MOROCCO MONEY BACK THROUGH SPAIN

WHAT IS LAW 57/68

Spanish Law 57/68 has been talked about a lot recently but there is a big mystery behind this piece of legislation, it has been, and it will ever be, the great unknown.

Ley 57/68 (27th July 1968) is very old, it goes right back to pre-democracy days and it’s even signed by General Francisco Franco, of all people. It is one of the very few laws, if there are any, that remain in place today.

It deals with deposits paid by purchasers to property developers when buying off-plan and the spirit behind it is to stop “the justified social alarm in public opinion provoked by repeated misuses even when misdemeanour is evident” so said the legislators of the day. This legal measure pretended equipping buyers with guarantees when handling over considerable sums, sometimes their lifetime’s savings, to potentially unscrupulous builders frequently delivered the finished product late, sometimes years, or not finishing it at all. It looks that things have not changed much!

The law is composed of very few articles, only seven, but has the moral superiority of legal precedent to fall behind.

Law 57/68 is a pioneer in Spain when it comes to protecting property purchaser’s rights, it established certain responsibilities for developers and builders who sold off-plan. One of these responsibilities was opening a separate bank account to receive customer deposits, keeping these apart from day to day transactions. Disposal of these funds only had one aim, the progressive funding of construction. Another interesting disposition, specially for the time was the necessity of client funds being protected by an insurance policy or a guarantee, usually from a bank. It was the responsibility of the guarantor to return funds to buyers if the completion was late or was not done at all.

Unfortunately, due to the recent financial crisis and the subsequent Spanish property market’s big bang, this veteran of the legal spectrum came back to life. It has converted itself into a law for everyday use today despite having been once repealed.

Courts and Tribunals are issuing positive verdicts on behalf of clients all over Spain now. Bank are being sentenced under the umbrella of Law 57/68 as I write (18/07/2018)

WARNING:

Up until 31st December 2015 the law was a “free lunch” for distressed buyers. Despite the brevity of the law (seven articles) it managed develop itself magnificently under something that’s not always usual in codified law countries, precedent and case law. The Spanish Supreme Court encouraged the application of precedent giving buyers total protection in almost all cases.

NEW LAW:

However, since 1st January 2016 this same protection, although still in place, is regulated by “The First Additional Ruling” of Law 38/1999 of 5th November. These bye-laws (ordinances) dealt with building regulations (Law 20/2015) thus substituting the old 57/68.

These boring facts can be summarised as follows:

POSITIVE ASPECTS:

  • The new regulations go further in the development of those guarantees offered by Law 57/68. Insurance and Bank Guarantees is now a MUST when it was not in the past.
  • It ensures the quality of information given by property developers to their future clients when it comes to off-plan sales. In addition, the developer must issue the client with the necessary safeguards, usually a Bank Guarantee (Aval Bancario).

NOT SO POSITIVE ASPECTS:

  • The Bank Guarantee does not necessary safeguards the full amount spent in the purchase of an off-plan property, it only guarantees deposits paid to the developer from the very day they obtained the building permit from the local authority. In theory this means that if there is no building licence, the law cannot be applied but in practice a building licence is nowadays always forthcoming sooner or later. Here, buyer’s deposits are only guaranteed from the day of issue of that permit, any deposits made before that will almost always be lost in the event of any irregularities. As always, people will get into unnecessary trouble if they don’t check out this simple fact.
  • Care must be taken that with this new law, as a Bank Guarantee now has a “shelf life” of two years, whereby this didn’t exist before. So, if a buyer does not make their claims to the developer within two years of the start of irregularities, the bank Guarantee will be void. Surprisingly, there is no mention in the law about insurance, in other words, there is no specific validity period for these policies. It is assumed, this would be in line with Article 23 of the “Insurance Contracting Law” or, more likely, there is no validity period when we talk about “Surety/Bond Insurance” (Seguro de Caución).

MOROCCO:

For many years developers based in Spain, both homegrown and foreign, have wandered about Morocco intensively. Most of these companies funded themselves the traditional way, that is, construction or project finance from a bank even if their collateral (land, etc) was in a different country. The big boys had virtually no problem in obtaining loans, obviously because of other assets in Spain. However, the problem came with the smaller ones or foreign developers who, operating under a S.L company, most of the time had little or no assets to fall back on.

To build in Morocco these companies had to do it through a Moroccan subsidiary (S.A.R.L) but these were merely a vehicle for the day to day, the bulk was in Spain.

These developers insisted, for most of the time, that buyer’s off-plan deposits came to Spain when given Morocco’s exchange control regulations that’s unlawful. All construction funding had to come to Morocco or any off-plan buyer would have lots of difficulties in repatriating the proceeds of an eventual future sale. Unfortunately, there is no proof that ALL client deposits came to Morocco at all, in fact in my view, funds to Morocco were the bare minimum, enough to pay wages and suppliers and that is it. To complicate things even more, many foreign buyers used their lawyers to channel those funds to the developer, which is fine, but for some reason the money almost always ended up in the developers account in Spain. I don’t know if it’s a case of the lawyer being instructed to do so or simply that they should have known better.

AND WHERE DO YOU COME IN?

If you bought off-plan Moroccan Property from one of the big players things are, on paper, more straightforward, you should have had some sort of guarantee (even if the property is in a foreign country). I know, people didn’t always ask for a bank guarantee and some developers took advantage of that ignorance and just tip toed the issue, However, you advisor or lawyer should have had none of it.

I have always been astonished about the care-free, ease and non-challenge that people bought property abroad, specially during the boom years but I’m even more astonished, now the market’s recovering, that they are doing it again.

Right, look at this scenario: You bought property In Morocco from one of the smaller developers and to pay your off-plan deposits you were asked to pay it to bank X in Spain or to do it through your lawyer, again in Spain. The rest is history, the developer went bust and with you having parted with your money and with nothing to show for it.

CAN YOU RECOVER YOUR MONEY IN SPAIN UNDER 57/68?

In theory, yes… because under the law, the bank should have ensured that funds were applied properly. That is, sent to Morocco. Is there proof this was done. NO.

WHAT DO YOU NEED TO DO?

If you are an existing client, we at NHI know perfectly well how you paid your off-plan deposits. All you have to say that you’re in. If you not a client, we’ll ask you for documents.

BUT WAIT…

Just before you move forward, there a couple of minor, big, things that, beforehand, we must do on the ground in Morocco:

  • Scan the Moroccan Companies House and establish the link between the Spanish S.L and the Moroccan S.A.R.L. This is never usually a problem as we know most of the developers in Morocco and know well enough where they are came and are coming from. The problem is not the legal links but getting people to fish out the information from who knows where, this is still not very clear in this part of the world. And please don’t say why not download it from the internet because I mentioned that to a registry civil servant in Morocco and he almost died from a fit laughing.
  • Ensure there is build licence, remember what we said about this. Again, in my experience this is not a big deal, most foreign developers were pushed to get one quick. The problem? As above, think internet…

If you want more personalised information. Don’t hesitate:

jorge@nottinghillinversiones.com

 

 

 

 

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Le Jardin de Fleur (Saïdia) III

Recent article appeared in Diarmaid Condon’s celebrated site: http://www.diarmaidcondon.com
Diarmaid Condon is Ireland’s foremost Independent Property Consultant and journalist. He has been in the industry since 1995 and, in that time, has been a strong advocate for improved legal protection in the sector.

Newsletter Mar 2007 Web-1.jpgProperty Logic – Moroccan Developer

This piece of advice on the Moroccan market was very kindly written by Jorge Garcia Larios who is a property expert based in Melilla, a Spanish enclave in Morocco. It deals with the topic of developers that are experiencing financial difficulties but still maintain assets in the Kingdom of Morocco. The assets in question are usually in the form of land as most developers of unbuilt projects, at this stage, have little or no money.

One such developer is/was Property Logic Maroc S.A.R.L a subsidiary of Property Logic (Spain) based near Marbella in the Costa del Sol. The company’s flagship development, called Le Jardin de Fleur, was to be composed of Tourist Apartments and Villas over various plots of land at the Macro Resort “Mediterrania-Saïdia”

Property Logic stopped building some time ago and have ever since been seeking finance to continue the works. The result of this sequence of events has left scores of derelict shells of what were to be luxury apartments and villas full of rats and weeds. It appears to be totally beyond repair at this stage.

To give Property Logic some credit, by comparison to other developers in the region they have been reasonable at keeping up communications with their clients. Unfortunately most of these communications refer to the possibility of raising further funding to complete the project. This funding has always been ‘just around the corner’ but it has never materialised. The willingness to communicate is, however, more than has been shown by other developers in difficulty in coastal Morocco.

From 2004 to 2007, like many other areas, off plan purchases in tourist regions of Morocco experienced a huge boom. Many people came in contact with Property Logic’s high visibility marketing campaigns and it consequently attracted a lot of purchasers. The developer even persuaded some UK based Premier League footballers to invest in the resort. This obviously played very well in UK and Irish media outlets, succeeding in attracting even more buyers. Unfortunately nobody who bought has had deposits refunded, which amount to around 40% of the original property sales price.

Property Logic Payment Structure

Clients reserved their properties with a token deposit which was followed by around 20% of the total cost. Over what was to be the initial construction stage a further 20% was requested at which stage came the signing of a private contract loosely translated from French as “a promise to sell”. Under Moroccan Property Law all these contracts have now expired and, as they were written to favour the developer, they are not robust enough to offer their holders any protection in law. Essentially, the beneficiary names don’t appear officially anywhere in Morocco. There is no legal reference to them so the Moroccan authorities know nothing about them, despite their having parted with significant amounts of money and now having nothing to show for it.

What can clients do?

There are essentially two things you can do. Be passive or be active.

The First Option – Do Nothing and hope Property Logic delivers

The passive route is to wait and hope that Property Logic obtains long promised funding. This is highly unlikely but the building licence has now also expired so the developer would now need to re-apply for a new one. Property Logic also has a good deal of creditors with liens on the company assets who will need to be dealt with before any building is contemplated. To clear the creditor list Property Logic will require the ‘main levé’ from its creditors (literally translated as ‘hands up’ or ‘surrender’ from French. This is a legal document enabling the developer to clear the creditor list. It involves all creditors signing away their legal rights. No strong creditors will do this unless they are happy with the negotiated settlement. Those without rights will be left out in the shuffle, relying totally on Property Logic’s goodwill.

Another matter of concern is that it has been mooted that the company is not held in high esteem by Moroccan Authorities. It is widely considered that the Moroccan government is anxious to see the back of the company and others like them. This makes the possibility of obtaining a new build licence very slim indeed.

Second Option – Become a Creditor of Property Logic

The second and more active option open to clients is that, if they are not already official creditors they should consider very seriously becoming one. Why should a client go to the bother of doing this? As stated previously, contracts with Property Logic are now pretty much worthless. It is almost inevitable that Property Logic will eventually drop out of the equation and whoever takes over will no choice but to deal with the creditor list. Those who are not officially listed as creditors will simply be forgotten about. It’s not an ideal scenario for many clients as it involves reliving the nightmare of the investment and it is obviously going to involve extra expense.

We will deal with the process of becoming a creditor of Property Logic (or any other developer for that matter) in a later article.

Jorge Larios can be contacted at saidia@gmx.es.

TYPES OF MOROCCAN DEVELOPERS

PROPERTY DEVELOPERS TYPE 2 (MOROCCO)

 

As a result of the world financial crisis and the subsequent Real Estate Market slowdown in many countries, Morocco’s recent start in the second home market wasn’t to be an exception. As in many other places in the Mediterranean, Demand exceeded Supply leading the purchasers to buy off-plan. When the inevitable happened, Developers found that they couldn’t continue building works leaving thousands of people without their property or their money. This resulting fiasco has produced a scenario whereby stranded Property Developers in Morocco can be classified in three very different categories:

My breakdown could be put as follows:

Type 1 are those who have been through financial difficulties but have still managed to stay afloat in one way or another. Here the quality of their final product is way below the promised result and/or they have not dealt with contract cancelations from clients is a satisfactory way. It is possible to take legal action for breach of contract against this group as some still have sufficient cash-flow. However there is a tendency for feet dragging and in most cases a total unpreparedness to settle matters with purchasers in a professional and efficient way. The old Fadesa-Maroc and subsequent associations come to mind (Alkudia-Smir in Tetouan and Med-Saidïa amongst others).

Jumping over to Type 3: Here we simply don’t know the current state of things, communication is inexistent and an air of suspicion is present overall. Here, Playa Vista also in Tetouan is firmly under this heading.

I’ve left Type 2 for the end in order to develop in more detail. This corresponds to those developers that are experiencing financial difficulties but still maintain assets in the Kingdom of Morocco. The assets we are talking about are usually in the form of land.

One such developer is/was Property Logic Maroc S.A.R.L a subsidiary of Property Logic (Spain) based near Marbella in the Costa del Sol. Their flagship development was to be called Le Jardin des Fleurs to be composed of Touristic Apartments and Villas over various plots of land at the Macro Resort “Mediterrania-Saïdia”

Property Logic stopped building some time ago and have ever since been seeking Finance to continue building but have been unsuccessful so far. The result of this sequence of events have left an eyesore of derelict shells of what were to be luxury apartments and villas. It is now full of rats and overgrown vegetation. For many it is totally beyond repair at this stage.

To give Property Logic some credit they have been reasonably in touch with their clients and every time has transmitted through the message that funding was just around the corner which of course never came. This preparedness to show up in difficult times is more that you can say for other developers.

As it was the case during the property boom in the country from 2004 to 2007 buying off plan was the flavour of the month. There were hundreds of people answering Property Logic’s aggressive marketing campaigns and many did buy. One such successful campaign was persuading some premier league top professional footballers to buy at the resort. This was given top exposure in the media by the company’s spin doctors and succeeded in attracting many more buyers. It was a very clever tactic that later backfired. Unfortunately none of the people who bought has had their deposits returned, around 30% of the original sales price.

Property Logic’s Payment Structure

 

Clients reserved their properties with a token deposit which was followed by around 15% of the total cost. Over what was to be the construction stage a further 15% was deposited until reaching around 30% of the total cost and the signing of a private contract loosely translated from the French as “A Promise to Sell”. Again, here we have the regretful circumstance that these contracts have all expired under Moroccan Property Law and that they are not robust enough to offer their holders any protection in law. In other words, having a private nature only between developer and client, the beneficiary’s names don’t appear officially anywhere in Morocco. The authorities know nothing about these people who have parted with their hard earned cash and have nothing to show for it.

What is there for clients to do?

 

  1. Wait and hope that Property Logic obtains their long awaited funding. Apart from being a miracle we have the little matter that their build licence has also long expired and they would need to re-apply for a new one. They also have a good sprinkling of creditors inscribed on their assets and these people will have to be dealt with before doing so, that is to say they will demand a settlement which usually is tailor made in line with their demands and which may not only include their nominal investment back but also compensation and legal fees. To clear the creditor list Property Logic will require the “main levé” from their creditors. This is literally (The) “hands up” from the French and it’s a legal document that will enable the developer to clear that creditor list, basically the client signing away their legal rights. Of course a creditor will not dream of doing this until they are happy with their negotiated settlement. This goes for every single creditor, no one has to appear in the infamous list. No prizes for guessing that those without legal rights will no doubt be left out in the shuffle unless Property Logic’s goodwill say so otherwise. Take you pick. Another haunting matter for Property Logic is the fact that they are not exactly in the Moroccan Authorities good books. Although not officially, the grapevine here on the ground suggests the eagerness of Morocco to see the back of them and others like them. You can jump onto your own conclusions whether a new build licence will be granted or not.
  1. If clients are not already creditors they should consider very seriously becoming one. Why? As stated above their contracts are now virtually worthless. Property Logic may eventually drop out of the equation and whoever takes over will surely deal with the creditor list first (they have no choice) and certainly leave the rest who are not creditors out. They have the right to do so, after all the client is registered nowhere in Morocco. The way things work in the country this is a 100% bet. Yes, there are expenses and this is risk the client would need to take but what is the alternative?

How does one become a creditor?

 

A Moroccan Lawyer needs be appointed and documents submitted. Depending on the lawyer a full or partial provision of funds may be requested at the same time.

The objective is the insertion of a protective charge on the assets of the developer for the value of their investment, a legal instrument called a lien.

The lien is in the name of the client and duly registered under the plot of land the property was to be built. The client gets a copy of the court ruling in their favour. This is stamped with the official seal of the Land Registry.

The client is now an official creditor of Property Logic and appears in Moroccan Official Documents for the first time since they bought.

It is important to know that purchasers will not get their money back on the strength of the lien itself. This is only a safeguard should there be a takeover by a third party. After the lien is registered the holder will simply have to wait until matters develop further. This is Part II and a separate issue altogether from the above.

Jorge Larios

Notting Hill Inversiones (Melilla)

saidia@gmx.es

Le Jardin de Fleur (Saïdia) Property Logic

Le Jardin de Fleur (Saïdia)

Le Jardin De Fleur was supposed to be the flagship development within the macro-complex Mediterrania-Saïdia in turn one of the prototype state-of-the-art resorts planned under the umbrella of the Plan Azur 2010 tourism and infrastructures programs designed to quadruple the number of tourist to Morocco.

LJDF was, indeed, an ambitious project that even won some prestigious design awards. It’s variety of apartments, townhouses, villas and Riad style villas all built over 11 different plots ascended to 1342 units. The project also made a provision for in-house facilities such as sporting infrastructure, spas together with cafés and restaurants in addition to that available at the overall resort per se. In those boom years of the first decade of the 21st Century it naturally attracted a good number of International Investors and Private buyers with considerable success.

With the onset of the World Financial Crisis building works stopped in 2009 as it seemed that some of their funding partners went bankrupt and nothing has been done on the building front since then as the developer have found it difficult to raise finance despite impressive associations with leading players in the field and subsequent near misses. 2009 was also the very same year the King of Morocco, HM Mohammed VI, officially opened the rest of the macro-project which had and still has his backing. You have to feel for the Moroccan authorities who have fervently supported the launch of their country as a first class tourist and residential destination and to see some foreign developers, as it is not the only case, start and stop in mid-flight leaving thousands of bona-fide investors stranded coupled with the cost in image for the country as a whole.

Developers Property Logic had a clever marketing strategy, we all thought it a masterstroke at the time getting high-profile premiership players such as John Terry and Rio Ferdinand amongst others to do promotional work for them in return for discounted properties at LJDF worked at first but backfired later. It must have proven very embarrassing for the players so much so that the story was featured in an article in the Daily Mail in April 2013. The developer also collected considerable sums from off-plan deposits paid by buyers, a good number of them British including 25 footballers mentioned but there were other nationalities too. All of them are now with nothing to show for their investment and a great deal of frustration.

Property Logic published their last update also in April 2013 in all probability provoked by the newspaper article. This humble blogger has also tried to contact Sean Cusack, one of the directors there without success. The only information I have is what it’s published together with what I see on the ground in Saïdia and comments made by investors and buyers.

In the newsletter the developer admits that about 50 buyers have taken legal action in Morocco against them and insist that they are going to finish the development. They claim to have invested 10.5 million Euros with 60 or so million provided by the buyers in off-plan deposits. Two thirds of the 70 million went towards land purchase, construction and licenses with the rest going into design, marketing, sales and agent’s commissions.

The 10.5 million euro said to have been invested by the developer, was according to the update, invested by Estonian businessman, Margus Reinsalu through his company KC Group who are also active in other developments in Brazil. There are two further partners involved in Property Logic according to the April 2013 newsletter, the aforementioned Sean Cusack and one Joop Huisman. As KC’s initial loan was not repaid they took over the majority of the shares according to a certain 2009 agreement when building stopped. However Cusack and Huisman appear to still have the option of to reclaim their original equal 2.6 million euro stake in the venture. Property Logic Invest (Spain) also has equal interests in the project with KC, Cusack and Huisman as members of the board.

The Mediterrania-Saïdia resort as a whole is about 45% complete as we write in October 2013. It is now under the control of CDG an important Moroccan Company specialized in the field who intend to finish off the resort including the 9 luxury hotels originally planned. At present there are only 3 hotels operating but they have not fulfilled their intended grand role to cater for the international jet set with many that would have arrived in their luxury yachts at the Marina from places like Monaco and Marbella. Just one look at the hotels gives an indication of how things have changed for the worse. They close their doors in winter and its summer clientele are tour groups and civil servant from nearby Melilla on weekend outings. 50 or 60 euro all in will give you a stay in a supposedly five star grand luxe, gin tonics in plastic cups notwithstanding.

At the very least both Reinsalu and CDG are saying that they intend to finish off their respective projects. Obviously CDG have it easier as they are one of the biggest operators in Morocco and still have the backing of the government and the Monarch. Nevertheless Property Logic are keeping their clients informed from time to time even if it is to say that they have nearly missed yet another important funding scenario or that they have joined up forces with some big fish investor from a far off land. Credit has to be given to them though which is more than you can say for other foreign investors/developers.

If you are a disgruntled investor in LJDF what are your options?

1.)       Sit pretty and hope that PL’s messages become a reality that is to say you are going to finally get the property you’ve bought. Better late than never as they say.

2.)       Politely ask for a refund that you are not going to get. No money.

3.)       The logical antidote for this type of situation, not the panacea but at least you will be protected is to take legal action and get a Moroccan Court to allow for a lien to be inserted against the assets of Property Logic Morocco. This is a type of preventive embargo that will secure your rights if there are any negative official movements against PL, exactly what the 50 or so people that the newsletter mentioned did, they will not get their money back immediately but they have their name officially recognized as a creditor. For more information about legal action see my articles of August 2013 at the beginning of the blog.

The worst case scenario would be that any potential negative official movements bypass the original buyers. A lien will safeguard your interests as the hypothetical new owners would need to take creditors legally into consideration before they do anything else. Let’s hope that this doesn’t happen, for everybody’s sake including Property Logic themselves.

Sources:

Property Logic Newsletter 05.04.2013

The Daily Mail

Own Sources

Le Jardins de Moulouya

Le Jardin de Moulouya

Le Jardin de Moulouya is a “social” housing complex located in Saïdia town, only one kilometer from the beach. This is a very clear example of the mechanics of the original Plan Azur 2010 infrastructures program from the Moroccan government; it required the master developer of the Mediterrania-Saïdia macro complex to contribute to the overall development of the region in return for the very favorable conditions they were awarded the main project. Spanish developer Fadesa started building works around 2006 and it attracted considerable interest from the Moroccan expatriate community parallel to local applicants with lower level income. There was also interest from mainstream International investors who saw a good opportunity for a fast return as prices were extremely low. Since then Fadesa was taken over by another Spanish developer, Martinsa at the time of the Spanish property crash and which inevitably lead to bankruptcy in 2008 with their Moroccan holdings gradually taken over by Addoha/Excelia.

Will you ever get a Mortgage?

Getting a mortgage in Morocco has never been easy for foreigners whether they were residents or not. As in many other areas the cultural gap always seems to creep up. Must be this innate Moroccan ability to charm birds off tress but even in the best of times (2005-2007) the hour of truth always imposed itself and all the previous promises from banks, developers and agents alike went from the original ne pas de problèmes  to a straight non. Many investors thought that when they got their letters of intent from their bank that was it but alas this is another world and paper doesn’t necessarily hold water (o promises) here. Ask the many distressed developers who attained fantastic promises of finance in writing with the honest intention of perhaps also making it extensive to their clients and see, just see how it all came to nothing.

For this modest writer there has never been a credit crunch for private individuals in Morocco simply because there has never been credit! At least my long and personal experience says so. Put it this way, banks or any other institution for that matter are not really there to help (and then help themselves in a macroeconomic way), the whole scene works how can I say, in a more… micro way.

This has been real life for me but let’s see how Bloomberg, obviously more concerned about the really big boys, described Morocco’s so called “credit crunch”. So… if Bloomberg says so it must be true. I have to be honest I never got near these players so I couldn’t say, but have my doubts though. In an article that appeared in January 2013 but probably still applies today (September 2013). The first very surprising paragraph bluntly tells us that Morocco’s drive to emulate Dubai’s by turning itself into a playground for rich Europeans was halted due to the lack of investment in the luxury resorts as from the beginning of the global financial crisis as “cash strapped” banks (my inverted commas – I know I’m a tough nut) were hit. This is partially true, Morocco’s Plans Azurs; that is government tourist development and infrastructure plans, had that aim but making comparisons with Dubai and putting the spotlight on the banks is going a bit too far. More to do with the aforementioned financial crisis and how it affected everybody I would say.

The figures are there, the country’s tourist visits climbed to 9.3MM in 2011, very close to the projected 10MM under Plan Azur 2010 but, and here is the but… 83% of those visitors were from Europe who were specially hit by recession in their own countries immediately after that. In any case, I’m pretty sure that the bulk of the aforementioned tourists were that, tourists per se and not necessarily international investors or individual buyers. I am pretty sure that the buyers stopped coming around 2008/9.

Nonetheless, Bloomberg did confirm that homebuyers and companies grew at the lowest pace in a decade last year (2011) through to November according to Central Bank data in September (2012). But grew nonetheless which is shocking but what Bloomberg doesn’t say is who these homebuyers and companies are whether domestic or international. They add that due to this, said Central Bank allowed its supervised banks to reduce reserves to increase liquidity or money in circulation, which in itself is a contradiction in balance sheet terms.

Morocco, like Dubai (here we go again) was in the midst of a major tourist expansion when the global financial crisis stuck, causing investment to tumble, affecting property developers with banks and investors increasing their Real Estate debt. Big boy developer finance apparently surged in the two years before the market stalled in 2009 and with much of the debt maturing this year (2013) it will initiatively lead to the usual vicious circle of distressed property offloads a la southern European  and bank balance sheets full of nasty bad and doubtful debts. Bloomberg innocently calls this outcome “property sales”. You bet…

So here we appear to have a certain overexposure to commercial real estate mainly tourism-related which will limit bank advances in 2013 coupled with the fact that the Moroccan market isn’t mature enough to recover all these projects which in themselves are too big and ambitious to be completed by Moroccan players. And… there is no EU to come to the rescue.

Mortgages peaked at 57% in the first 11 months of 2007 and lending to developers jumped almost six-fold in that period (I must have lived in a different planet – how scary) but according to Central Bank data and like in Dubai (uugggg) projects stalled in the midst of the great US housing slump and the subsequent ignition of the global crisis.

Here is another one: The Arab spring caused mayhem in a number of North African countries but thankfully left Morocco aside but nevertheless the country paid a certain price with economic growth slowing to 2.9% in 2012 as compared with 4.9% in 2011. In addition to this we had Morocco’s chronic decease, droughts, which caused agricultural output to drop by 8.4% in the third quarter of 2012 which obviously had an effect on the country’s trade deficit, down 11.9% in November.

Like in those economies once highly dependent in Property and Tourism such as those of southern Europe we apparently have a situation of overexposed banks in the real estate sector whose priority in to complete those projects they are already involved in and forget everything else. Unfortunately for the banks those Projects were mainly targeted to foreigners that have simply stopped investing.

The Plan Azur 2010 provided for the building of six mega-resorts together with the infrastructure around them. The crisis prompted foreign investors to look for an exit halting further development. Amongst those projects was Mediterrania-Saïdia, the only one by the Med, as the rest were planned for the shores of the Atlantic. What should really have been the playground of the jet setting rich shuttling to its 800+ berth marina from relatively nearby Marbella has become semi deserted with only 3 of its 9 luxury hotels operating and that in turn are now relegated to cater for Spaniards from the enclave of Melilla a few kilometers away on super budget weekends all in.

The Central bank also say some, for me, very puzzling things. Like for example that private sector lending increased (yes increased) by 2.8% the lowest rate since 2002 when it was 1% with loans for housing rising 6.8% for the eleven months through November again the smallest increase since 2002. The reserve ratio of banks was thus cut from 4% to 2% to counteract “liquidity shortage”. Almost needless to say, banks now have a very selective (if at all) approach to request for funding.

In its heyday mortgage rates ranged from 5.5% to 6.75% whilst developers offered finance at rates ranging from 6.21% to 7.75%. However I have met very few foreign clients that have obtained finance from banks, promises yes, finance no, and certainly none that have got it from developers.

Obviously developers as at today (2013) have totally rationalized their approach to building mostly to pay off or restructure their loans as they mature. The general bottom line is to offload their assets before they get in even more trouble.

Another thing altogether is the incentives offered by the Moroccan Government to encourage the building of low cost subsidized housing in a nation of 32MM people. FOGARIM is a state fund that guaranteed mortgages as long as 25 years for low-income workers. The loans cover as much a 100% of the purchase price applied to homes that don’t exceed 200,000 Dirham.

Spanish developer Fadesa, the original Fadesa that is, who were awarded for a song the Mediterrania-Saïdia Plan Azur project by the government in 2003 was also asked in return to contribute to the building of social housing as well as the improvement of general infrastructure and even a clinic in Saïdia town. Le Jardins de Moulouya a complex of over 22 hectares and only 1Km from the beach were thus built under this umbrella. This idea was quickly picked up by the relative higher earning Moroccan expatriate workers in Europe who saw it as an investment opportunity. The idea was good and well intentioned but like many other things it may not have achieved its aim.

Coming back to the King backed Plan Azur 2010 which came under the wing of Vision 2010 tourism strategy originally sought to more than double the number of visitor beds to 230,000 up to 2010 only achieved under half that amount when the crisis started in 2008 starving the market of takers. Needless to say the six mega resorts under the plan suffered the consequences of this scenario with about half now being built. We are now in a position where the government has to reset the Vision and make it 2020 to meet the goal.

Property owners in some parts of the kingdom including Marrakech are facing the value of their properties, many in semi deserted resorts with relative unused golf courses going down in price with villas now at 50 or even 70% of their original “happy days” price. Some homes in the centre of “can’t go wrong” Marrakech that were priced at 20,000 Dirham per square metre can now be bought for about 12,000 or even as low as 8,000 Dirham per square metre.

However, the Taghazout Plan Azur Atlantic coast project has now been restarted under the new Plan Azur 2020 with a new goal to double tourists by that year according to the government. It remains to be seen how the present signs of recovery in Europe, Morocco’s main source of visitors, will affect the revival of the Kingdom’s tourist industry since France, Spain and Italy provided the bulk of pre-crisis visitors and potential investors.

The customers have changed, there are fewer foreigners buying but this is cyclical and one would hope the trend will change, say some experts in Morocco but… Will it ever be the same again?

The bulk of this piece is taken with permission from the Bloomberg article of January 2013 with my own comments thrown in, mainly to balance up some data typically offered by foreign journalist from their Kuwait desks.

I cannot offer a firm conclusion of how things will evolve with the Moroccan tourist and real estate market because I am still not sure even that I try to get as much information as I can. To offer a firm forecast would be misleading and commentators should know better. One hope is Europe’s recovery in the next few years but I would tend to think that people have learnt their lesson by now. It will be stupid to hope for the riches of the good years but this goes for Europe too.

JL (Melilla)