Richard Chapman's Second article on Morocco as published on the Eye on the World website

Morocco seems to be in every property magazine, along with many articles in the glossy travel brochures, this month’s Times Travel Magazine has a 24 page section on North Africa, suggesting the region is the place to be seen.

I thought I would update where we are now and the potential for the area in the next few years.

Overview

The level of Foreign Direct Investment exceeded all expectations in 2006 which will result in GDP growth of around 7% and with the pound slightly strengthening against the Euro it make investment in Morocco less of a gamble it might have been in the past 12 months.

The number of property agents entering the market as exploded as buyers turn to the internet to help, agents set up costs are very low and buyers are coming from France, America, Great Britain, Spain and Belgium and many of the Arab countries. There has been big growth in major cities with foreign agents setting up shop in Tangier, Fes and Marrakech.

We are ONLY just entering 2007 with the Kings vision being on track to deliver 10 Million visitors by 2010.

The expected numbers for 2006 is in the region of 6.5 Million visitors up from 5.8 million in 2005 an impressive 12% rise, having risen 18% between 2004-05. This is even before the additional planned accommodation is off the drawing board.

This plan involves major infrastructure investments in road, rail and airport building and even progress on the tunnel……

Much investment is going into new motorway to connect Tangier to Saidia via Tetouan on the Mediterranean coast

Traveling across a country like Morocco can take time even with a good rail system but, it was recently announced that around £3bn would be invested in upgrading the whole rail network, enabling high speed trains of up to 300kmh, Marrakesh to Tangiers could drop from a day’s travel to 2.5 hours. This project could start as early as Q3 2007.

Extensions are being built to existing airports at Tangier and Casablanca and a new airport near the deep sea port west of Tangier along with a major extension at Essaouira.

Along with this the creation of six brand new resorts, many of these will be constructed by Dubai’s larges development company EMAAR, who are investing £9bn other big names involved are Fadesa who are Spain’s second biggest property company..

There is also significant investment in a new deep sea port to the east of Tangier, which is planned for completion in 2009 and well underway at the moment, this would enable freight to be diverted away from Tangier and Casablanca freeing these ports up for more tourism and the arrival of the cruise liners and day trippers.

The most exciting development is the €5 billion tunnel between Spain and Morocco, the tunnel is planned to run beneath the Straits of Gibraltar between Punta Palomas, 40 km west of Gibraltar in Tarifa and Punta Malabata near Tangiers. A preliminary three-year plan of works to start as early as next year, with an estimated initial cost of $30m has been agreed by joint project committee officials. The tunnel is expected to cost €5bn in total and would enable driving from Scotland to South Afica or Eastern Europe to Africa which would make traveling much more interesting.

"Morocco is well on the road to sustainable growth," said Abdelali Doumou, professor of economics at Casablanca University. Average economic growth was 4.7% between 2001 and 2006, compared with 3% to 3.5% in the 1990s, with around 7% forecasted for 2006.

"There is also an undeniable improvement in Moroccans' standard of living," Doumou added, pointing to a surge in car sales and mortgages.

The state planning commission (HCP) recently announced that the number of jobless people in Morocco - a country of 30 million - had just dropped below the one-million mark for the first time in 13 years. Officially, unemployment now stands at 7.7% of the active population, as opposed to 11.1% a year ago, this level is similar to most ‘western’ economies.

Around the same time, Finance Minister Fathalah Oualalou declared the number of people living in extreme poverty - surviving on less that one dollar a day - had fallen to 14% in 2005, or 4.2 million people, from 16.5% in 1997.

The main driver for growth for European buyers has to be better and cheaper access this is beginning the take off. In the last 12 months both RyanAir and Easyjet have entered the market after the open skies agreement was ratified in December 2005. It’s only a matter of time that the routes they service is significantly expanded and new carriers also follow their lead.

Both the home carriers being Atlas Blue and Royal Air Maroc are expanding the number of airports they are using to fly direct to Europe. Morocco has a total of 11 international standard airports, the fleet for these airlines has been expanded with the $650 commitment to purchase 29 new aircraft between 2002-2012.

Prices for direct flights have plummeted with Flights from Luton to Fes being as low as £50 return including taxes flying (25-27 January). A year ago these routes were only used by the Moroccan state carrier Royal Air Maroc (RAM) and our own British Airways (BA).

RAM launched a budget subsidiary Atlas Blue in 2005, it is currently flying to the UK, both these airlines are offering cheap flights to European capitals like Paris, Brussels Amsterdam and the UK, with flights advertised from London to Marrakech from £19 excluding taxes. RAM is offering flights to Amsterdam from Tangier for €79 including taxes.

Only 12 months ago it was cheaper to get a package holiday to Morocco that fly, with the average price from London to Agadir being £400 return.

With Air France setting up a bargain subsidiary and the likes of Monarch expected to enter that market along with Ryan air committing themselves to 20 destinations by 2010, flight prices can only get more competitive.


Price Growth

2006 off plan growth rates was around 30-50% depending where you look.
Homes Overseas suggested 30% in a recent article.

Some real examples are of off plan growth

Playa Vista a development near Tetouan started selling 2 Bed apartments for £40k, now they are a little over £60k, building has only just started.
Jawhara Smir was selling 12 months ago for £37k for a 71sqm 2 bed unit now they are complete they are selling from £54k.
Mirador Golf started at £33k for a 2 bed unit and they will be complete in mid 2007 and expect to fetch much the same as Jawhara Smir ie £54k

The average growth rate from these three examples that started 12 months ago is 53% and these are still good value compared to recently released developments.

New developments are coming to the market significantly higher that these, I know its difficult to compare developments on a purely like for like basis as your need to take location, size and built quality into consideration.

Fadesa’s development at Restinga Smir near Jawhara Smir is starting from €92k/£60k for a basic 2 bed unit of 71sqm Colina Smir also nearby is £57k with a 9% price rise penciled in for January for an 80sqm 2 bed unit.

Macanthony Real Estate the people behind the property channel on Sky are selling units here for €92k for a 70sqm 1 bedroom apartment with 2 bed roomed apartments for well above £100k, but these are frontline.

Paradise Beach and the resort of Tanjay Beach both on the coast between Asiliah and Tangiers are starting at £52k for a 1 bed unit of 60sqm and 2 bed units of between 80-90sqm are in the region of £80k.

Miraflores Borj a development at Cap Malbata with sea views on the outskirts of Tangier starts from around £80k. The Baie developments in the same area are again much the same price.

Further evidence comes from the fact that some smaller units are being released, this happened in Dubai/Bulgaria where developers still wanted to be able to release ‘affordable’ units but these units get smaller as the market hot’s up. Therefore some smaller units have been released with a typical 1 bed unit now between £40-£50k and some Condo/Hotel units being released from around £25k -£30k including furnishings.

Further to these locations such as Marrakech and Fes, Essaouria also are reported booming property prices with much interest in traditional medina properties requiring renovation, with prices for a un-renovated Riad in Marrakech being in the region of £100k and around £60k in Fes.

I’m going to Fes in January to have a look for myself, I’m not entirely convinced about the market for traditional houses.

For completeness I will mention Saidia which if you don’t know is the only Plan Azur resort on the Mediterranean coastline. Launched in mid 2005, Fadesa is integral to the construction of this €1.6 billion, 7,000,000 sqm real estate project, earmarked for completion in 2009. Again good growth has been seen here in the last year with people suggesting 25% has been achieved in 2006 with many Americans and French buying into this region which is close to the Algerian Border.

Overall property prices are still more that 50 per cent below its established Mediterranean cousin, the Costa del Sol, (average two bed unit €190k) it is little wonder that buying property in Morocco has genuine appeal, along with that we are only into a investment cycle that will bear much fruit in 2010 and beyond.

It’s all about Access

The two key items which should continue to improve are access ie Flights from the UK/Europe which are happening and will increase significantly in 2007, and road and rail networks are improving. The second item is access to finance and a number of English speaking Mortgage brokers are appearing which will increase competition, for better rates and better service. This may have some impact in reducing deposit levels from the current 40% which is clearly higher than some other more developed markets. Developers are also becoming more flexible with payment structures, with bonds and stage payments becoming more common.

Risks

My last point to bring some balance to this is there is risk and many people feel there may be too much risk as clearly Morocco is not Spain but then again much of the Costa’s has little to do with the real Spain anymore. Morocco is different it has culture and history in abundance and wants to modernize and has good links with the EU and the US. Morocco will do everything it can to retain its own individual personality, including managed planning laws and building densities. ‘The new king once said ‘Morocco is like a tree with his roots deep in Africa and his branches that reach far in Europe’.

Conclusion

2007 will certainly be as very good year to invest in Morocco, with 15% very likely and much more possible, it could top next years growth tables in my opinion, which have been dominated by Baltic countries in the last two years.

As we speak there are not enough hotel rooms and good quality accommodation to meet the tourist growth, therefore driving prices of both accommodation and property up, this is certainly expected to continue as most off plan units won’t be built much before 2008/09 and those already up should deliver double digit yields.

After 2010 it’s anyone’s guess, I will leave you with my estimate, that a ‘standard’ 2 bed apartment of 80sqm will be worth at least £130k or about the same price as in Spain now ie 190k euros. That means prices could double between now and 2010 as apartments of this size are available at around £60k-£80k.

My original summary from September 2005 still stands, as follows, and updated where relevant.

Property prices are very good value being less than half of that in Spain.
Huge investment in tourism infrastructure by the government
Economy very stable with a current account surplus ie Exports more than imports.
The currency is stable being pegged to the Euro
GDP growth(7% expected for 2006)
Inflation under control, Inflation was 2.5% in 2005.
Build quality is good and more that comparable to Spain
Good rental yields are achievable
Tourism increased 18% in 2005 (12% in 2006)with tourism revenue up 26%
Good capital appreciation achievable ( 30% in 2006.)
Tax breaks on both income and capital
Good climate all year around
Improving access to Finance
Cost of living so much lower than Spain/UK

For those that don’t know I have purchased at two different developments and looking at future developments in Morocco, finance permitting.

An article by Richard Chapmen