Tunisia

Overview 

The democratic transition is still slowly moving forward in Tunisia, well over two years since Ben Ali’s regime ended in what became known as the Arab Spring.  The economy has been recovering from negative GDP growth in 2011 to positive growth of 3.2% in 2012, yet ongoing political uncertainty and weakness in the banking sector prompted Moodys to twice downgrade Tunisia sovereign credit ratings.  In May 2013, Tunisia’s sovereign credit rating was cut to BB-, with a negative outlook.

The February assassination of the key opposition leader, Chokri Belaid, caused a wave of violence and protests that resulted in the dissolution of the national unity government that had been in power since the October 2011 elections.  Key ministries have been replaced with technocrats to complete the drafting of the constitution.  Elections were scheduled for 2013, but have been delayed repeatedly, pushing back legislative reforms and putting the whole country into limbo.

With over a third of educated youth unemployed, inflation growing to 6.4% as of June 2013 and little political progress, Tunisians are becoming less optimistic about their democratic future.  Housing is

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Overview 

The democratic transition is still slowly moving forward in Tunisia, well over two years since Ben Ali’s regime ended in what became known as the Arab Spring.  The economy has been recovering from negative GDP growth in 2011 to positive growth of 3.2% in 2012, yet ongoing political uncertainty and weakness in the banking sector prompted Moodys to twice downgrade Tunisia sovereign credit ratings.  In May 2013, Tunisia’s sovereign credit rating was cut to BB-, with a negative outlook.

The February assassination of the key opposition leader, Chokri Belaid, caused a wave of violence and protests that resulted in the dissolution of the national unity government that had been in power since the October 2011 elections.  Key ministries have been replaced with technocrats to complete the drafting of the constitution.  Elections were scheduled for 2013, but have been delayed repeatedly, pushing back legislative reforms and putting the whole country into limbo.

With over a third of educated youth unemployed, inflation growing to 6.4% as of June 2013 and little political progress, Tunisians are becoming less optimistic about their democratic future.  Housing is still a key priority, with continued progress on the government’s programme to replace 30 000 precarious houses, yet comprehensive policy reforms will require stability and investor confidence, which still appear a distant goal.

Access to finance

Tunisia has a reasonably well developed financial sector.  Current challenges include a lack of liquidity in the banks, rising inflation and a high level of non-performing loans, which was reported to have decreased from a peak of 24.2% in 2003 to a still high level of 12.1% in 2011, yet is considered to be much higher in reality due to forbearance and under-reporting.  In June 2013, the International Monetary Fund announced it had approved US$1.74 billion to help the government balance their budget and stimulate the economy.  The two-year loan came with conditions to enact financial and political reforms, in particular the auditing and restructuring of the three national banks.

Over the past four decades, Tunisia has built up a sophisticated mortgage-based housing finance system.  Housing loans are regulated by the Central Bank.  Rules modified in 2007 limit loan-to-value ratios to below 80% (though up to 90% in social lending programmes such as ‘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 with terms of more 15 years.  This requirement means many banks are funded by sovereign bonds and are resistant to offer loans beyond 15 years.

The total value of outstanding property loans to both homebuyers and developers has been increasing rapidly, from US$1.26 billion in December 2003 to US$7.58 billion as of March 2013.  The ratio of mortgage lending is currently 12% of GDP, the third highest in Africa, behind South Africa and Morocco. There are currently 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 20.4% of real estate lending.

While private lending is focussed 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% for three different income eligibility brackets, targeted at households earning a regular salary of between minimum wage and up to 4.5 times minimum wage (set at US$187 per month).  This compares to an average 6.9% interest rate for mortgages available at commercial rates at the end of 2012.

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 limited to 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.

In June 2012, the US government supported Tunisia with a 100% guarantee on a US$485 million sovereign bond, issued by the Central Bank, to try and facilitate better integration of Tunisia into the international market.  This bond was issued at a coupon rate of 1.686%.  Tunisia is seeking further guarantees for the country’s bonds, and also exploring the issuance of a US$700 million sukuk or Islamic bond, pending regulatory reform that will allow this.

The microfinance sector remains small due to restrictive regulation and interest rate caps.  Only one institution, Enda Inter-Arabe, currently operates at any scale.  At the end of 2012, Enda had 210 000 clients and a gross loan portfolio of US$81.1 million, with a default rate of only 0.55%.  Reforms in the Microfinance Law made in December 2011 will open the way for new entrants, and this sector is likely to experience rapid growth in the coming years.  The government is currently setting up a licensing authority with the assistance of the German development agency GIZ, and the European Commission have offered three microfinance institutions seed funding to support their launch of operations in Tunisia.

In 2008, Enda launched a new product called ‘Eddar’ specifically for housing improvements to respond to the high demand in this market segment.  Most loans are given from US$321 to US$1 000, usually over a period of 12 to 18 months, and many clients take out subsequent housing improvement loans.  At the end of 2013, the Eddar loan made up 12% 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 than in other countries in the region.  The 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.

Estimated household expenditures in 2010 in Tunisia averaged US$578 a month.  This ranges from a lower third spending US$132 to US$268 a month, to US$676 to $1 870 for the top third of households.  Meanwhile, the minimum monthly income for a 48-hour working week was raised on 1 May 2011 to US$180 a month.  This gives the lowest tier of formally employed people approximately US$40 to US$80 a month to spend on housing.

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% of income could be mobilised for monthly housing payments, the repayments required on the cheapest housing loan makes this unit unaffordable to 30% 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 one and two times minimum wage can purchase a 50m2 unit of US$19 400, with a loan at 90% LTV for 25 years, at 2.5% a year interest.

FOPROLOS 2: Households earning between two and three times minimum wage can purchase a 75m2 unit of US$24 800, with a loan at 90% LTV for 25 years, at 4% a year interest.

FOPROLOS 3: Households earning between three and 4.5 times minimum wage can purchase a 80m2 to 100m2 unit of US$33 300, with a loan at 85% LTV for 20 years, at 5.75% a year interest.

However, in recent years, FOPROLOS has become inaccessible to the target groups, with housing costs ranging from US$220 to US$460 per m2, including land.  Qualifying incomes also do not enable households with irregular and very low incomes to participate.  Furthermore, loan ceilings have not increased with house prices, so it is difficult for developers to offer a housing supply to match this financial product.

Housing supply    

Of the total housing stock, the existing supply of 2.5 million units exceeds the number of households of 2.2 million.  There is a high and growing rate of sold houses, usually of high quality, which are purchased as secondary homes, luxury rental properties, or as speculative investment properties, and are left vacant.

Formal supply of housing in Tunisia is almost exclusively targeted at middle to high income groups.  Of the annual demand, estimated at 70 000 units per year, an estimated 40% are built informally.  Of the 40 628 units formally registered in 2011, approximately 80% were constructed by individual households, 18% by registered developers and 2% by public developers.

Most of the informal housing production is self-built incrementally, often on illegally subdivided land, which is bought and acquired through notary deed.  Between 20 000 and 30 000 units per year are estimated to be produced this way.  When compared to other countries, Tunisia has been particularly successful in dealing with urban upgrading, which may have further incentivised this form of construction.

In 2011, private developers constructed 6 036 units compared to 1 788 units constructed by public real estate developers, and individuals registered building permits for another 32 800 units.  Although there are no official figures available in 2012, construction is expected to have increased, since investors are eager to put money into concrete assets, as real estate is perceived as more secure than money markets.  There is a state programme of subsidised construction finance for residential property developers.  The Housing Bank can finance up to 80% of the total cost of a project if the housing units are ‘social’ units, at 6.5% a year interest and up to 70% if they are ‘economic’ or ‘high-standing’ units, at 8% a year interest.  This financing system was introduced as part of the national housing strategy (1988) that saw the private sector as an important housing producer.  However, these incentives are not adequate.

In the affordable market, there is little interest from private developers.  Small margins and rising costs of both land and building materials make it difficult to provide units at prices comparable to the housing finance available for the target end-users.

Property market

Interest in Tunisian real estate is still high.  Prices on the formal market have been increasing at a rate of 8% per annum since 1990, and have skyrocketed 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 of 134m2 was US$36 180, 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$2 100 to US$4 100 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.

The sixth annual Tunisian Real Estate Fair (SITAP) in Paris in May 2013 hosted 100 to 120 exhibitors with over 300 projects comprising 15 000 houses, and welcomed over 40 000 visitors.  The interest in real estate is high, and property prices are booming, yet if prices and vacancies continue to rise at the current rate, there is a real risk of a property bubble, as this will not be sustainable.

Policy and regulation    

Since its independence in 1956, Tunisia has made significant achievements in progressive and successful housing policies and in the development of specialised public institutions to improve the availability and quality of affordable housing.

State enterprises have built over 300 000 housing units since 1960, and the Urban Rehabilitation and Renovation Agency (ARRU) has been instrumental in upgrading informal settlements since its creation in 1981.

In January 2012, the Housing Minister launched an ambitious plan to improve all precarious housing with the construction of 30 000 housing units before the end of 2013.  A survey of the beneficiaries has been completed and land for up to 12 000 houses has been identified, yet the government does not have sufficient budgetary resources to implement the projects and provide the long-term mortgage finance required for households to purchase the units.  An international call for tenders did not manage to attract developers or investors as was hoped, due to the long-term housing finance that the government was asking for in addition to housing development.  As a result, the government has reduced its aspirations and has launched some initial projects with funding from Qatar that will be executed by the public enterprises SNIT, SPROLS and ARRU, and are still seeking solutions for the rest.

Opportunities

As the outlook of capital markets and the banking sector remains uncertain, Tunisians are increasingly putting their money in real estate.  The construction boom can be seen in both the informal and formal sector, and is particularly apparent in the radically increasing costs of land and construction materials.  However, continued prices rises are not sustainable and risks further exclusion of low to middle income Tunisians from home ownership.

Housing in Tunisia is still considered a secure and profitable form of investment.  More open legislation that allows property purchase by foreigners and the removal of any need for purchase permission in tourist areas are also likely to spur investment interest in the property market.

The government is very eager to review housing policy, particularly in terms of exploring public private partnerships and reforming the subsidy programmes such as FOPROLOS.  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 also considering issuing sukuk bonds, as they are seen as a cheap means to access long-term finance.

The demand for housing microfinance is also still immense, providing opportunities for investment once the microfinance sector is deregulated.  There will likely be rapid growth of this sector in Tunisia to fulfil the unmet demand that the EU estimated at 800 000 to one million clients. These are the clients who are excluded from formal finance and are also in need of specific financial products for housing.

The opportunities are diverse, yet political and economic stability must come first, which is taking longer than expected and leading to mounting frustration amongst Tunisians.

Sources

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

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

African Economic Outlook (2012). Tunisia Country Profile.

Banque Centrale de Tunisie (2012). Rapport Annuel 2011.

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. (2013). Doing Business 2013 Report: Tunisia.

Websites

www.africaneconomicoutlook.com

www.bct.gov.tn

www.cgap.org

www.mehat.gov.tn

www.mfw4a.org

www.mixmarket.org