New Tunisian real estate trends reflect changing dynamics

A proposed law will give Tunisians easier access to bank loans to buy homes and make life for foreign buyers far less of a challenge than at present.
Friday 30/04/2021
A builder works at the construction site of a new building in Tunis, Tunisia. (AFP)
A builder works at the construction site of a new building in Tunis, Tunisia. (AFP)

TUNIS--A recent report by Price Waterhouse Coopers (PWC) for the National Union of Real Estate Developers analyses how the Tunisian housing landscape has changed fundamentally over the past thirty years and could continue to do so if a new legislation is adopted.

The proposed law will give Tunisians easier access to bank loans to buy homes and make life for foreign buyers far less of a challenge than at present.

The report underlines how quickly in recent years the real estate sector has shifted to higher standards, larger rooms and more amenities such as parking spaces. High-rise apartments account for two-thirds of the new housing stock as against a third for medium height and a paltry two percent for social housing.

These figures, every bit as much as the very complicated procedures needed to obtain official permission to build, explain the huge surge in new rooms and floors being added to existing small apartment buildings or houses. Such buildings seldom enhance the visual attraction of Tunisian towns and villages. They are often irreparable blots on the urban landscape.

The construction sector remains, in Tunisia as across the world, a major employer and makes a major contribution to GDP. The sector is generally less important in high-tech economies such as those of Scandinavia but essential in many middle or lower middle income countries such as Tunisia.

Construction includes state-sponsored infrastructure projects, which in North Africa’s smallest country have dropped spectacularly as the state has drastically cut back on investment since the revolution of 2011. Construction also  includes private sector building of new factories and other facilities. However,  here again the economic crisis of recent years has taken its toll as both foreign and domestic private investors have scaled back their plans.

The building of private housing however has continued, although at a slower pace than before . Nevertheless,  its contribution to GDP growth and employment remains important.

The Tunisian construction sector has  an estimated 500,000 employees 14% of the total workforce. In  2018 it contributed 3.9%  to GDP, a marked drop from the 4.4% four years earlier.

The real estate sector is a key player, with one quarter of new apartments or villas going up in the capital, Tunis and its immediate surroundings. Needless to say, this sector has been hard hit by COVID-19. More than one half of all companies in the sector have warned they are at risk of closing and many have already shed jobs.

An extraordinary 83% of firms involved in house or apartment building are concentrated in Tunis or further down the coast between Sousse and Sfax, a testimony to the accumulation of wealth in coastal areas to the detriment of the poorer western uplands.

Another statistic worth noting is that 65% of new apartments fall into the luxury bracket, 33% into the standard and just 2% are made up of  social housing.

What is on offer does not correspond to the needs of the population, hence the fact that, in Tunis in particular, many new apartments lie empty or are rented out. Their higher prices  reflect the large hikes in the cost of cement, tiles and other building materials (84.5% since 2010) along with the depreciation of the Tunisian dinar.

The PWC report details many reasons for the rise in prices and subsequent drop in home purchases: 43.3% of new houses or apartment are built illegally, 75.5% are built by individuals for their own use. Meanwhile, though land has become much more scarce in the capital and major coastal cities, since 2018  VAT has to be paid on the purchase of new flats while interest rates on bank loans have risen considerably. This has  impaired the ability of Tunisians who have good jobs but no capital to purchase new apartments. Borrowings  to buy property now account for 45% of all bank loans to individuals.

Inflation has also cut the purchasing power of many families and very sluggish growth in recent years has, overall, reduced the income of  middle class families.  Average real estate prices increased by 51% between 2010 and 2015 and a further 35%  in the last seven years.

PWC mentions that more than 300 different institutions and suppliers are needed to complete a single apartment or a house. Tunisia remains in the grips of a bureaucracy gone mad. The country is vastly over-administrated which, as corruption spreads, slows up every economic activity, not simply in construction.

Foreign buyers are put off purchaseing in Tunisia because they discover that if they decide to sell, they can wait years for the central bank to sign off the transfer abroad of dinars, in foreign currency .

This endless procrastination affects foreign companies which find it increasingly difficult to transfer their profits (quite legally) back home. The behaviour towards foreign property buyers (with the exception of Algerians and Libyans) and indeed toward foreign-owned businesses, contrasts strongly with Morocco which makes life much easier for individuals and companies alike.

The PWC report which was finalised a month ago, suggests that the government should hold back its proposed VAT increase from 13 to 19% this year and actually consider lowering the rate to 7%.

Among other measures it proposes is the subsidising the interest on bank loans for housing. Other steps would allow builders to reschedule their bank loans and last, but not least, the state land agency AFH should  not be allowed to sell land to builders who are not officially approved. In other words, this amounts to fighting the informal sector which represents between a third and a half of the economy.

The real estate sector is very atomised and the sheer number of real estate developers penalises the “serious” companies which are all too often competing with firms which are recycling money from the informal sector. Here as elsewhere “la mauvaise monnaie chasse la bonne.” – “Bad money drives out the good ”

The PWC report compiled on behalf of  the National Union of Real Estate Developers amounts to  a cri du coeur  from those who play by the rules and build good quality apartment blocks. PWC has worked out that a staggering 86% of new “lodgings” are being put up without the necessary municipal or other state permits.

The government needs to put an end to this bureaucratic Loch Ness monster.  In the building sector, as in so many others, the Tunisian economy is crying out for less rules, better adapted to social and economic needs and the re-establishment of government authority or, dare one say, the basic rule of law. Fewer rules but rules which are respected is the challenge the desperately needs to be tackled in management of Tunisia’s economy. This report makes modest but very concrete proposals which would help rekindle growth in a vital sector.

Another important point upon which PWC touches is the economic potential of foreign buyers. In 2012, Portugal launched a “golden visa” programme, through which foreign investors could obtain a temporary residence permit in exchange for their investment in real estate. In neighbouring Morocco, foreigners wishing to acquire property enjoy full convertibility of income from operating such properties as well as other tax advantages.

If this proposed law is passed by parliament it would not only promote economic growth but would also enhance the quality of the urban landscape, not least by rehabilitating what are “informal” neighbourhoods currently made up of anarchic self-built housing units.