for mid- and lower-income households. Aid offered varies according to income level. The LPL programme is aimed at low-income households making less than AD24,000 (€199) a month or having just been evicted from a slum. Another initiative, the rentto-own programme (logement location vente, LLV), helps households earning between AD24,000 (€199) and AD108,000 (€893) – up to six times the minimum salary – that cannot afford a down payment to instead pay rent and charges to the government until their reduced share of the purchasing price is paid off and they take ownership of the unit.

The government also runs an LPL programme for households earning 6-12 times the national minimum salary – between AD100,000 (€827) and AD200,000 (€1650) per month. This scheme provides housing at 60-95% lower prices with a 10% down payment. In rural areas, financial aid for middle-income households range from AD1m (€8270) in southern-most wilayas to AD700,000 (€5790) in other wilayas.

However, waiting lists for these units can be long and the process slow. Additionally, middle-income household subsidies require a down payment of between AD700,000 and AD1m (€5790-8270) as well as a co-financing contribution through a bank loan in certain cases. Securing both the down payment and the bank loan can be prohibitive for many of the country’s middle-income households. According to Mohamed Laribi Merhoum, architect at MLM Architects, access to finance can be difficult. “There are no guarantees that an average couple making AD100,000-150,000 (€827-1240) a month can get an AD6m-8m (€49, 600-66,200) bank loan,” he told OBG.

Public Housing Demand

Since 1999 the national housing policy has focused on reducing the deficit and eradicating shanty towns in major cities. In May 2016 Abdelmadjid Tebboune, minister of housing, urban planning and the city, told local media that the national deficit had been reduced from 3m units in 1999 and 750,000 in 2014 to 350,000 units.

According to Tebboune, the shortfall was expected to remain the same for a few years due to factors including the country’s demographic development. Furthermore, Tebboune said that in 2016, 350,000 units in total were expected to be delivered, adding that this figure could even be exceeded.

The total amount of public housing reached 8.3m units in 2014, a 14.3% increase compared to 2009, when it was estimated to be around 7.3m units, according to the latest data from the Ministry of Housing, Urban Planning and the City (Ministère de l’Habitat, de l’Urbanisme et de la Ville, MHUV).

The government has attempted to meet rising demand by targeting the construction of 1.2m affordable housing units during the 2010-14 five-year public investment plan, although only 693,000 were built.

Under the current five-year plan spanning the 2015-19 period, the government expects to build 1.65m new homes at a cost of $58bn, in addition to using newly appropriated funds to complete another 650,000 units that were started in 2014.

The 1.65m new units will be divided among projects. Approximately 800,000 LPLs are expected to be built, alongside 400,000 middle-income rent-to-own units. Another 400,000 middle-income housing units are to be built in rural areas, and some 50,000 LPPs will also be added to the market by the end of 2019, according to a MHUV policy paper published in September 2015. The new housing units should also benefit from higher construction quality thanks to stricter regulations for building materials (see Construction analysis) and increased quality expectations on the part of buyers.

The government is also working to renovate and overhaul existing public housing projects. By the end of the five-year plan, another 182,000 housing units will be renovated, thanks to government financing of up to AD700,000 (€5790) per unit. In 2008 a preliminary 2008 study was conducted in Algiers, Oran, Constantine and Annaba to identify buildings in need of restoration and the specific details of each of those buildings in terms of construction materials as well as level of damage incurred over the years. The 2015-19 plan aims to continue rehabilitating housing units in those four cities, as well as in other parts of the country. A public agency in charge of rehabilitation and urban renovation will be created, and the related regulatory framework is in the process of being finalised by the authorities. Additionally, the MHUV is set to eradicate precarious housing units and slums. A countrywide study conducted recently by the ministry highlighted a total of 561,000 unsafe units, of which 379,000 units are due to be demolished and replaced by LPLs by the end of the current five-year plan.

Private Sector

The private sector accounts for around 10% of the real estate market, and caters primarily to the middle and high-end markets. Projects in the luxury segment include several new towers due to be delivered in the next couple of years in the Bab Ezzouar district of Algiers near the airport, which has seen multiple developments completed in recent years, including a shopping centre and two towers with office space. Another luxury development, Forum El Djazair, an integrated tourist project consisting of four 23-storey residential towers, high-end villas, offices, medical facilities, a shopping mall, a five-star hotel and a marina, is being built by an Algerian-Emirati company Emiral and is due for completion in 2017.

While profit margins are tighter for affordable housing, Amina Zahafi, commercial director at Zebboudj Promotion Immobilière, expects the private market to reach lower-income households as well. “Ultimately, people will prefer to pay a little more for better quality construction and rapid turnarounds,” she told OBG.

Nevertheless, a number of obstacles still lie ahead for private developers, including a lack of consistent policy for urban planning as well as heavy state intervention. The biggest issue by far, however, remains the difficulty of accessing land. “There is an increasing shortage of land for construction,” Merhoum told OBG. “The private sector is therefore competing for limited and expensive terrain, which may hinder the sector’s long-term development,” he added.

Rental Market

As with many North African markets, renting is limited given the size of the market. According to Merhoum, Algeria has cultivated a buyer’s culture – that is everyone’s ultimate goal. “The rental market is not really developed,” said Merhoum. In that respect, Algeria can be considered first and foremost a buyer’s market, but one where government-sponsored social housing units are in most demand.

In Algiers rents saw a significant decline between January and May 2015, according to online real estate monitoring website Lkeria.com, only to go back up again in June and July due to an increase in demand prior to the start of the school year in September. In the Algiers district of Hydra – a prime location for expatriate workers and wealthy residents – rents increased to an average of AD104,000 (€860) per month in 2013, only to decrease slightly again to AD91,800 (€759) in 2015. In Alger Centre, Kouba and Bab Ezzouar, rents stabilised between 2011 and 2013, but begun rising in 2014 and 2015, while in the district of Bordj El Kiffan rents doubled from AD17,000 (€141) in 2011 to AD34,600 (€286) in 2015.

In September 2015 Algeria’ s Real Estate Promotion and Management Office offered 531,766 social housing units for sale across the country as part of a government scheme to increase the rate of purchases from current renters. Prices were set at AD12,000 (€99) per sq metre, with average total prices expected to vary between AD750,000 (€6200) and AD1.28m (€10,600) in Algiers depending on the size of the unit.

Under this scheme, current renters wishing to purchase their unit will be able to benefit from a 10% discount if the unit is paid for all at once, a 7% discount if payment is spread over three years, and a 5% discount if payment is distributed over three to seven years. Those wishing to spread payments over up to a 20-year period will have to pay a 5% deposit.

Commercial Property

Office rents in Algiers have remained largely stable in recent years, according to Frank Knight’s “Africa Report 2015”. The Bab Ezzouar district has been focus for activity in this segment, while new office developments are also due to be launched in Pins Maritimes. Frank Knight reports that in Algiers average monthly rents are around €33.45 per sq metre in prime locations, offering prime yields of 9%. This is up from average monthly rates of €40.14 per sq metre and prime yields of 10% in 2013.

However, most of Algeria’s office stock does not meet international standards and is considered low quality. Thus, multinational companies such as KPMG and BNP Paribas have chosen to build their own offices.

Retail Property

Although modern retailing formats are growing in popularity, retail space still comes at a premium. In February 2016 private investment group Prombati opened one of Algeria’s largest malls in the city of Sétif, around 250 km east of Algiers. The €120m four-storey Park Mall has a total retail space of 30,000 sq metres with some 82 franchise outlets, alongside a hotel managed by Marriott.

The facility is the fourth major shopping centre in Algeria after Bab Ezzouar, City Centre and Medina Centre. The first, Bab Ezzouar Shopping Mall located in eastern Algiers, opened its doors in 2010 and cost a total of €75m to build. In 2015 Bab Ezzouar remained the largest and most popular shopping complex in the country, with nearly 8m visitors recorded that year.

Société des Centres Commerciaux d’Algérie (SCCA) – which operates the Bab Ezzouar mall – is moving ahead with the construction of another 34,000-sq-metre mall in Oran. Located between the airport and Oran’s downtown area, the new mall is due to open by June 2017. In addition to this, SCCA is building an 18,000-sq-metre mall in central Oran, which is due to be completed in the second half of 2017, while other projects in Sidi Bel Abbes and Tlemcen are scheduled for completion in 2018 and 2019, respectively.

While the country’s formal retail sector remains underdeveloped – in spite of the relatively high purchasing power of Algerian citizens – the depreciation of the Algerian dinar coupled with rising inflation and a large informal market makes for a challenging outlook. This is further exacerbated by premium prices on retail real estate land – valued at €40-42 per sq metre per month in 2015. For example, in the north-eastern city of Constantine, the municipality voted to raise retail space rents in May 2016 for municipal properties. Prices for retail space in zone 1, located downtown, will see an increase of 100%, those in zone 2 will be hiked by 60% and in zone 3, considered the least commercially viable area, rents will go up by 30%.

Tourism Projects

Tourism developments are also seeing growth, as the country looks to expand the sector (see Tourism chapter). In August 2016 the Algerian National Tourism Office (Office National Algérien du Tourisme, ONAT) announced its intention to build holiday villages in several wilayas. The plans do not have a clear timeline, but ONAT has expressed its intention to build a holiday village with a capacity of 300 beds in the southern city of Adrar, as well as two other 300-bed tourism villages in Bechar, near the Moroccan border, and the coastal town of Béjaïa.

The authorities have identified the southern wilaya of Adrar as having major potential for tourism development. To that effect, 80 projects are in the pipeline in the province, including 18 currently in the realisation phase and six to be launched in the coming months. The remaining projects are either awaiting construction permits or finalising the administrative procedures for land appropriation and concessions. The combined cost for the 28 hotels, 10 tourism complexes, three tourist villages, five residences, a vacation resort and a tourist club, which are spread across a total surface of 1670 ha, is estimated to be around AD26bn (€215.1m). These projects are due to boost the wilaya’s capacity from 1200 beds currently to more than 6400 beds.

Mortgages

Mortgages represented around 1% of the country’s GDP in 2015 – roughly in line with the continental average – and only 6% of total bank lending, totalling around $31.4m that year. Mortgages are rare mainly due to the government’s comparatively generous subsidies, although in recent years, there have been attempts to expand mortgage lending, with the government offering down-payment assistance for low-earning households up to 20% of the total cost.

Algeria’s state-owned banks handle the vast majority of mortgages taken out in the country, with 60% of them taken out at the Caisse Nationale d’Epargne et de Prévoyance, which specialises in household savings and mortgage products (see Banking chapter). The government has been initiating reforms of the mortgage system, and in 2014 lifted a four-year ban, on consumer lending, which did not include mortgages, enabling banks to expand their loan products for consumer goods, including home financing.

Outlook

Faced with a significant deficit of affordable housing in urban centres, all eyes are on the nation’s housing projects and the authorities’ ability to deliver more than 1.6m housing units by 2019 in spite of the low oil price environment which has had a significant impact on government revenues and budgets. Nevertheless, the real estate sector offers multiple investment opportunities as the country’s retail and tourism sectors continue to develop. Private developers can also play a vital role in helping to meet the continued demand for low-income, quality housing.

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The Report: Algeria 2016

Construction & Real Estate chapter from The Report: Algeria 2016

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