March 2, 2023
With so much speculation regarding the forecasts for the economic recovery in Morocco and the evolution of inflation rates, the impact of the latter on the real estate market is raising more and more fears among the players in the sector.
The global inflationary context has a great impact on real estate, as it is a market exposed to variations in energy prices and construction costs.
An obvious effect of these economic fluctuations is the rise in mortgage prices. An increase in interest rates naturally means an increase in the cost of loans, including mortgages. As a result, some contraction in demand could be expected in the coming months.
Is there a real risk of recession?
It is clear that rising rates threaten a possible depression of economic activities in several vital sectors, and the real estate market is not exempt. But is there a real risk of a recession in this market?
CDG Capital Insight reported in a recent equity market outlook note that the real estate sector is expected to continue to feel the effects of rising prices, following a generally positive 2021 season driven by the post-covid rebound and tax incentives.
“The war in Ukraine and high levels of inflation, combined with the recovery in interest rates and the economic slowdown, have created enormous challenges for the real estate sector in Morocco,” the note notes, adding that the sector is facing supply chain problems, increasing construction costs and higher financing costs.
The real estate industry is thus expected to face headwinds and, consequently, post sluggish growth during 2023, estimate analysts at CDG Capital Insight.
In fact, one of the aspects that increasingly worries households that have taken out a mortgage to acquire real estate is that the inflationary context is likely to lead to an increase in interest rates.
This pressure on household income due to inflation, in the absence of an increase in wages, as well as a context of rising interest rates could possibly limit real estate transactions, the note explains in this sense.
The current context is also marked by supply chain disruptions, leading to shortages of essential goods.
This recurrence of supply difficulties, particularly of semi-finished products encountered by Moroccan industries, could constitute, according to the same source, an opportunity for the real estate sector.
“Indeed, in order to alleviate logistical pressures, our Moroccan industries could possibly resort to investing in depots to store their inputs in order to reduce exposure to the volatility of raw material prices on the market, as well as put in place protective measures in supply chains to deal with shortages and rising logistics costs,” it was explained.
Investment saves the day
Real estate ecosystems that rely heavily on imported goods are vulnerable to the consequences of supply chain disruption, and the cumulative effect of these disruptions could take a long time to resolve.
Following a gloomy economic outlook as evidenced by the drop in construction starts of units of 13.6% in H1 2022 compared to H1 2021, the year 2023 should mark the end of the unprecedented craze experienced in 2021, the postponement of sales from 2020 (year of lockdown) to 2021, the extension of the exemption and the reduction of registration fees relating to the acquisition of real estate, and finally the attractiveness of real estate rates, states the CDG note.
However, it believes that the increase in the investment budget should partially offset the weak demand from the real estate sector, noting that the infrastructure sector should be the main driver of construction growth in 2023, driven by the orientations of the draft finance law which are based on several axes including the revival of the economy through the support of investment, via an increase of 22.4% of the investment budget, i.e. an amount of 300 billion dirhams (MMDH), provided for by the PLF.
The good news is that despite the inflationary environment affecting the value of financial assets, real estate investments, particularly income-generating properties, have the particularity of performing well in a rising rate environment. However, it remains to be seen whether real estate's ability to withstand inflationary pressures will be able to reassure investors.
Source: MAP
