Tunisia

Excerpt from Africa Housing Finance Yearbook 2014

Overview

Tunisia’s political transition gained new momentum in early 2014 with the resolution of political deadlock, the adoption of a new Constitution and the appointment of a new government. The economy has been recovering from negative GDP growth in 2011, to 2.8 percent in 2013. Ongoing political uncertainty and weakness in the banking sector prompted downgrading of Tunisia sovereign credit ratings twice in 2013 to a Moody’s rating of BB-, with negative outlook, though this has held steady in 2014.

A substantial trade deficit which has been running at an average of almost TD1 billion (US$603m) a month continues to threaten the economy, due to sluggish demand in the euro-zone, which buys almost 70 percent of Tunisia’s exports, and industrial unrest in the phosphate-producing regions of the interior. Unemployment continued to decline to 15.3 percent at the end of 2013 from 16.7 percent one year earlier, but still well above the pre-revolution level of 13 percent. Post-revolutionary governments have pursued expansionary fiscal and monetary policies since 2013 in an attempt to support the economy’s recovery and job creation.

Tunisia’s government

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Excerpt from Africa Housing Finance Yearbook 2014

Overview

Tunisia’s political transition gained new momentum in early 2014 with the resolution of political deadlock, the adoption of a new Constitution and the appointment of a new government. The economy has been recovering from negative GDP growth in 2011, to 2.8 percent in 2013. Ongoing political uncertainty and weakness in the banking sector prompted downgrading of Tunisia sovereign credit ratings twice in 2013 to a Moody’s rating of BB-, with negative outlook, though this has held steady in 2014.

A substantial trade deficit which has been running at an average of almost TD1 billion (US$603m) a month continues to threaten the economy, due to sluggish demand in the euro-zone, which buys almost 70 percent of Tunisia’s exports, and industrial unrest in the phosphate-producing regions of the interior. Unemployment continued to decline to 15.3 percent at the end of 2013 from 16.7 percent one year earlier, but still well above the pre-revolution level of 13 percent. Post-revolutionary governments have pursued expansionary fiscal and monetary policies since 2013 in an attempt to support the economy’s recovery and job creation.

Tunisia’s government now faces challenges reassuring businesses and investors, bringing budget and current account deficits under control, bringing down high unemployment, and reducing economic disparities between the more developed coastal region and the impoverished interior. Housing is still a central priority of the post-revolutionary period, and the government is currently carrying out diagnostics to develop policy recommendations for a new National Housing Strategy.

 

Access to finance

Tunisia has a reasonably well-developed financial sector. Over the past four decades, Tunisia has built up a sophisticated mortgage-based housing finance system with a large number of financial institutions offering loan products for housing, including over 20 private commercial banks, in addition to the three state-owned banks. The publically-owned Housing Bank (Banque de l’Habitat) still plays the most prominent role in housing finance. Established in 1989 after a restructuring of the Savings and Loans Bank (CNEL), the Housing Bank offers loans for house purchase, home improvement and residential land acquisition, accounting for 18.1 percent of real estate lending in 2013.

While private lending is focused on high to middle income households, there have been savings-for-housing programmes for the formally employed since the 1970s. The Housing Bank is the exclusive manager of a state subsidised housing loan for low income households called FOPROLOS. Loan rates for mortgages range from 3.5 to 5.75 percent for three different income eligibility brackets, targeted at households earning a regular salary at between minimum wage and up to 4.5 times minimum wage (set at US$187 a month). This compares to an average 7.63 percent rate for mortgages available at commercial rates, in mid-2014.

Housing loans are regulated by the Central Bank. According to the Central Bank’s 2013 annual report, the total value of long-term loans to home-buyers increased by 10.3 percent between 2012 and 2013, reaching US$3.96 billion. Mortgage lending is approximately equivalent to 12.0 percent of GDP, the third highest in Africa, behind South Africa and Morocco. Rules modified in 2007 limit loan-to-value ratios to below 80 percent (though up to 90 percent in social lending programmes, like FOPROLOS), and a maximum term of 25 years. Part of this law also requires long-term liquidity matching requirements for loans over 10 years and a requirement that interest rates must be fixed for housing loans longer than 15 years. This requirement means many banks are funded by sovereign bonds and are resistant to offer loans beyond 15 years. Current challenges include a lack of liquidity in the banks and a high level of non-performing loans, which was reported to have decreased from a peak of 24.2 percent in 2003 to 12.1 percent in 2011.

In terms of secondary markets, Tunisia has a stock exchange (BVMT) and in 2001, developed the legal framework for securitisation to facilitate access to long-term funding for mortgage finance. However, activity has been extremely limited with only two transactions (in 2006 and 2007 respectively, amounting to US$80 million) by a single institution, the International Arab Bank of Tunisia (BIAT). There is also an alternative capital securities market for Tunisian companies that cannot be listed on the main market.

The microfinance sector has yet to grow substantially due to restrictive regulation and interest-rate caps set before the Revolution. Only one institution, Enda Inter-Arabe, operates at any scale. At the end of 2013, Enda had 231 520 clients, and a gross loan portfolio of US$96 million, with a default rate of only 0.55 percent. In 2014, EBRD provided Enda with a loan for US$6.2 million to support them to scale their operations to Micro and Small and Medium Enterprises. Reforms in the Microfinance Law were made in December 2011, opening the way for new entrants. The government has set up a licensing authority with the assistance of the German Development Agency. This sector is likely to experience growth in the coming years, yet has been slow to launch due to political and regulatory uncertainty for new entrants. However, the additional untapped market has been estimated at between 0.7 and 1.0 million.

In 2008, Enda launched a new product called “Eddar” specifically for housing improvements to respond to the high demand in this market segment. Loan size and terms grew in 2014, ranging from US$567 to US$2 834, over a maximum period of 24 months. At the end of 2013, the Eddar loan made up 12 percent of Enda’s total portfolio. Average loans were for US$900 and for a 15 month term.

 

Affordability      

Due to progressive housing policies since independence in 1956, housing affordability is higher in Tunisia compared to other countries in the region. Overall price-to-income index is often quoted as five, yet this number does not reflect the reality for low-income households, a growing market segment as youth unemployment remains high. These households usually cannot qualify for housing loans and do not have the capacity to pay for even a modest unit.

According to Brookings Institute, the size of Tunisia’s middle class reached more than 40 percent of the total population in 2010, up from 25 percent in 2000. Per capita spending averaged US$2 360 a year in 2010, which ranged from US$1 496 in the Centre West region to US$3 228 in Tunis. In 2012, 1.2 percent of households had expenditure of less than US$2 500 a month, 12.8 percent spent between US$2 500 – US$5 000, 24.9 percent between US$5 001 – US$7 500, 20.9 percent between US$7 501 – US$10 000 and 40.2 percent above US$10 000. In May 2014, it was announced that the minimum monthly income for a 48-hour working week which was previously set at US$180 a month, would be raised by six percent. Yet, this still leaves the lowest tier of formally employed people with only approximately US$40 – US$80 a month to spend on housing.

In terms of affordability, a 2012 analysis by UN HABITAT calculated that a modest house of 75m2 built progressively on peri-urban land would cost about US$14 000, or US$187.5 per m2. Such a unit has a price-to-annual-income ratio close to nine for the lowest decile households. Assuming 30 percent of income could be mobilised for monthly housing payments, the repayments required on the cheapest housing loan makes this unit unaffordable to 30 percent of Tunisians households.

The government programme, FOPROLOS, was designed in 1977 to provide housing finance for low-income groups and is still the main tool assisting access to affordable housing. There are three main categories:

FOPROLOS 1: Households earning between 1-2 times minimum wage can purchase a unit below 50m2 and US$22 100, with a loan at 90 percent LTV for 25 years, at 2.5 percent p.a.

FOPROLOS 2: Households earning between 2-3 times minimum wage can purchase a unit below 75m2 and US$28 300, with a loan at 90 percent LTV for 25 years, at 4.0 percent p.a.

FOPROLOS 3: Households earning between 3-4.5 times minimum wage can purchase a unit of between 80-100m2 and less than US$38 300, with a loan at 85 percent LTV for 20 years, at 5.75 percent p.a.

However, in recent years, the cost of a FOPROLOS home has become inaccessible to the target groups, with housing costs at around US$440 per m2. Qualifying criteria do not enable households with irregular incomes to participate. Furthermore, loan ceilings have not increased with cost of production so it is difficult for developers to offer a housing supply to match the subsidised financial product.

 

Housing supply                   

The 2014 census and housing survey released in September, recorded a total housing stock of 3 289 903 units, an increase of 789 103 units since the last census in 2004. This exceeds the number of households which was recorded at 2 712 976. 79.2 percent of Tunisians own their home and an estimated 15 percent of the units are vacant, which are usually high-cost units purchased as secondary homes, luxury rental properties, or speculative investment properties.

Of the annual demand, estimated at 77 000 units per year, around 40 percent is built informally on an incremental basis on quasi-formally subdivided land, which is bought and acquired through notary deed. A total of 45 846 building permits were issued in 2013. Of the formal units, approximately 80 percent are constructed by individual households (responsible for 28 000 building permits and 38 300 units per year), two percent by public developers and 18 percent by registered developers, who tend to target middle to high-income groups.

There is a state programme of subsidised construction finance for residential property developers. The Housing Bank can finance up to 80 percent of the total cost of a project if the housing units are “social” units at 7.0 percent p.a., and up to 70 percent if they are “economic” or “high-standing” units, at 7.5 and 8.5 percent p.a., respectively. This financing system was introduced as part of the National Housing Strategy (1988) that saw the private sector as an important housing producer.

 

Property market

The real estate and construction sector is an important contributor to national GDP and employment. In 2014, the number of jobs by the construction and settlements sector was measured at 456 000, which represents 13.5 percent of total employment. The housing sector also accounted for three percent of the revenues of the state via taxes collected from rental and property management, VAT generated by construction and local land taxes.

Interest in Tunisian real estate is still high. Prices on the formal market have been increasing at a rate of eight percent per annum since 1990, and have continued to rise following the revolution. The rental market has experienced additional price pressure due to an increase in Libyans who arrived in Tunis to avoid the unrest in Libya. According to the Ministry’s Housing Observatory, in 2010 the average price of a housing unit was US$36 180 at a size of 134m2, or US$270 per m2. Meanwhile, the Global Property Guide reports that the average sale price for a house in Tunis can reach as high as US$2100 – US$4100 per m2.

The number of registered real estate developers continues to increase in Tunisia after the regulatory framework for the profession was put in place in 1990. There are more than 2 400 registered developers today. However, this number is not indicative of an increase in the production of housing, as many investors register as developers to benefit from tax incentives for property construction.

 

Policy and regulation     

Since its independence in 1956, Tunisia has made significant achievements in progressive and successful housing policies and the development of specialised public institutions to improve the availability and quality of affordable housing. State enterprises, SNIT, SPROLS, and AFH have built over 300 000 units since 1960 and the Urban Rehabilitation and Renovation Agency (ARRU) has been instrumental in upgrading informal settlements since its creation in 1981, reaching over two million Tunisians.

In 2014, the Ministry of Public Works, Housing and Settlements is focused on a comprehensive review of its housing policy, particularly in terms of exploring public-private partnerships, as well as reform of the subsidy programmes, such as FOPROLOS. Preliminary recommendations for a new National Housing Strategy were presented by the government in September 2014 and included revitalising the role of AFH in land provision and recalibration of the FOPROLOS financing scheme, among other activities.

 

Opportunities

As the outlook of capital markets and the banking sector remains uncertain, Tunisians continue to put their money in real estate as housing in Tunisia is still considered a secure and profitable form of investment. The construction boom can be seen in both the informal and formal sector, particularly apparent in the high costs for land, and construction materials. However, continued prices rises are not sustainable, and risk further exclusion of low to middle-income Tunisians from home ownership.

Contribution to GDP was estimated at US$6.8 billion in 2013, representing 6.6 percent of GDP. More open legislation that allows property purchase by foreigners, and the removal of any need for purchase permission in tourist areas, is also likely to spur investment interest in the property market, particularly as confidence in the Tunisian economy returns.

Other opportunities include the rise in demand and interest in Islamic housing finance that will create diversified options for housing finance. Zitoun Bank was the first institution in 2009 to launch a Mourahaba product. The government is working with the Islamic Development Bank to issue its first sukuk bonds in 2014 worth US$570 million, which has been presented as a cheap means to access long-term finance.

The opportunities are diverse, yet political and economic stability must come first, which is taking some time beyond the revolutionary optimism of 2011.

 

Sources

Achy, Lahcen. (2011). Tunisia’s Economic Challenges. Carnegie Middle East Centre.

African Development Bank. (2012). Tunisia: Interim Country Strategy Paper. Tunis.

African Economic Outlook (2014). Tunisia Country Profile.

Banque Centrale de Tunisie. (2014). Rapport Annuel 2013.

EuroMonitor (2014). World Consumer Income and Expenditure Patterns: 14th Edition.

Hassler, O (2011). Housing and Real Estate Finance in Middle East and North Africa Countries.

Reuters. (2012). Moody’s cuts Tunisia’s rating to Ba2, cites political instability

UN-HABITAT (2011). Affordable Land and Housing in Africa.

UN-HABITAT (2011). Tunisia: Housing Profile.

World Bank. (2014). Doing Business: Tunisia.

 

Websites

www.africaneconomicoutlook.com

www.bct.gov.tn

www.bh.com.tn

www.cgap.org

www.endarabe.org.tn

www.mehat.gov.tn

www.mfw4a.org

www.mixmarket.org