Buying Property in Morocco – A guide to real estate Investment in Morocco

Morocco Country Guide – Taxes and Fees

The following are costs you should include on top of the purchase price when buying investment property in Morocco

Lawyers/Solicitor’s Fee:
Although it is not compulsory to engage a solicitor, if you are not familiar with the procedure you can appoint your own solicitor. Typical costs are around £500-£1000.($1,000-$2,000)

Notary Fee:
1.0% of the property value plus VAT at 7%

Notary tax:
0.5% of the purchase price.

Land Registry certificate:
When registering a newly constructed residential investment property for the first time, the owner is required to pay a fee based on the reference value of the property set by the local government. Currently this is 1.0% of the declared value of the property plus 150Dh for the title deed certificate.

Registration fee:
Currently set at 2.5% of the declared property value.

Sundry expenses:
In the case of new investment properties requiring the creation of a new title deed, 1500-3000 Dh depending on the land area and value.

Agents fees:
Part or all of the agents fees are paid by the purchaser, budget between 3 and 5%.

Real Estate taxes:

There are three types of tax payable in Morocco once property is purchased:

i) Municipal Property Tax:

Owners have full exemption from this tax for the first five years of ownership. After five years, the tax is based on 13.5% of the estimated rental income of the property. There is a 75% reduction if the property is your main residence or holiday home.

ii) Rental Income Tax:

Owners are exempt from this tax for the first three years of ownership and properties within the city limits of Tangiers enjoy a further 50% reduction in rates. When the property is rented out, the rental income must be declared and taxed as part of income tax and falls into the following tax brackets:

Annual Income: Tax bracket:
• 1 – 20,000 Dhs Exempt
• 20,001 – 24,000 Dhs 13% with a reduction of 2,600 Dhs
• 24,001 – 36,000 Dhs 21% with a reduction of 4,520 Dhs
• 36,000 – 60,000 Dhs 35% with a reduction of 9,560 Dhs
• 60,000 Dhs + 44% with a reduction of 14,960 Dhs

iii) Refuse collection tax:

Once again, owners have full exemption from this tax for the first five years of ownership. Thereafter, the tax is levied at 10% of the property rental value.

Ongoing Costs

Running Costs
It is important to hold a local currency bank account, both to set up initial services connections and for paying bills. The local currency is the Dirham (Dh) or MAD in international currency transactions. You must open a convertible Dh account with a Moroccan bank to allow the transfer of monies into the country and to repatriate money in the future from rental incomes or profit realized during a later sale of the property.

Electricity and Water:
Your combined electricity and water bill is likely to be in the region of 100Dh per month depending on consumption. In Morocco domestic water and sanitation tariffs are progressive, rising with each “block” of consumption. Starting with the assumption that the level of consumption is a function of household income, this system keeps prices relatively low for small consumers connected to the network (the price for the first “block” is below production costs in Morocco, and is only about 25% of delivery costs.)

Waste water:
The water price includes a component to cover the costs of waste water collection and treatment, in accordance with the “polluter pays” principle, in order to protect public health and the environment (including water sources) from pollution and to allow the recycling of waste water.

Property Insurance:
You can insure your investment property against loss through fire, flood and natural disaster. Domestic property insurance rates vary depending on the location and value of the property. Each property is generally valued by the insurance company before a quotation can be provided.

Capital Gains Tax:
Capital Gains Tax (TPI: Taxe sur Les Profits Immobilier)
The tax is set at 20% of the gain with a minimum of 3% of the selling price. Foreign owners are exempt from this tax under certain circumstances:

• The property has been sold after 10 years of ownership, or
• The gain is under 1,000,000 Dhs (c.62500GBP), or
• The property has been sold after 5 years if it has been the vendor’s main dwelling place for that period and , the gain is under 1,000,000 Dhs (c.62500GBP), or
• The property has been sold after at least 8 years if it has been the vendor’s main dwelling place for that period and , the gain is over 1,000,000 Dhs (c.62500GBP)

You are taxed at 10% on the gain if you sell between 5 and 10 years of ownership

Inheritance Tax
Inheritance tax between family members is levied at 0%.

Mortgages
The Moroccan mortgage market is very similar to the French market, with up to 70% of the purchase price available spread over 15 years, although UK or US based mortgages are available on Moroccan properties. Edit 21/03/09 – this may not be the case any longer. Since the financial crisis has hit UK property values hard and the decline continues, UK and US mortgage companies are unlikely to offer mortgages on real estate investments in Morocco for the foreseeable future. This is adding to the downward pressure on property in Morocco and it is recommended to pay cash.

Cautionary Notes
Whether you are buying property in England, the USA or abroad there will always be potential risks. Morocco is no different. You need to consider the following questions:

• Does the property have good title?
• Does the owner actually own it?
• Is the land/property clear of outstanding debts?
• Has the building been constructed legally?
• Do you understand the contract of sale?

Investment Overview

Background

On November 18th 2006, Morocco celebrated the 50th anniversary of its independence. Morocco recovered its political independence from France on March 2, 1956 and on April 7 France officially relinquished its protectorate. Through agreements with Spain in 1956 and 1958, Moroccan control over certain Spanish-ruled areas was restored, though attempts to claim other Spanish colonial possessions were less successful. The internationalized city of Tangier was reintegrated with the signing of the Tangier Protocol on October 29, 1956. Hassan II became King of Morocco on March 3, 1961. The Spanish enclave of Ifni in the south was reintegrated to the country in 1969. Morocco annexed Western Sahara during the 1970s after demanding its reintegration from Spain since independence, but final resolution on the status of the territory remains unresolved. Morocco is a constitutional monarchy, with an elected parliament. The King of Morocco, with vast executive powers, can dissolve government and deploy the military, among other prerogatives. Opposition political parties are legal, and several have been formed recently.

Geography.

Morocco has a coast on the Atlantic Ocean that reaches past the Strait of Gibraltar into the Mediterranean Sea. Morocco has international borders with Algeria to the east, Spain to the north (a water border through the Strait and land borders with two small Spanish autonomous cities, Ceuta and Melilla), and Mauritania to the south.

Morocco is the only African country that is not currently a member of the African Union. However, it is a member of the Arab League, Arab Maghreb Union, the Francophonie, Organization of the Islamic Conference, Mediterranean Dialogue group, and Group of 77, and is a major non-NATO ally of the United States. Morocco is divided into 16 regions, and subdivided into 62 prefectures and provinces. As part of a 1997 decentralization/regionalization law passed by the legislature, sixteen new regions were created.
Climate

The climate is Mediterranean, which becomes more extreme towards the interior regions where it is mountainous. The terrain is such that the coastal plains are rich and accordingly, they comprise the backbone for agriculture. Forests cover about 12% of the land while arable land accounts for 18%. 5% is irrigated.

Wildlife.
Morocco is internationally famous for its wildlife biodiversity and attracts bird-watchers and naturalists from all over the world to study.

Birds represent the most important fauna. The avifauna of Morocco includes a total of 487 species, 210 Species of Birds including woodpecker, flamingo, spoonbills, storks, ducks, waders, coots and 11 other threatened species.

There are 105 species of Mammals, including golden jackal, red fox, crane, leopard, Egyptian cobra and 18 other threatened species.

Neighboring the Moulay Bousselham lagoon is a large wetland area, recently given a protected wildlife status, known as Merdja Zerga. This open unproductive space is used for grazing by wandering herds of sheep, cattle and goats, while around the margin are lines of dwarf palm and the giant succulent agave. This variety of habitat, and the huge extent of the site, ensures satisfying bird watching all year round. There are large numbers of waders, including a large colony of flamingoes, plus little ringed plovers, black-winged stilts and black tailed godwits.

The cedar forest which lies to the south of Azrou is a unique habitat in Morocco; it has a luxuriant atmosphere and is surrounded by the Middle Atlas range. The cedar forest shelters many troupes of Barbary apes, which is one of the wildlife highlights in Morocco. They can be found feeding along the forest margins, they are shy animals and any excessive intrusion will send them directly to the utmost top of the branches of the cedar forest.

The High Atlas has unique fauna and flora, which are accessible even to the most unenthusiastic hiker . Butterflies which brave these heights include the Moroccan copper and desert orange tip. Other inhabitants range from the almost invisible praying mantis to the scampering ground squirrel and the rare elephant shrew.

Demographics and Economic Overview

Demographics:

Population: 33,241,259 (July 2006 est.)

Age structure:
0-14 years: 31.6 (male 5,343,976; female 5,145,019)
15-64 years: 67.3% (male 10,505,018; female 10,580,599)
65 years and over: 6.7% (male 725,116; female 941,531) (2006 est.)
Population growth rate: 1.55% (2006 est.)
Birth rate: 21.98 births/1,000 population (2002 est.)
Death rate: 5.58 deaths/1,000 population (2002 est.)
Ethnic Groups: Berbers 45% (of which Arabized 24%), Arab 44%, Moors 10%, other 1%

Economic Overview

According to the African Development Bank, the GDP of Morocco accounts for 7% of the African continent. Morocco is the fifth economic power of Africa with an annual GDP of $152 billion, after South Africa, Egypt, Algeria and Nigeria.

Morocco’s largest industry is the mining of phosphates. Its second largest source of income is from nationals living abroad who transfer money to relatives living in Morocco. The country’s third largest source of revenue is tourism.

Morocco has signed Free Trade Agreements with the European Union (to take effect 2010) and the United States of America. The United States Senate approved by a vote of 85 to 13, on July 22, 2004, the US-Morocco Free Trade Agreement, which will allow for 98% of the two-way trade of consumer and industrial products to be without tariffs. The agreement entered into force in January 2006.

GDP growth
Morocco is a fairly stable economy with continuous growth over the past half-a-century. Current GDP per capita grew 47% in the Sixties reaching a peak growth of 274% in the Seventies. However this proved unsustainable and growth scaled back sharply to just 8.2% in the Eighties and 8.9% in the Nineties.

This is a chart of trend of gross domestic product of Morocco at market prices estimated by the International Monetary Fund with figures in millions of Moroccan Dirhams.

Year Gross Domestic Product US Dollar Exchange Inflation Index (2000=100)
1980 74,090 3.93 Dirhams 33
1985 129,507 10.06 Dirhams 53
1990 212,819 8.24 Dirhams 67
1995 281,702 8.54 Dirhams 91
2000 354,208 10.62 Dirhams 100
2005 460,855 8.86 Dirhams 107
2006 503,714 8.72 Dirhams 72

Macroeconomic stability coupled with relatively slow economic growth characterize the Moroccan economy over the past several years. The present government has introduced a number of important economic reforms.

Inflation
Through a foreign exchange rate anchor and well-managed monetary policy, Morocco has held inflation rates to industrial country levels over the past decade. Inflation in 2000 and 2001 were below 2% and as little as 2.8% in 2006.

Interest rates
The interest rates available are fixed or variable and the current lowest rate is below 6%

Unemployment
Morocco’s unemployment rate is 7.7% currently.

Budget deficit
Despite criticism among exporters that the dirham has become badly overvalued, the current account deficit remains modest. Foreign exchange reserves are strong, with more than $7 billion in reserves at the end of 2001. The combination of strong foreign exchange reserves and active external debt management gives Morocco the capacity to service its debt. Current external debt stands at about $19 billion.

Currency
The Dirham is the currency of Morocco. Since the early 1980s the Moroccan government has pursued an economic program towards stable, sustainable growth with the support of the International Monetary Fund, the World Bank, and the Paris Club of creditors. The country’s currency, the dirham, is now fully convertible for current account transactions; reforms of the financial sector have been implemented; and state enterprises are being privatized.

IMF
The IMF’s Deputy Managing Director, Murilo Portugal had this to say in April 2007:

“Morocco’s strong economic performance clearly demonstrates that the country is reaping the rewards from the reforms it has put in place during the last decade. Per-capita income has been rising steadily since the beginning of the century, non-agricultural growth is taking off, the external position is comfortable, and macroeconomic stability has strengthened. The key challenge for Morocco is to sustain and improve upon its good economic performance to further reduce unemployment and ensure that growth benefits all.

“The authorities have already strengthened their efforts to eliminate the remaining impediments to growth. The recent improvement in the public finance position is particularly encouraging in that regard. The success of the early retirement program for civil servants has significantly reduced the public wage bill as a share of GDP, which had been high by international standards. Replacing oil and fuel subsidies with targeted spending toward vulnerable groups would increase the efficiency of social spending and provide further fiscal flexibility. Tax reform is also a priority, and the reduction of the top marginal income tax rate is a good step forward. Ensuring that the tax burden is fairly shared by all through further measures is important to accelerate investment and growth.

“Morocco has also achieved significant progress in other key areas for growth. The banking sector has significantly strengthened in the last few years, and the recent pick-up in certain categories of credit—particularly in real estate—is a sign that recent measures to enhance financial intermediation are beginning to bear fruit. Pursuing efforts in this area is important to further improve financing conditions for small and medium-sized enterprises.

Trade/current accounts
Over the past several decades, Morocco has relied more and more on imports, and has maintained a steady trade balance as a result. The value of imports in 1999 was estimated US$12.2 billion, but exports were estimated to be only US$7.6 billion in 2000. Capital goods (industrial and semi-finished products) account for well more than half of Morocco’s imports, followed by food and beverages, consumer goods, and fuel. Morocco’s export base is diversified, with phosphates and phosphate byproducts being the largest contributor, accounting for one-third of exports. Textiles and leather items come in second place, followed by fish and fish products.

Morocco exports and imports most of its goods from the European Union, with France being its largest trade partner, providing one-fifth of total imports and accounting for one-quarter of exports. Spain comes in second place, followed by the United States, Italy, and Saudi Arabia. Morocco initialed a free-trade accord with the European Free Trade Association in 1997, which stipulates the elimination of trade barriers in industrial goods by 2010.

The substantial and growing trade imbalance that Morocco endured over the years has been partially offset by tourist spending and monies sent home by Moroccans working abroad. Morocco is a member of the World Trade Organization, which has stipulated that tariffs on goods be lifted. The government has moved to gradually reform the trade sector and remove barriers to export by approving a new foreign trade law that minimizes the state’s role in the export of goods and that liberalizes import practices.

Politics
Morocco’s history after independence and in the beginning of the reign of Hassan II was marked by the period of political tensions between the monarchy and opposition parties. Those years of tension are labelled by the opposition as the Years of Lead. Politically motivated persecutions were common especially when Gen. Oufkir became responsible for home security. However, during the last decade of the rule of King Hassan II and especially under the reign of Mohammed VI, and with the launch of Equity and Reconciliation Commission (IER) to investigate into the abuses committed in the name of the state, Morocco is trying to make reparations to the victims. Many new laws and codes concerning all aspects of life are being launched. The most notable event was the creation of the Mudawana — a family code which was the first unique initiative of its kind in the Arab and Muslim world. The code gives women more rights.

External relations
Morocco maintains close relations with the European Union, especially the former colonial rulers, France and Spain.

It also has close and long-standing ties with the United States. The city of Tangier contains the American Legation, which is the first foreign property ever purchased by the US government. The Moroccan-American Treaty of Friendship was negotiated in 1786-1787 and was the first treaty between the US and any African, Arab, or Muslim foreign power

It is a member of the United Nations and belongs to the Arab League, Arab Maghreb Union (UMA), Organization of the Islamic Conference (OIC), and the Non-Aligned Movement. Current King Mohamed VI is the chairman of the OIC’s Al-Qods (Jerusalem) committee.

Morocco is quite active in Maghreb, Arab, and African affairs. Although no longer a member of the OAU (Organisation of African Unity), Morocco remains involved in developing the regional economy, as the city of Casablanca contains North Africa’s busiest port and serves as the country’s economic center. There are significant ties with West African and Sahel countries.

It supports the search for peace in the Middle East, encouraging Israeli-Palestinian negotiations and urging moderation on both sides. In 1986, then King Hassan II took the daring step of inviting then-Israeli Prime Minister Shimon Peres for talks, becoming only the second Arab leader to host an Israeli leader. Following the September 1993 signing of the Israeli-Palestinian Declaration of Principles, Morocco accelerated its economic ties and political contacts with Israel. In September 1994, Morocco and Israel announced the opening of bilateral liaison offices. These offices were closed in 2000 following sustained Israeli-Palestinian violence.

Morocco maintains close relations with Saudi Arabia and the Persian Gulf states, which have provided Morocco with substantial amounts of financial assistance. Morocco was the first Arab state to condemn Iraq’s invasion of Kuwait and sent troops to help defend Saudi Arabia. Morocco also was among the first Arab and Islamic states to denounce the September 11, 2001 Terrorist Attacks in the United States and declare solidarity with the American people in the war against terrorism. It has contributed to UN peacekeeping efforts on the continent. In recognition of its support for the War on Terrorism, in June 2004 U.S. President George W. Bush designated Morocco as a major non-NATO ally.

Tourism
Tourism has become increasingly important to Morocco’s economy, with more than 2 million tourists visiting the country each year. Tourist complexes have been built along the coast, and large new hotels have sprung up in Fès, Marrakech, and other popular tourist destinations. Agadir is the chief coastal resort.

Property acquisition by foreigners in Turkey

Overview
Morocco’s entry as a real estate investment destination has been a fairly recent one. The Vision 2010 program with King Mohammed’s modern outlook is spearheading the drive to make Morocco one of the top tourism and investment destinations in the African continent. The Moroccan government has also tied up with various large scale developers in the UAE and abroad to make their vision a reality.

Included in this ambitious plan is the development of infrastructure – with the construction of new highways, the increase of telecommunications, electricity, banking, insurances along with improvements in education and health care. Apart from this, the Plan Azur is a new initiative by the Moroccan government that has earmarked 6 key areas within Morocco whose primary goal is to develop luxury resort projects to attract large scale foreign tourism.

Some sizable investments in real estate are coming into these resorts from UAE developers. During a visit by the President to Morocco, plans were announced for the construction by the UAE of a state-of-the-art hospital. A UAE-backed venture for a residential and tourist complex was also announced.

Emaar, the largest developer in the world, have invested over ADE 25.3bn in six world class real estate projects in Morocco. It’s latest offering, Tinja, was said to have been launched recently at an investor ceremony with its public offering slated to be released very soon.

With so much happening in the country and developments and investments pouring into Morocco from various sources, coverage of information and relevant news has been scant to say the least.

Moroccan Residential Property Market

A leading Emirati real estate development company has added it’s presence to those benefiting from the increasing real estate opportunities in the kingdom. Sorouh real estate announced recently that it had made a “major” investment in a $450m project.

According to Moroccan government statistics, approximately 55% of Morocco’s population, 3 million households,, live in urban areas, and the number is growing year on year. This concentration is resulting in a housing shortage that is proving lucrative for investors .

Housing demand is not just limited to the low-income sector. Increasing tourist traffic and second-home buyers are stretching the existing supply of tourist residencies and villas. Morocco’s tourist program, Vision 2010 includes plans for six new tourist resorts over the next to satisfy the growing demand by foreign second home buyers.

According to recent research, real estate investments accounted for more than 15% of foreign investment in Morocco in 2006. Half of property sales in Marrakech were to foreigners. French investors are leading the way currently investing in nearly ten times as many properties as British investors.

The majority of property investors said they felt Morocco’s real estate market was particularly promising as a buy-to let investment. The governmental tourist program is seeing tangible results and the demand for holiday accommodation has risen considerably. Prices are low at the moment but expected to rise sharply in the future. It is clear why most investor’s choose to let their property. The rental returns forecast for new developments are promising to say the least. Income from a 100,000 Euro, two bedroom apartments expected to bring a monthly income of 2,000 Euros a month in the peak season of July and August. More than enough to meet the annual mortgage payments. Currently, rental occupancy during the high season is around 85% and expected to rise.

Residential Housing
The housing market in Morocco is still in its early years of development, which in part explains a lot of the comparisons with the Spanish market of about 20 years ago.

Morocco is clearly a country in development. Although its economy has been growing by an average of 4% per annum since the early eighties, it was until recently a very difficult country to invest or do business in. In a drive to open up its free market economy to foreign investment, the government has been reducing red tape and streamlining the bureaucracy and regulations that for so long formed a barrier to development.

Although some restrictions, such as currency control, still exist, the climate is an increasingly open and fluent one, in which foreign nationals are encouraged to open accounts, invest and own property in an environment which the authorities are working hard to make increasingly secure and attractive. Although this North African state is a Muslim monarchy, Morocco is blessed with political stability and a moderate, tolerant attitude towards religion.
Investment climate

These conditions, together with Morocco’s natural and cultural attractions, are making Morocco one of the dynamic investment markets in the international real estate sector. The difference between current price levels and their growth potential offers both value for money and attractive investment potential, supported by the government’s drive to quadruple tourism visits by the year 2010.

Constant infrastructural improvements in the form of new roads, ports, technological facilities, airports and modern resorts are already reflected in the rapid growth of visiting tourists and foreign property buyers—a situation that is further accelerated by the Open Skies Agreement, which will link Morocco to Europe’s network of budget airlines and routes. Five areas on the Mediterranean and Atlantic coastlines have been earmarked for the development of major resort areas. They have already seen a high increase in tourist visits, with the French ranking top, followed by Spanish, British and Germans.

Like many of the new emerging former Eastern Bloc countries that are becoming the focus of British residential investors, growth is being estimated at anywhere from 10% to even 40% per annum in some cases. However, given the current slowdown in the UK housing market and the current slowdown in growth across the more established markets such as Hong Kong, Australia and the USA, even a more conservative estimate of 10% still looks attractive, especially when it is so affordable compared to some of the alternatives.