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Cablegate: Mixed Success for Morocco's Social Housing

VZCZCXYZ0000
RR RUEHWEB

DE RUEHRB #0737/01 2201557
ZNR UUUUU ZZH
R 071557Z AUG 08
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 8961
INFO RUEHAS/AMEMBASSY ALGIERS 4869
RUEHMD/AMEMBASSY MADRID 6039
RUEHFR/AMEMBASSY PARIS 5097
RUEHTU/AMEMBASSY TUNIS 9700
RUEHCL/AMCONSUL CASABLANCA 4247

UNCLAS RABAT 000737

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV SCUL MO
SUBJECT: MIXED SUCCESS FOR MOROCCO'S SOCIAL HOUSING
AMBITIONS

(U) This message is sensitive but unclassified. Not for
internet distribution.

1. (SBU) Summary: Five years after King Mohammed VI directed
that social housing be made a "national priority," the range
of government programs aimed at reducing the national housing
deficit and helping Morocco's working poor to obtain decent
accommodation has registered important progress. Tens of
thousands of slum dwellings have been cleared and their
residents relocated, and the national deficit in housing
units has been reduced from 1.2 to 1 million units.
Operators warn, however, that this positive momentum is at
risk. Rapidly escalating costs and a reduction in tax
benefits for companies has led to diminished private sector
interest in the program. Indeed, no building developers have
yet signed on to the El Fassi government's flagship program
of a basic 50 square meter apartment for 140,000 MAD.
Companies in the sector now pin their hopes on government
agreement to provide incentives for "mixed-use" developments,
in which developers will construct a limited number of
low-cost units, interspersed among other more expensive
properties. End Summary.

2. (SBU) Morocco's "Cities without Slums" campaign came
against the backdrop of concern that the country's
shantytowns were a breeding ground for extremism, and
recognition of the serious disequilibrium in the country's
housing market. In 2003, the World Bank estimated that
900,000 households containing a third of the urban population
(5 million people), lived in sub-standard housing, with
212,000 of those households residing in what constituted
"urban slums." With an increase in urban population,
existing government programs were unable to keep pace, so
that the country's cumulative deficit in housing rose from
930,000 units in 1994 to 1.24 million in 2002. Informal slum
dwellings took up the slack, as low income groups were
effectively exluded from the market, given the absence of
both housing and financing products addressed to their needs.


3. (SBU) Following the King's directive in 2002 to put social
housing among Morocco's key national priorities, the
government set out an action plan that sought to increase the
production of housing and attain the objective of 100,000
low-cost units per year. New government programs targeted
both the supply and demand elements of the equation. On the
supply side, operators received tax breaks and access to hard
to obtain property if they agreed to construct low-cost
housing. On the demand side, new guarantee funds were
established to benefit those who were unable to access the
market. These included a fund targeted at low-income civil
servants (FOGALEF) and a fund aimed at poor families with
variable income (FOGARIM), as well as the extension of
micro-finance to housing. The overall structure of state
intervention in the sector was also streamlined: seven public
housing institutions were consolidated into Al Omrane, a new
national housing group, which managed state intervention in
the sector, both constructing units itself, and preparing
other properties for private sector construction.

4. (SBU) After five years, the government's effort has
registered important progress. Government of Morocco figures
show that 850,000 units have been built since the strategy
was launched, nearly half by the private sector. The annual
total of over 152,000 units has helped the country reduce its
overall housing deficit from 1.2 million units to 1 million,
close to the 1994 level. 484,000 of these units constituted
"social" or "low-income" housing, a total just shy of the
government goal of 100,000 such units per year. (The total
was comfortably exceeded in 2007, however, when 121,000
low-cost units were put on the market.) Sustaining this
progress in years to come will be a challenge, however. A
recent Finance Ministry study highlighted flagging progress
on the social housing front in the private sector: only 40.3
percent (70,520) of the "social housing" units provided for
in 68 conventions signed between the government and the
private sector up to the end of 2006 were actually realized,
as a result of the "failure" of companies to honor their
engagements.

5. (SBU) Our contacts in the sector attribute this declining
interest to overambitious pricing by the government of
"social" products at a time when costs are escalating
rapidly, both as a result of world trends and the overall
boom in recent years in Moroccan real estate. Though the
market now appears to be cooling, real estate prices have
more than doubled since 2006, with the market approaching a

"speculative mania" in some areas. Nabil Kerdoudi, an Al
Omrane board member, notes that this significantly distorted
the overall market, as "middle class buyers could not find
appropriate products, and so moved downmarket." As a result,
"poorer groups could not get to the 200,000 MAD property,"
which until this year's budget constituted the government's
primary social product. When they could, they also often had
to pay money under the table on top of the official selling
price. Industry observers note that in Morocco's overheated
market, such under-the-table payments were widespread. The
scope of the issue has attracted the interest of Moroccan tax
authorities, and the National Federation of Property
Developers' (FNPI) is now exploring setting up a process with
the government that will allow developers to voluntarily
"correct" their earlier declarations.

6. (SBU) Kerdoudi notes that a number of underlying factors
have inflated Morocco's real estate market, affecting both
the higher and lower end. Chief among them is the fact that
the amount of property that can be developed is extremely
limited and so has appreciated in value. Much, he noted, is
held as an investment or "valeur refuge" for the future and
is not made available for development, even when such price
increases occur. Compounding the problem of access are
shortcomings in Moroccan law governing rental properties, so
that there is "no incentive" to build rental property in
Morocco. (Note: The government is currently working on new
legislation that should introduce some added protection for
landlords. End Note.) With expensive terrain and expensive
building materials, in Mansour's view "it is not possible to
produce a property at the 140,000 MAD price" established by
the government. He argues instead that only acceptance by
the government of "prerequation," or the construction of
mixed-use developments, will permit the government to
maintain momentum on the social housing front. If the
government makes available property for development, and
allows companies to divide it between social and higher-end
properties, he argues "Morocco can arrive at an equilibrium."


7. (SBU) Such an approach may also address consumer
complaints about some of the newly constructed social housing
units. A study issued this year by the Housing Ministry
showed that many were dissatisfied with their properties,
finding the 50 square meter unit in particular too small to
accommodate a family. Additional concerns related to the
quality of construction, the density of development, and the
"socioeconomic homogeneity" of development residents.
Clearly prerequation, which the government appears to be
moving towards accepting, offers the potential to address the
latter issue in particular.

8. (SBU) Comment: Morocco's progress in tackling this
important issue is in danger of stalling, in the face of
price pressures and market constraints. The next stage will
require a careful balancing of incentives and rewards with a
crackdown on the speculative behavior that has distorted the
market. Real consultation between government and private
sector will be essential to further progress: Long time
observers note that the ambitious 140,000 MAD unit is a top
level initiative that was launched without real input from
sector operators. They thus forsee only a limited shelf life
for the initiative. End Comment.

*****************************************
Visit Embassy Rabat's Classified Website;
http://www.state.sgov.gov/p/nea/rabat
*****************************************

Riley

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