Morocco: Jet to Let Guide to Morocco

Why invest in Morocco?

Morocco is one of the fastest rising stars among jet-to-let investors. Located in North Africa, but at points less than ten miles from mainland Spain, the country benefits from both a fantastic climate and a unique cultural mix. Its geographical position puts it within easy reach of UK airports, but far enough away to give this exotic place some serious jet-to-let potential.

The story so far…

For 12 centuries Morocco succeeded in holding onto its independence, even during most of the colonial period. However, in 1912, France took control of most Moroccan territory while a small part in the north was occupied by Spain.

After gaining independence from France in 1956, the country went on to regain control over Spanish-occupied areas, leading eventually to a military conflict. Some of the Spanish-ruled area was retaken, but to this day Spain continues to occupy the small enclaves of Ceuta and Melilla in the north.

The 1990s brought an era of modernisation and liberalisation for Morocco and included empowering the regional governments and establishing non-governmental organisations. Recent key events were the establishment of a bi-cameral legislative body in 1997 and the signature of free-trade agreements with the US and European Union (EU) in 2004, leading to significant opportunities for economic growth.

Where is it?

Morocco is in the north-west corner of Africa. It has a long coastline of approximately 1,835km facing the Mediterranean Sea on the north and the Atlantic Ocean on the west. The country shares borders with Algeria and an area of Western Sahara. Morocco has a total area of 446,550km squared.

What is the weather like?

The climate is one of the main attractions for visitors to Morocco. It’s extremely varied with temperatures over 40°C in the summer and not dropping below 15°C in the winter. As a result, Morocco is a fantastic place to live or visit throughout the year.

Language

Arabic is the main language and is spoken by 75 per cent of the population. French is often used for government and business and as a second language by the better educated, and Spanish is spoken in the cities in the north. Berber dialects are also spoken but by less than 25 per cent of the population.

Currency

The currency used in Morocco is the Moroccan Dirham (MAD). This is divided into 100 centimes. The Moroccan Dirham is pegged to a number of currencies, chiefly the euro at a rate of MAD 10 to €1.

Politics

The Kingdom of Morocco is a constitutional monarchy and the current ruler is King Mohammed VI, who came to the throne in 1999. The current Prime Minister is Driss Jettou, appointed in October 2002. The main political parties include the Socialist Union of Popular Forces and the Independence Party.

Administratively, the country is divided into 37 provinces and two municipalities.

Economic growth

In 2005, the economy grew by 1.6 per cent and its gross domestic product (GDP) per capita was $4,300 (€3,400). The economy has been stable with good growth averaging 3.6 per cent between 2000 and 2005. The economy is expected to recover to more robust levels in 2006 and is forecast to grow by a further 5.7 per cent in 2006 (source: Economist Intelligence Unit).

Inflation

Over the past decade, Morocco has managed to keep inflation under control. The annual rate of inflation reached 2.1 per cent in 2005. The forecast for 2006 is 2.8 per cent.

Interest rates

Continually low inflation has allowed a substantial reduction of interest rates. Short-term interest rates were 2.3 per cent in March 2006.

Unemployment

Unemployment is a serious economic and social problem for Morocco. Unemployment is highest among women and young adults and is also significantly higher in urban areas than in the countryside. There is pressure in the textile sector, traditionally a major employer in Morocco, which continues to face strong competition from China. Nevertheless, the economy has managed to sustain relatively robust employment growth in sectors such as commerce, agriculture, construction and the public sector.

Foreign direct investment (FDI)

Morocco is an attractive location for foreign investors. According to a report by the European Investment Bank (EIB), in 2003 and 2004 Morocco received more foreign investment than any other country in Africa and the Middle East. The Moroccan government has instigated significant reforms designed to improve foreign trade and encourage investment. Relatively cheap labour and the free-trade agreements with the United States and the EU have attracted many new foreign companies.

The main investor countries are France, USA and Spain and the key industries benefiting from FDI are tourism, light manufacturing, retail and construction.

Economic summary

Morocco is an emerging economy, is macro-economically stable and has very low levels of inflation. Growth, however, has not been strong enough to reduce poverty and high urban unemployment.

In total, 22 per cent of the country’s GDP is derived from agriculture, 36 per cent from industry and 43 per cent from services. The strongest industry in Morocco is phosphate mining, which makes a significant contribution to national income. However, the country remains over-dependent on agriculture, but the government is sensibly developing other sectors in order to diversify its economy.

In 2004, Morocco began a process of market reform and privatisation. It’s a major step forward as reforms should boost FDI and trade as well as attract multi-national corporations leading to a growth in employment opportunities.

The economic outlook for Morocco is bright as the country emerges from the early stages of economic development. The government continues to pursue its policies to tackle poverty and unemployment, improve education and raise the standard of living for its people.

So, what is the catch?

Poverty
Poverty continues to be a major problem and affects a significant proportion of the population. Some estimates suggest that as many as 20 per cent of the country’s population lives in poverty.

Poor literacy rate
The literacy rate is poor with just 52 per cent of adults able to read and write and women being noticeably less literate than men. This limits the future employability and flexibility of the Moroccan labour force and, unless it’s tackled, will have a detrimental effect on future economic growth and prosperity.

Corruption
Transparency International publishes a yearly corruption index (CPI). The 2005 index ranked Morocco in 78th place with a score of 3.2 along with China, Senegal, Sri Lanka and Suriname. This score is the worst performing among all the countries mentioned in this reference guide. Corruption in Morocco is a serious issue and potential investors must take it into account.

The property market

Morocco’s year-round sunshine and close proximity to Europe have made it an increasingly popular target for jet-to-let property investors. The property market is still in its infancy, and for this reason it’s often referred to as an emerging market. In recent years the country has experienced a flood of investors, keen to invest in property now that prices are still relatively low. The major cities of Morocco have recorded capital growth of over 30 per cent in the last few years.

Forecasts for the property market are upbeat as long-term economic indicators point to sustained economic growth. The property market is set to continue to grow at a brisk rate driven by the Kings Vision 2010 scheme.

This scheme will see $10 billion invested in the regeneration of the country with cash injected into infrastructure projects in order to encourage mass tourism. This should provide a stable base for jet-to-let investors to generate strong returns as the Moroccan economy grows and foreign interest in holiday and retirement property grows.

Morocco has become a favourite for golfers. A number of developments have been constructed around Morocco’s 16 best golf courses in Marrakech, Rabat, Casablanca and Agadir to satisfy the demand from golfers for quality accommodation. All in all, Morocco has more than 30 golf courses and there are a growing number of tour operators offering tailor-made golfing holidays and breaks.

Unlike many emerging property markets, Morocco has a strong rental market, ideal for investors looking for a pure jet-to-let approach. A €100,000 two-bedroom apartment could be expected to generate a monthly rental income of €2,000 for the peak summer season months. Morocco has potential for a property investor looking for both income and growth over the medium to long term. Rental income is now exempt from tax for five years and no Capital Gains Tax is paid if the property is sold after ten years. This encouraging change in policy reinforces the view that the government is serious about achieving its targets for 2010.

Tourism

In 2005, 5.8 million tourists visited Morocco (a seven per cent annual increase) with income up 18 per cent to MAD 41.1 billion. The majority of arrivals came from France, Spain, the UK (an increase of 29 per cent year-on-year) and Germany. Morocco has set up a tourism strategy to attract ten million tourists by the year 2010.

Hotspots

Rabat is Morocco’s capital city. It’s home to the government and is more cosmopolitan than some of Morocco’s other cities. It’s also home to some of Morocco’s best golf courses, which are a major attraction for many of the people who visit the area. Economic reforms have had a noticeably positive impact on the city’s property market and in the last few years there has been exceptional growth.

Marrakech is in south-west Morocco at the foothills of the Atlas Mountains and it continues to be a favourite destination for travellers and traders alike. It’s now attracting jet-to-let property investors, second home buyers and people seeking a new life in the sun. Local estate agents have reported increasing interest from British investors and Marrakech has become the country’s hottest tourism and property investment location. People flock to Marrakech all year round ensuring a high demand for short-term rentals, which is encouraging for those looking to buy a property to let.

Marrakech has a hot, dry climate and it benefits from over 300 days of sunshine. The city has a broad appeal with a mixture of African, Spanish and French influences. With upmarket developments under construction, Marrakech looks set to continue attracting increasing attention from buyers and tourists in the coming years, with significant potential for jet-to-let investors as prices are about half of those for similar properties in Spain. The western-leaning Moroccan government is eager to promote investment from overseas and, as a consequence, property prices have risen by about 50 per cent in the last couple of years.

Riads are historic Moroccan homes set around a courtyard with traditional features, and there are plenty of them available in Marrakech as renovation projects. Interest in riads has been extremely high over the last couple of years and prices are starting to reflect that, but they are still comparatively low. In contrast, the most expensive part of Marrakech is the Palmeraie where many of the villas are owned by French nationals and can sell for anything between €1.5 million and €3 million. Somewhere in between both extremes of these properties are four-bedroom luxury villas with pools in locations near golf courses. These are currently selling for upwards of €550,000 with room for this to increase as demand for property rises.

One emerging hotspot is Tangier, located on the northern tip of Morocco. Tangier is Morocco’s most cosmopolitan city and the mix of cultures means that it doesn’t have an especially Moroccan feel to it. Today, the city is made up of the busy port, lively markets and its superb bay and beaches. Flight times from the UK are just two and a half hours making it even more of an accessible location for a jet-to-let property. In 2008, a new tunnel is planned to be built that will link Tangier to Gibraltar.

The tourist market in Tangier is very strong, mainly due to its easy access from the European mainland. There is a growing demand for long-term rental property, which is ideal for an investor looking for stable opportunities for income in this market. Prospects for short-term lets are encouraging and property prices in Tangier are on average 25 per cent of a similar property in Spain, giving an extra incentive to those who want to invest here. As such, a two-bedroom apartment close to the coast can be purchased for less than €70,000 and a small villa can be found for under €100,000.

Located on the western tip of Africa, Casablanca is the economic hub of modern Morocco. It’s the capital in all but name and because of the various foreign influences that have left their mark here, it has a feel of a Southern-European city. Casablanca offers a variety of investment options ranging from recently renovated traditional houses to large villas and apartments. Although there is a good supply of hotels in Casablanca, they are almost always fully booked so apartments for short-term lets offer the jet-to-let investor an interesting opportunity. The number of people visiting Casablanca is expected to rise in the coming years and increasing property prices are forecast to reflect this.

The buying process

There are no restrictions imposed on foreign buyers of property in Morocco. The process of purchasing a property is relatively straightforward and is similar to that in many European countries.

Your first step will be to find a local estate agent, known locally as a ‘simsaar’. It may also be necessary to use a translator, as these agents often speak very little English. Alternatively, you may choose to purchase through a property company based in the UK, which may make the process easier.

When you have found your property and the vendor or developer has accepted your offer, you may want to employ a local surveyor to perform a structural survey if necessary. An independent lawyer should then be appointed by you to formalise the agreement.

After these steps have been completed, the buyer pays a ten per cent deposit. It’s important to note that the vendor can still sell to someone else if he offers a higher price, but you will be able to get your full deposit back. Gazumping is not just confined to the UK market!

Normally it takes six to eight weeks for searches to be completed and as some older properties may not have title deeds, the notary will create the official title deeds for you in return for an additional fee of one per cent.

Completion happens in the notary’s office where all parties must be present. The buyer pays the remaining costs and taxes and the notary then prepares and signs all of the necessary documents to register the property.

Transaction costs

These expenses are outlined below:

• Notary fees: the public notary will usually charge one per cent of the purchase price.
• Legal fees are approximately one per cent.
• Estate agents’ fees are usually around 2.5 per cent of the purchase price.
• Land registration fees are around 2.5 per cent.
• Surveyor costs are approximately MAD 2,500.

Total costs will be six to seven per cent of the purchase price.

Annual costs

Buyers are liable to pay the following annual taxes on their Moroccan property:

• Property Tax is paid at a progressive rate, which ranges from 0 to 30 per cent depending on the property value. The property owner is exempt from this tax for the first five years of ownership. The tax is based on the property’s annual rental value. There is a 75 per cent discount if the home is your permanent or holiday home.

• Property Rental Tax is 13.5 per cent on the rental value of the property.

• Refuse Collection Tax is ten per cent of the property’s annual rental value. The property owner is exempt from this tax for the first five years of ownership.

Taxes

The taxation system has recently been liberalised, but it’s advisable to seek advice from a tax advisor who specialises in Morocco. Below are some major taxation rules:

Income Tax
Income Tax rates:

Tax Annual tax base (MAD)
0% 0–18,000
13% 18,001–24,000
21% 24,001–36,000
35% 36,001–60,000
44% Over 60,001

Corporation Tax
The tax rate applicable to corporations in Morocco is 35 per cent.

Capital Gains Tax
Capital Gains Tax is 20 per cent if the property is sold within five years of purchase. If the property is sold after five years but less than ten, then the rate is ten per cent on profits over MAD 1 million. After ten years of ownership, the property is exempt from Capital Gains Tax.

Summary

Strengths

• A stable monarchy.
• Increasing liberalisation.
• A special trading status with the EU and US.
• Consistent economic growth.
• Strong tourist market and demand for second homes, retirement homes and rentals.
• All-year-round tourist season.
• Stable and emerging property market at the same time.
• Great beaches.
• Beautiful scenery.
• Low-cost flights.
• A variety of property and locations available.
• Relatively cheap coastal properties.
• No restrictions on foreign ownership.
• Large French interest and growing British demand.
• Golf tourism is strong.
• Low property purchase costs.
• Low transaction costs.

Weaknesses

• Competition from hotel industry for rentals.
• High unemployment and rigidity of the labour market.
• Poverty is widespread.
• Education system is poor.
• Unlikely to attract large-scale service-focused industries.
• Already under pressure from low-cost labour markets, such as China.
• High dependency on agriculture which can be prone to drought.

Opportunities

• Growing popularity with holidaymakers and second home owners.
• Lifestyle investment or ‘live-and-let’.
• The King’s 2010 vision is having a significant effect on the property market.
• If the proposed tunnel from mainland Europe is built, it will have a major impact on tourism and trade.
• More low-cost carriers and cheaper airfares.

Threats

• Relatively underdeveloped economy.
• Competition from other low-cost property markets.
• Political stability is not presently an issue, but what may the future hold?

Facts at a glance

Geography

Population (2005 estimate): 33,241,259
Language: Arabic
Ethnic groups: Arab-Berber 99.1%, other 0.7%, Jewish 0.2%
Local currency: Moroccan Dirham divided into 100 centimes

Political system

Political structure: Constitutional monarchy, Monarch King Mohammed VI
Prime Minister: Driss Jettou
Main parties: Socialist Union of Popular Forces, Independence Party

Economy

Unemployment rate in 2005: 10.5%
Unemployment rate, December 2005: 10.5%
Inflation rate in 2005: 2.1%
Inflation rate, March 2006: 2.1%
Interest rate, March 2006: 2.3%
GDP growth in 2005: 1.6%
GDP growth forecast for 2006: 5.7%
GDP per capita: (income $4,300 (€3,400) per person) in 2005

Taxation

Income Tax: 0–44%
Corporation Tax: 35%
Capital Gains Tax: 20%

Corruption statistics

Corruption rate: 3.2
Corruption rank: 78th

Industry and technology

Major industries: Phosphate mining and processing, Food processing, Leather goods, Textiles, Construction, Tourism

The Moroccan property market

Hotspots: Rabat, Marrakech, Tangier, Casablanca

Property taxes (transactions)

Land Registry fees: 2.5%
Notary fees: 1%
Legal fees: 1%
Estate agents’ fees: 2.5%
Total fees: 6–7%

Property taxes (annual)

Property Tax: 0–30% of annual rental value
Property Rental Tax: 13.5% of annual rental value
Refuse Collection Tax: 10% of annual rental value

Mortgage

LTV: 70%
Term: Up to 15 years
Currency: Moroccan Dirham
Current interest rate: 5.5–7.5%

Investor resources

Embassies

British Embassy in Morocco
17 Boulevard de la Tour Hassan
PO Box 45, Rabat
Tel: +212 (37) 238 600
Fax: +212 (37) 704 531
Website: www.britishembassy.gov.uk

Moroccan Embassy in the UK
49 Queen’s Gate Gardens
London SW7 5NE
Tel: 020 7581 5001
Fax: 020 7225 3862
Website: http://morocco.embassyhomepage.com

Useful websites

Central Bank of Morocco – Bank Al-Maghrib
www.bkam.ma

Moroccan Government Information
www.mincom.gov.ma

Tourism
www.visitmorocco.com

© Lawpack Publishing 2006

“The Jet–to–Let Bible”, Dominic Farrell
Reproduced with the permission of Lawpack Publishing.

Further information on this topic can be found in “The Jet-to-Let Bible”, by Dominic Farrell, ISBN 1 905261 11 X

For information and advice on investing overseas, contact Bewarethesharks.com on +44 (0) 151 482 5525 or visit www.bewarethesharks.com
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