x Abu Dhabi, UAEWednesday 17 January 2018

Spotlight falls on North Africa

If Act One of the region's property market was in the Gulf, the spotlight moves to North Africa for Act Two.

Rising tide: Tunisia's coastline will be  home to one of the grandest visions in the region, a US$25bn mixed-use development to house half a million people.
Rising tide: Tunisia's coastline will be home to one of the grandest visions in the region, a US$25bn mixed-use development to house half a million people.

If the first act in the Middle East's property market has played out in the Gulf, North Africa is where the spotlight is moving for Act Two. But, as the plot thickens, big questions remain: far from the Gulf, the countries of the Maghreb - that swathe of Africa north of the Sahara and west of Egypt - are a diverse collection of markets, each with its own complicated population and policy dynamics.

It is far from clear how the Middle East's new property giants - such as Emaar, Sorouh and Tameer Holdings, who have cut their teeth in friendly home markets - will fare as they launch some of their first and most ambitious overseas projects in the nations along the southern shore of the Mediterranean Sea. But they are clearly determined, and the payoffs could be enormous. Although regularly lumped together, the countries of the Maghreb are a mixed bag, especially when it comes to property development. Morocco, an increasingly popular tourist destination for Europeans, has a reasonably well developed infrastructure.

Algeria has a population of about the same size, 34 million, but its economy is recovering from a long-running Islamist insurrection in the 1990s. Libya is just emerging from decades of isolation and getting its first taste of economic development. And Tunisia has a smaller population with a sizeable, educated middle class, 80 per cent of whom are property owners. So developers are varying their approaches. In Morocco, property companies envision a new retirement and holiday home destination. In Libya, the aim is to bring the country's rudimentary housing and office stock up to basic global standards. In Algeria, the attraction is a steady source of demand from the legions of youth - half the population is under the age of 20 - who will demand housing and other development as they come of age.

Despite this fragmentation, the opportunities were tremendous, said Marwan Shehadeh, the managing director of Al Futtaim Capital, which recently closed a US$500 million (Dh1.8 billion) fund aimed at investing in projects in North Africa. "The combination of young populations, rising tourism visits and proximity to the wealthy continent of Europe is hard to beat," he said. Mr Shehadeh added that demand from potential investors - particularly from the Gulf and Asia, but more recently also from the West - was so strong that Al-Futtaim Capital was considering a second fund-raising of an additional $200m.

But the challenges in all these places are formidable - notably a lack of essential infrastructure, a shortage of technical know-how and the existence of powerful elites playing complex games of patronage. Despite a plethora of grand announcements, many of the projects exist solely on paper, and have for years. "There is little real investment behind the spectacular figures announced," said a European diplomat who has been based in Algeria for four years, speaking on condition of anonymity. Another diplomat, who works in the economic section of his country's embassy in Libya, said that developers were inclined to amplify announcements in the hope of creating more impact than the projects necessarily merited. "The aim seems to get hold of a few plots of land and to speculate. Economic logic is not always the key objective," he said.

But, should the announced projects be built, some are so large and ambitious that they would inevitably strain the local infrastructure. In Tunisia, for example, a country with an annual gross domestic product of $30bn, Sama Dubai, an affiliate of Dubai Holding, has launched a $25bn mixed-use project called Mediterranean Gate on the northern lake shore of Tunis. Covering 830 hectares, it is planned to house half a million people - one-quarter of the population of greater Tunis - with office space for more than 2,500 companies.

Also on the lake's northern shore, a Sharjah-based developer, Bukhatir, has begun work on the $3bn Tunis Sports City. However, the scale of these developments raises the question of how they will be built. The Tunisian construction industry is driven by local companies, which have neither the size, experience or expertise to build 40-storey towers, and a low production capacity for building materials will necessitate imports on a vast scale.

Furthermore, there are fears that the first developments may suck the market dry. Eighty per cent of Tunisians already own homes and few can afford new million-dollar ones. While the assumption is that these developments will also be pitched to expats, Tunisia faces strong competition from the rest of North Africa, especially Morocco, which opened its property market much earlier and thus has more developed systems in place that reassure foreign buyers.

Despite these risks, two more projects in Tunis have recently been announced, including the $10bn Bled el Warda mixed-use development, to be built by Al Maabar, a joint venture between Abu Dhabi's five main developers - Aldar, Sorouh, Al Qudra, Mubadala and Reem Investments. In Libya, the government has chosen Dubai's growth model and attention-grabbing buildings to possibly replicate, symbolising the regime's "success" on the 40th anniversary of the revolution in September next year. Last year in Tripoli, buildings covering hundreds of square metres of land were demolished with a view to possible redevelopment. UAE-based developers are seizing the opportunity. Hydra, from Dubai, is building its first office tower in Tripoli and two "mega-cities" have been announced. Tameer has announced a $20bn development in the east of the country, while Emaar signed a memorandum of understanding in November last year with Col Muammar Gaddafi's son, Saadi, the chairman of Zowara-Abu Kamash development zone. Under that agreement, Emaar would develop a free zone of 380 square km on the coast near the Tunisian border, 24km west of Tripoli.

No date has been announced for the ground-breaking of either project, and one issue that may be contributing to the delay of the Emaar development is that the area is home to a population of Berber minorities, many of whom would need to be re-housed. Al Maabar, too, has entered the Libyan market, starting work on a development in Tripoli. Hotels, residences and malls would fill 350,000 square metres, with a value of $350m to $400m, said Yousef al Nowais, the managing director of Maabar, adding that the company had two other Libyan projects in the pipeline.

Algeria, where the UAE minister of economy, Sultan bin Saeed al Mansouri, has predicted investments by the UAE of about $50bn in the next few years, has been slower than its neighbours to take off. Unlike in Morocco or Tunisia, the government is reluctant to cede land to developers, or to sell it at a low price. As a result, the UAE model - of obtaining land at minimal cost and selling properties off-plan to fund the building of projects - does not work there and some developers have found it difficult to kickstart their projects. In July 2006, when Emaar announced a number of other projects - including the redevelopment of Algiers Bay - the value it cited of up to $25bn caused quite a stir, as did the models of vast coastal developments that the developer displayed.

However, little more has been heard of the Algiers Bay project. Two months ago, the Algerian minister of industry and investment, Hamid Temmar, confirmed that Emaar had invested in three other projects, with a total value of $5bn. Meanwhile, Emirates International Investment Company (EIIC), an Abu Dhabi-based developer, has begun works on a $5bn project called Dunia Park, a community spanning 670 hectares on the southeastern fringes of Algiers.

The property sector has attracted half of all GCC investments in Morocco, the country most open to property investment from foreigners. Development here is targeting tourism and upmarket housing for expatriates and the local elite, rather than meeting affordable housing needs. A number of projects are well underway. A huge development near Rabat, called Vallée du Bouregreg, was launched in 2006 and is set to be Morocco's largest business hub. The first phase will cost nearly $4bn and is divided in two sections: Bab el Bahr, developed by Maabar, and Amwaj, developed by Sama Dubai. Among other projects, Emaar has launched a $600m mixed-use community on 300 hectares near Tangiers.

"Investing in Rabat's economic development as a capital makes sense and the amount [or investment] is manageable," said a European diplomat in the capital, expressing doubts about the viability of other parts of the country, particularly the overheated Marrakech market. Comparing Morocco with elsewhere in the Maghreb, he wondered if many of those projects would ever be built, raising North Africa's age-old spectre of corruption. "In my opinion, investing $10bn or so in a new city in Tunisia doesn't make any sense," he said. "It seems that the only realistic figure is the percentage of the $10bn that certain people in the local government may expect in commission."