Tunisia

Excerpt from Africa Housing Finance Yearbook 2015

Overview

Before the revolution of 2011, Tunisia was widely regarded as one of the most performing countries of the Middle East and North Africa (MENA) region because of its achievements in terms of economic and human development. Despite some remarkable results and progress, the pre-revolution Tunisian development model failed to bring about genuinely inclusive growth. Deterioration of economic governance and the capturing of resources by the elite during the last decade of Ben Ali’s rule hampered further economic development and triggered a surge in social discontent which culminated in the fall of the regime in 2011.

After having achieved a successful historical democratic transition, embodied by the Constitution of 2014, Tunisia suffered two major terrorist attacks within a short interval in 2015.  The Bardo National Museum attack in March 2015 and the Sousse shooting on 26 June 2015 resulted in 60 civilian casualties, mostly foreign tourists. These have undermined transition to a stable political, economic, and security environment conducive to economic growth. The GDP growth forecast has indeed been revised from three to one percent

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Excerpt from Africa Housing Finance Yearbook 2015

Overview

Before the revolution of 2011, Tunisia was widely regarded as one of the most performing countries of the Middle East and North Africa (MENA) region because of its achievements in terms of economic and human development. Despite some remarkable results and progress, the pre-revolution Tunisian development model failed to bring about genuinely inclusive growth. Deterioration of economic governance and the capturing of resources by the elite during the last decade of Ben Ali’s rule hampered further economic development and triggered a surge in social discontent which culminated in the fall of the regime in 2011.

After having achieved a successful historical democratic transition, embodied by the Constitution of 2014, Tunisia suffered two major terrorist attacks within a short interval in 2015.  The Bardo National Museum attack in March 2015 and the Sousse shooting on 26 June 2015 resulted in 60 civilian casualties, mostly foreign tourists. These have undermined transition to a stable political, economic, and security environment conducive to economic growth. The GDP growth forecast has indeed been revised from three to one percent[i] in 2015 against 2.3 percent in 2014[ii]. This rate remains fairly below the average of 4.5 percent recorded during the 2000s.

The drop in the national savings rate (13.5 percent of GNI in 2014 against 14.1 percent in 2013), along with the investment rate regression (19.2 percent of GDP in 2014 against 20.3 percent in 2013) meant an increase in external financing needs. The external indebtedness rate rose from 40.8 percent in 2013 to 43.7 percent of GDP in 2014.

The unemployment rate recorded in 2014 was 15 percent, dropping by 0.3 percent from 15.3 percent in the fourth quarter of 2013. Women’s unemployment rate is high at 21.1 percent, the graduate unemployment rate is 38.7 percent[iii] with higher education graduates suffering the most at 30.4 percent.

Housing is the second largest item of expenditure for Tunisian households. Their capacities vary but they all seek better living conditions, driven by the emergence of new needs that are in constant evolution. Although housing is increasingly available, its affordability is increasingly problematic, especially since 2011.

Access to finance

Tunisia has a reasonably well-developed financial sector regulated by the Central Bank of Tunisia. 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. Until the early 2000s, the publically-owned Housing Bank (Banque de l’Habitat), established as a result of the National Housing and Savings Fund’s shift to Universal bank, had been the single player in the mortgage market. The de-compartmentalisation and deregulation of the banking sector (Pursuant to the Law No. 2001-65 on credit institutions)have allowed new actors to massively position themselves in this market. This move was mainly due to (i) the declining performance of the main actor, the Housing Bank (The Housing Bank’s share of the home purchase savings collection market dropped from over 80 percent in 2003 to less than 60 percent in 2014), and to (ii) the attractiveness of the housing finance market. Strategic interest in this market has led to fiercer competition between credit institutions which frequently launch dedicated promotional campaigns, the most recent being Al Baraka Bank’s[iv]2015 “Maskan” advertising campaign. Overall, product offering in this market has become largely undifferentiated but conditions of access to housing finance have considerably expanded through the launching of specialized products tailored to various categories of clients.

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 2.5 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$177 a month – from May 2014 onwards). This compares to an average 7.78 percent rate for mortgages available at commercial rates, in July 2015.

Housing loans are regulated by the Central Bank. According to the Central Bank’s 2014 annual report, the total value of long-term loans to home-buyers increased by 7.3 percent between 2013 and 2014, reaching US$3.80 billion. Mortgage lending is approximately equivalent to 9.1 percent of GDP. Rules modified in 2007[v] 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 increased from 12.0 percent in 2010 (pre-revolution) to 15.0 percent in 2014[vi]. It should be noted that the Supplementary Budget Law for 2015 includes measures to treat debts held by beneficiaries of housing credits issued as part of social housing initiatives[vii].

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 Decree-Law No. 2011-117 on Micro-Finance Institutions of 5 November 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.

The microfinance sector has yet to grow substantially due to restrictive regulation and interest-rate capsset 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. 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.

Zitouna Bank was the first institution in 2009 to launch a Mourabaha product. The government is working with the Islamic Development Bank to issue its first sukuk bonds, which has been presented as a cheap means to access long-term finance.

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 at 40 percent[viii]. 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 500a 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, the minimum monthly income for a 48-hour working week increased to US$177. 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 50m2atUS$25 500, with a loan of90 percent LTV for 25 years, at 2.5 percent per annum.
  • FOPROLOS 2: Households earning between 2-3 times minimum wage can purchase a unit below 75m2 atUS$32 100, with a loan of90 percent LTV for 25 years, at 4.0 percent per annum.
  • FOPROLOS 3: Households earning between 3-4.5 times minimum wage can purchase a unit of between80-100m2at less than US$43 400, with a loan of 85 percent LTV for 25 years, at 5.75 percent per annum.

However, in recent years, the cost of a FOPROLOS home has become inaccessible to the target groups, with housing costs at around US$510 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 subsidized financial product. There are clear indicators that, in its current shape, this mechanism is not suited for the attainment of its set objectives, thus prompting a spillover of the demand into the informal sector. According to data from MEATDD, the share of approved FOPROLOS housing units offered by private developers only represented on average six percent of the total approved housing units between 2004 and 2013.  FOPROLOS remains largely under utilised due to a lack of adapted supply rather than a lack of resources. The cumulative surplus (unspent resources) of FOPROLOS nearly reached US$230 million at the end of 2013.

Housing supply

The 2014 census and housing survey released in September[ix], 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 in 2014. 79.2 percent of Tunisians own their home and an estimated17.7 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 42 587 building permits were issued in 2013[x]. 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 6.78 percent per annum, and up to 70 percent if they are “economic” or “high-standing” units, at 7.28 and 8.28 percent per annum 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

There are two land registration systems: the regime established by the Decree-Law of 20 February 1964 on the registration of agricultural lands is compulsory, free of charge, and state-administrated, whereas the second regime is optional and is triggered by voluntary applications for registration by land-owners, usually based on a notarial deed. The land registration system involves three main actors: (1) the property court, which is the competent judicial authority, intervenes at the onset of the registration process by issuing a registration judgement; (2) the Land Survey and Topography Agency (Office de Topographie et de Cadastre, OTC) is a technical body mandated with boundary marking and allotment operations as well as establishing land plans; (3) the Landed Property Registry  (Conservation de la Propriété Foncière, CPF) is responsible for issuing, updating, and maintaining title deeds.

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$2 100 – 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 2 700 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    

In force for more than 40 years, government financial assistance mechanisms for the housing sector, mainly consist in financial subsidies (subsidised interest rates and tax exoneration on home saving accounts) and, to a lesser extent, land subsidies through the Housing Land Agency (Agence Foncière d’Habitation) one of whose main objectives is to reduce land speculation. This regime was enhanced in 2007 through the issuing of direct subsidies by the National Solidarity Fund (Fonds National de Solidarité) targeted to benefit households wishing to purchase social housing. Complementary mechanisms were established in the 1980s in the form of slum upgrading schemes managed by the Urban Rehabilitation and Renovation Agency (ARRU) and the National Programme for the Resorbing of Rudimentary Lodging (PNRLR).

In 2014, the Ministry of Public Works, Housing and Settlements was 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 intended to widen the scope and rationalize government housing aid including the expansion of the mandate of FOPROLOS. Preliminary recommendations for a new National Housing Strategy were presented by the government in September 2014 and included revitalising the role of the Housing Land Agency in land provision and recalibration of the FOPROLOS financing scheme, among other activities.

Opportunities

Despite a slowdown in the pace of new constructions (as evidenced by a 6.5 percent decrease in the demand for cement in Q1 2015 according to the Ministry of Industry), 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 price rises are not sustainable, and risk further exclusion of low to middle-income Tunisians from home ownership.

Contribution of the housing sector to GDP was estimated at US$2.8 billion in 2014, 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.

Demographic effects will continue to drive the market’s expansion even though higher age at first marriage and the increasingly late arrival of youth in the labour market will hinder this quantitative evolution. With regard to solvency of the demand, the impact of the economic changes underwent by the country since 2011 will tend to “variabilise”income levels. Demand for housing credits will grow in complexity and will less and less rely on traditional products, which will impact the evolution of the nature of demand.

 

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. (2015). Rapport Annuel 2014.

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.

Kahloun H (2014). Habitat informel

Sayah Z (2014). Promotion de l’accès au financement du logement.

Taleb R (2014). Auto construction formelle des logements.

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.ins.nat.tn

www.mehat.gov.tn

www.mfw4a.org

www.mixmarket.org

[i] Pursuant to the Supplementary Budget Law for 2015 adopted by the Assembly of the People’s Representatives (APR) on 5 August 2015.

[ii] Central Bank of Tunisia (2015), Annual Report 2014.

4 Central Bank of Tunisia data

[iv]Islamic finance.

[v]Law No. 2007-12 issued on 3 January 2007 amending the law establishing FOPROLOS.

[vi] Central Bank of Tunisia data.

[vii] The Supplementary Budget Law for 2015 was adopted by the Assembly of the People’s Representatives (ARP) on 5 August 2015.

[viii] OECD data

[ix] National Institute of Statistics – Tunisia.

[x] MEATDD data