Tunisia

Tunisia is still reverberating from the national revolution that occurred in January 2011. The political, social and economic climate has yet to fully stabilise, shown by negative GDP growth of 1.1 percent in 2011. Protests and strikes continue while the new constitution is being drafted and the future remains unclear. As the rule of law and confidence in Tunisia’s markets return, this low-middle income country is well poised for economic expansion with a young, well-educated population, proximity to European markets and the opportunity to attract investment. However, much will depend on the coming months and how the government is able to address the underlying problems that gave rise to the revolution in the first place – most notably youth unemployment, estimated at 30 percent, rising consumer prices with more than five percent inflation, and regional disparities. The events of 2011 have introduced a higher level of accountability and a new political dynamic, with the government under immense pressure to address the country’s social and economic problems, among which they have specifically prioritised affordable housing.

Access to finance

Tunisia has a reasonably well-developed financial sector, with a range of institutions, yet there is limited activity in secondary and international markets. Challenges include a lack of liquidity in the banks, rising inflation and a high level of non-performing loans, although this has decreased from a peak of 24.2 percent in 2003 to 12.1 percent in 2011.

Over the past four decades, Tunisia has built up a sophisticated mortgage-based housing finance system. A large number of financial institutions are offering housing loan products, including almost 20 private commercial banks and four state-owned banks. Established in 1989, the publically owned Housing Bank (Banque de l’Habitat) still plays the most prominent role in housing finance, offering loans for house purchase, home improvement and residential land purchase, which accounts for 80 percent of the total mortgage market.

While private lending is focussed on high to middle income households, there have been savings-for-housing programs for the formally employed, since the 1970s. The Housing Bank is the exclusive manager of a state subsidized housing loan for low-income households called FOPROLOS. Loan rates for mortgages range from 3.5 percent to 5.75 percent for three different income eligibility brackets, compared with seven percent for mortgages available to individuals without a savings account.

Housing loans are regulated by the Central Bank. Rules modified in 2007 stipulate loan-to-value ratios limited to 80 percent and a maximum term of 25 years. There are also 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.

The total value of outstanding property loans to both home-buyers and developers has been increasing rapidly from US$2.3 billion in 2005 to US$7.8 billion as of November, 2011.

Tunisia has a stock exchange (BVMT) and, in 2001, developed the legal framework for securitization to encourage long-term mortgage financial products. However, activity has been 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. Debt guarantees from the US government were announced in March 2012, with the hope to facilitate Tunisia’s return to the international bond markets, this follows the issuing of US$500 million worth of five-year Tunisian treasury bonds directly to Qatar at an interest rate of just 2.5 percent.

A public credit registry exists with 27.3 percent coverage, giving Tunisia a rating of five (out of six) for depth of credit information according to the World Bank’s 2012 Doing Business report. However, there are still challenges of managing over-indebtedness and the exclusion of low-income households from private and subsidized finance programs.

The microfinance sector remains small due to restrictive regulation and interest-rate caps. Only one institution, Enda Inter-Arabe, operates at any scale. Enda had 194 743 active borrowers as of 2011, a gross loan portfolio of US$72.4 million, and also offers a specific housing improvement loan for their clients, at an average size of US$900 over a 15 month period. 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 year.

Affordability

Housing affordability is reasonable in Tunisia compared to other countries in the region. Overall price-to-income index is often quoted as 5, yet this does not reflect the current atmosphere and is certainly not true for low-income households, a growing market segment as unemployment and the cost of life increases. 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 – US$268 a month, to US$676 – US$1 870 for the top third of households. Meanwhile, the minimum monthly income for a 48-hour work week was raised on May 1, 2011 to US$180 a month. This gives the lowest tier of households approximately US$40 – 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 9 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 for 30 percent of Tunisians households, even if they could qualify. Housing costs calculated for the FOPROLOS programme are higher, ranging from US$220 to US$460 per m², including land.

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$1000, usually over a period of 12 to 18 months, and many clients take out subsequent housing improvement loans. At the end of 2009, the Eddar loan made up six percent of its total loan portfolio with 3 452 active clients and US$2 million outstanding. Average loans were for $900 and 15 months term.

Housing supply

Compared to other countries outside the north, Tunisia has been especially successful in dealing with urban upgrading. While the total housing stock is greater than the number of households, this includes an over-supply of high-end units. The existing supply is 2.5 million units for 2.2 million households in 2012, with an annual rate of increased demand of 70 000 units a year. Half of these are classified as Arabic-design courtyard house, 37.1 percent villas, 7.4 percent apartments, and 1.3 percent are considered precarious housing.

The housing ‘over-supply’ is visible in the rising number of high-end units that are left vacant, either used as secondary homes for upmarket families, luxury rental properties for tourists or as speculative investment properties.

Housing supply in the middle-income and high-income brackets is dominated by the private market. Private developers constructed 14 000 houses in 2010, against 2 875 by public real estate developers. There is a state programme of pre-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, and up to 70 percent if they are “economic” or “high-standing” units. The annual interest rates charged for these loans vary as to the category of housing, with social housing units at 6.5 percent and high standing units at 8.0 percent. This financing system was part of the national housing strategy (1988) that saw the private sector as an important housing producer. However, the incentives are not sufficient.

In the affordable market, there is little interest from private developers as the current government incentives are not sufficient. 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. Even public real estate developers, for instance SNIT and SPROLS, have started increasing the number of market rate housing to cross-subsidise the affordable ones. The main form of affordable housing production is individual self-build, often on illegally subdivided land, which is bought and acquired through notary deed. Up to 42 000 units were recorded as being produced this way in 2010.

Property market

The formal real estate market in Tunisia functions well with a high level of private activity. Key dynamics have been the large increase in real-estate developers, strong demand and continued price increases.

Interest in Tunisian real estate is high. Prices on the formal market have been increasing at a rate of eight percent a year since 1990, with little slowdown through the global financial crisis. According to the Ministry’s Housing Observatory, in 2010 the average price of a housing unit was US$TD 36,215 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 is as high as US$2 100-US$4 100 per m².

Heavy demand for high-end units has led to a rapidly growing number of registered developers. There were 2 040 in 2010, while 30 years before there existed only the public real estate agency, SNIT. In fact, demand is so high that 90 percent of units were sold during the construction phase, according to a Tunisian private developer, Samir Letaïef. In addition, the 2nd Tunisian Real Estate Fair (SITAP) in Paris in 2011 was attended by 60 000 people, a three-fold increase from the year prior. If property 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 the development of specialised public institutions to improve the availability and quality of affordable housing.

State enterprises 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.

The government program, FOPROLOS, was designed in 1977 to provide housing finance for low-income groups and is still the main tool assisting access to affordable housing. However, in recent years, it has become inaccessible to the target groups. Qualifying incomes (SMIG) are not adjusted frequently enough and are out of reach for lower middle-income groups, which also struggle to afford housing. Loan ceilings have not increased with house prices, so it is difficult for anyone (public or private) to offer housing supply to match this financial product. In addition, rising unemployment has meant that more households have informal means of income, barring them from the programme.

In January 2012, the Housing Minister announced an ambitious plan to improve all precarious housing with construction of 30 000 social housing units before the end of 2013. The Ministry responsible recently completed a survey of beneficiaries and is in the process of designing the system of delivery.

Opportunities

Housing in Tunisia is still considered a secure and profitable form of investment, especially when confidence is lacking in money markets, and there are attractive fiscal and tax incentives for developers, who have transaction costs than individuals. Opening up to foreigners, with the removal of purchase permission in tourist areas, is also likely to spur investment interest in the property market.

However, continued price rises hint to a risk of speculation, particularly when they are further inflated by land scarcity in the urban centres. There is also a rising danger of exclusion of low to middle income earning Tunisians from home ownership if the property boom is not coupled with a supply of land and housing at the affordable end of the market.

The new government is showing a willingness to reform housing policy to improve low-income housing. Already, this has been demonstrated by the announcement of the 30 000 unit social housing programme and re-entrance into bond markets, as well as with the reforms in the Microfinance Law.

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

Source: Housing finance Yearbook 2012

Sources

1. Achy, Lahcen. (2011). Tunisia’s Economic Challenges. Carnegie Middle East Centre.
2. African Development Bank. (2012). Tunisia: Interim Country Strategy Paper. Tunis.
3. African Economic Outlook (2012). Tunisia Country Profile.
4. Hassler, O (2011). Housing and Real Estate Finance in Middle East and North Africa Countries.
5. UN-HABITAT (2011). Affordable Land and Housing in Africa.
6. UN-HABITAT (2011).  Tunisia: Housing Profile.
7. World Bank. (2012). Doing Business: Tunisia.

Websites consulted

www.africaneconomicoutlook.com

www.bct.gov.tn

www.cgap.org

www.commune-tunis.gov.tn

www.mehat.gov.tn

www.mfw4a.org

www.mixmarket.org