Morocco: Morocco

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

Morocco, with snow topped mountain peaks, white beaches, undulating hills and old towns bustling with life, has an enduring appeal which has attracted people from all walks of life. Famous names that have fallen for the country include Winston Churchill, Jean Paul Gaultier and the Rolling Stones, among others. The number of British holidaymakers going to Morocco in 2004 increased by 20% showing a widening of Morocco’s appeal. As Europe’s ‘Gateway to Africa’, Morocco enjoys long-established trade links with the UK, and commerce between the two countries has increased three-fold in the last decade alone, making the UK Morocco’s second-biggest investor.

In fact, the tourist industry produces 7% of Morocco’s GDP and employs almost one million people, qualifying it as the second-largest source of income in the country. This looks set to increase rapidly under the government’s Vision 2010 plan, through which infrastructure and resources are being improved. 80,000 hotel rooms are being constructed (creating 600,000 jobs), and visitor figures are set to reach 10 million before Morocco’s acceptance into the Euro-Med free trade zone in 2010. Six new coastal resorts are also under construction, with facilities including 5-star hotels, golf courses, apartments, villas and spas.

The last five years have seen a considerable rise in the number of foreigners buying houses in Morocco, and Moroccan property agents have predicted that British buyers will be the biggest contributor to the market over the next five years. This is partly due to the fact that King Mohammed VI is actively encouraging foreign investment, and, in 2001, changed the law to allow foreign investors to take proceeds of property sales out of the country. The government has created the Investment Promotion Unit in order to attract further foreign investment and does not legally differentiate between foreign and domestic investors. In the last four years, sales have increased by 280%.

Is this a good place to buy?

An hour’s ferry ride from southern Spain, Morocco shares the attractions of the Costa del Sol without its high cost of living, its overdevelopment or its crime rate. The Moroccan cities of Marrakech, Casablanca, Fez and Tangiers throw up images of the hippy trail, and the population, a mixture of Africans, Berbers and Arabs, are unrivalled in their hospitality. House prices are much lower than they are in Europe and represent extremely good value for money – the market has been compared to that of Spain twenty years ago. On top of this, the country enjoys 300 days of sunshine per year, allowing for a year-round tourist market with excellent rental opportunities.

In economic terms, Morocco also provides good reasons for investment. The country has free trade agreements with both Britain and the US, a fact which is boosting foreign direct investment. The Moroccan currency is relatively stable, with a foreign exchange rate anchor and a well-managed monetary policy, and inflation rates have been held to the levels of industrialised countries for the last decade. According to World Bank and IMF reports, the dirham has appreciated by 18% in real terms since 1990, unemployment is falling and private consumption, imports and exports have all increased. GDP growth in 2004 reached 4.4%, but dropped in 2005 to 1.8% due to substantial increases in wage levels and oil subsidies. The government predicts recovery in 2006, and gaining membership of the Euro-Med Free Trade Zone by 2010 together with the work being put into this should provide a significant boost to the economy.

Along with the year-round rental potential mentioned above, other attractions for investors include a lack of any restrictions for foreign purchasers, familiar conveyancing laws, based on the French system, and the possibility of buying architecturally unique property. Financing is available, and capital growth is currently at 15% per annum. Capital gains are taxed at 20% for the first five years after which it is reduced by 50%, and it disappears altogether on properties held for over ten years, making Morocco a strong long-term investment. The country has a dual tax agreement with the UK, and there is no inheritance tax and no tax on rental income for the first five years. These factors, together with the possibility of repatriating 100% of profits as long as the initial payment is made in hard currency, mean that Morocco offers a lot of potential to the property investor.

Price history

Morocco offers properties for all budgets, from £10,000 to £1 million. Prices for luxury properties have been rising for thirty years, pointing to strong European interest in the property market here, consistent demand and low vacancies in holiday lets. Morocco is a relatively new market for foreign investment, as it is only for the last three years that investors have been allowed to export profits from the sale of residential property, and though prices have been rising at around 15% per annum, it is still possible to buy a large villa which would cost £500,000 in Spain for around £180,000 outside Tangiers.

Which type of property should you go for?

In determining which type of property to purchase, there are several matters to consider. These include: location, age, size, architectural value, condition, title and ownership, and the cost of purchase and restoration. The current trend for British buyers is either to purchase off-plan apartments or villas in the coastal developments, or to purchase traditional Moroccan houses for renovation. For renovation projects, the most popular properties are the traditional riads or dars, which can be found inside the medina (old town enclosed in ramparts accessed through imposing gates, with maze-like streets). A riad is a house built around a central garden with a fountain, while dars are similar but don’t have the garden. Most of the traditional houses in the medina need restoring, and are drawing British buyers who want a creative outlet and to be able to inject their personality into a property. Remember that houses a short walk into the medina will usually be cheaper than those by the gates (cars are not allowed in the medinas), and that it will often cost the same to renovate a property as it does to buy it.

The supply of homes and villas for reconstruction is, however, shrinking, which makes new builds a good value buy. The construction plans for Vision 2010 also open up an interesting market with a lot of potential in off-plan property investment, so it may be worth looking away from the traditional homes and taking advantage of the newer markets.

Land is less easy to purchase than property. For this, government permission is required, which can take months and be a complicated process. The minimum amount of land buyers can obtain is one hectare, or 10,000 square metres. There is no maximum, however if you wish to purchase a large area, a certificate from the Vocation Non Agricole is necessary. You would then have three years in which to build. To avoid the process of obtaining permission it is a good idea to buy land from a developer who has already bought the land and therefore completed the process. Many of the developers of the main coastal resorts are willing to sell portions of land for sub-developments, so this is an option for people with the money and experience.

If you intend to buy a number of properties and thereby spread an investment, it may be worth setting up a Moroccan Private Limited Company (set up time is about three weeks). The minimum equity capital is 100,000 dirhams (around £6,000), and the company may be formed by two or more members who are only liable to the amount of their share of the equity capital in the company. This is a good mechanism for unifying your Moroccan property investment activities and will make managing your various profit streams for repatriation easier.

Buyers this market will appeal to

As stated above, traditional properties are often popular with those looking for a creative outlet and for second home buyers. Guesthouses are also popular in the medinas, and a number of investments have been made with the aim of turning older properties into a retirement project or a new opportunity. Apart from the second home market, the market for those purely interested from an investment point of view is also opening up with the massive construction projects planned and under way for Vision 2010.

Hotspots

The most well-known places for property sales in Morocco are Marrakech, Fez and Essaouira, though the new resort developments along the coast offer additional opportunities. Marrakech is known as the ‘entertainment capital’ of the country, and has long been the most popular tourist destination due to its year-round desert heat, its rose-red medina and its boutiques. The city has attracted stars such as Jean-Paul Gaultier and Yves Saint-Laurent, and until recently was the most accessible Moroccan destination from the UK. This made it the most sought-after place to buy property, and prices reflect this. The most recent trend for property developers is to buy old houses in the commercial district of Gueliz, knock them down and build modern apartment blocks in their place, creating a ‘pied a terre’ market for long weekenders from Europe. Whilst Marrakech still presents good opportunities for investment and is an exciting destination, prices here may be prohibitive. An alternative option is to buy land in the countryside around Marrakech and to build on it: the Route d’Ourika, the Route d’Ouarzazate and the Route de Fez are three areas which are gaining in popularity, the first due to the stunning views and the second two due to their proximity to facilities such as the American School, large supermarkets and Club Amelkis, a new 18-hole golf course.

Fez is a kind of Moroccan Florence, and prides itself on having the most elegant and highly-decorated houses in the country. The city is said to have 300 abandoned palaces, a legacy of the ruling oligarchy who fled before independence. All these properties are apparently for sale, giving an option for developers wanting to build stylish hotels – although restoring them completely would cost millions. Nevertheless, it is worth watching this area as developers move in. Buying an apartment in one of these palaces could prove to be a good opportunity. Traditional dars here start at around £12,000 ($20,000), and most cost between £18,000 ($30,000) and £30,000 ($50,000), whilst riads generally cost between £50,000 and £150,000.

Two and a half hours from Marrakech on the Atlantic coast is Essaouira, a picturesque fishing town popular among travellers and the second most popular destination for homebuyers after Marrakech. The city was once the port for Timbuctou, and as a result has a wide mix of cultures. Essaouira has the only medina with a grid system, as it was one of the first towns to have an urban planning policy. The area has also proved popular with film-makers, and was recently the location for Oliver Stone’s “Alexander” and Ridley Scott’s “Kingdom of Heaven”. The new mayor has, however, placed restrictions on the construction of guest houses after a surge in the numbers being built provided too much competition for the larger hotels. The market here is mainly for second homes, and property tends to be cheaper than in both Marrakech and Fez.

One example of a new resort being built along the Mediterranean coast is Mediterrania Saidia. This large master planned resort development is three hours by air from the UK, has a perfect Mediterranean climate and is being built by one of the largest developers in Spain. The increase in tourism is likely to create a situation where demand significantly outstrips supply, and at least over the next five years, capital appreciation should be very good. Apartments at Mediterrania Saidia are available from 68,000 euros, or £46,000/$80,000 and appreciation on these properties is ecpected to be strong.

The development of Mediterrania Saidia will take several years, but the $360 million programme of investment is poised to create a region blessed with world-class amenities which will create a series of resorts that have already been billed as ‘Europe’s new holiday centre’.

Purchase process

The buying process in Morocco is straightforward (once issues of title and price are settled), and can be completed within ten to fifteen days. Purchase takes place in four stages: agreement, sale, registration of sale and final confirmation. Payment must be in dirhams (which cannot be exported); the usual procedure is for buyers to open a bank account with a finance company in Morocco. This makes repatriation of profits straightforward. In order to open a bank account the buyer needs a signature, a photocopy of their passport and a completed application form.

When the price is agreed, a deposit of between 10% and 50% is payable, and a completion date is agreed. A notaire (notary), a local authority official, oversees the sale on behalf of the purchaser and vendor. The notaire will establish that the deeds are in order, those with a claim to the property have agreed to the sale, and that all outstanding bills are settled. The notaire can also make the system of taxes and fees to be paid much clearer, so it is important to find one who is familiar with the purchase process. Deals are usually carried out in Arabic (although some developers will work in French or in Spanish with a translation), so employ a translator.

The balance should only be paid after the house is empty and has been inspected. The reason for this is that if you pay the vendor and they subsequently decide not to move out for some reason, it can take five years to get them out. When you have the house, change the lock, as it is likely that a number of people will have a key.

Morocco has a dual tax agreement with the UK. Taxes include: annual property tax (equivalent to the UK council tax, amount depends on the size of the property); Droit d’enstrigement, equivalent to stamp and transfer tax – 2.5%; registration fee – 1%; tax urbaine – 13.5% of rental value (this is not applicable for the first five years and there is a 75% discount if the property is a permanent or vacation home residence); personal income tax on rental income – amount determined locally; and garbage collection tax – 10% of rental value (not applicable for the first five years).

Mortgages can be found in Morocco, for a maximum of 60% of the purchase price or valuation. The usual maximum mortgage period is 15 years, and cannot extend beyond retirement age. Interest is negotiable, usually standing at around 7-8%, and proof of income is required.

Key risks and opportunities

It is possible to buy an existing property for a very good price in Morocco. However, remember that renovated properties may mask a multitude of building flaws, so check everything thoroughly before making a purchase. If you are planning to buy at the lower end of the market you are more likely to find yourself dealing with local vendors and agents. However, in buying from locals, note that it is common for people to agree to sell their house for one price and then to decide that they want a higher price.

One of the main problems with buying property in Morocco is issues which arise with regard to title. Some properties do not have title deeds, and if anything, have a scroll written by an “adoul”, an official scribe, documenting ownership which sometimes goes back hundreds of years. As inheritance laws state that everybody with a claim to the property must agree to a sale (this can be a sizeable group of people), it is a good idea to employ a lawyer well-versed in the intricacies of Moroccan property to trace the title holders and to arrange the purchase. If possible, it is better to buy from one or two owners, and the longer they have had the house the better. It is possible to get an official title by paying 1% after buying a house, and some people do this via a notary during the buying process – this has advantages as banks are more likely to give a loan if the title process has been begun and paid for. Houses with title are also more likely to bring a higher price in the future.

Because of potential title issues, it is often easier to buy from a developer. This doesn’t have to exclude purchases of older style properties as many developers are buying up areas of traditional properties and renovating them into clusters of well appointed homes with shared facilities. In these, and off-plan, developments, the developer should have secured all title issues before they begin selling.

Finally, it is worth remembering that government procedures here are not always transparent, efficient, or quick, and routine permits can be difficult to obtain. However, since coming to power in 1998, the government of Prime Minister Youssouffi has made strengthening transparency and the rule of law a high priority. In this regard Morocco has begun cooperation with Moroccan civil society and business organisations as well as with the World Bank on measures to combat corruption more effectively. Such problems are, therefore, being reduced, and the Investment Promotion Unit should carry this work forward substantially.

Opportunity rating

Morocco presents a good opportunity, as increasing numbers of people realise how close and accessible the country is. The infrastructure is improving, tourism is on the increase and the government is making moves to develop and attract investment from abroad.

Rating: $ $ $ $

Risk rating

As with any Muslim country, there is always a potential risk of antagonism and terrorism directed towards foreign properties and investors, although these are smaller in Morocco than in many other areas.

Rating: * *

© Vacation Work 2005

“Where to buy a property abroad – An investors guide”, First edition 2006 David Cox, Ray Withers, Kate Godfrey.

Reproduced with the permission of Property Frontiers.

Further information on this topic can be found in “Where to buy a property abroad – an investors guide” 1st edition, by David Cox, Ray Withers and Kate Godfrey.

This book is available from all good bookshops nationwide at a recommended retail price of £12.95 or can be ordered directly from www.aninvestorsguide.com for £10.95 including postage and handling (to UK addresses only).

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