Algeria’s residential hospitality & tourism real estate segments offer huge potential for investment


Markaz Study Kuwait Financial Centre ‘Markaz’ in its study on the real estate and construction sectors in Algeria, anticipates significant returns in the residential, hospitality and tourism sectors supported by the growth in economy led by rising oil prices. Growth in the sectors has been further supported by factors such as the growing population dominated by youth; strong government support; and rising tourism. Some of the gains channeled from high oil prices and current account surplus are being channeled towards building infrastructure facilities. Currently, all the segments of the Algerian real estate market — residential, commercial, industrial, and retail — are experiencing strong demand. The residential segment currently has a shortage of 1 million housing units. The actual demand for housing is estimated to range between 250,000 and 300,000 units a year, going forward. Supply, however, is expected at approximately 130,000 housing units a year. Under the national housing program, the government plans to construct 1 million units (low and middle income family housing) by 2009. However, the government is unlikely to meet its target, as the construction industry lacks the required resources to implement the program. In the commercial segment, the demand for quality office space has increased following the entry of foreign multinationals wanting to capitalize on Algeria’s rich hydrocarbon reserves as well as the growing presence of foreign financial institutions. However, the increasing security concern in Algeria remains a major concern to investors as it holds the potential of delaying the government’s efforts to liberalize the economy and to attract foreign investment. Furthermore, the country is affected by excessive bureaucracy; and lack of transparency in awarding construction contracts. This would negatively impact the growth potential of Algeria’s real estate and construction sectors. Residential segment Algeria has been facing a severe housing crisis with demand outstripping supply by more than a million units in 2006. The government is trying to address this shortage in housing units which is primarily caused by the state ownership of land. Also, the role of the private sector has been negligible in the country’s residential development, leading to an acute shortage in housing. Recently, the government is undertaking liberalization and privatization initiatives, which could pave the way for the entry of foreign construction companies. Algeria’s population is growing at around 2% annually and labor force at 5%, making it more attractive for real estate investors to enter the residential market. Algeria’s ministry of housing estimates actual demand for housing to range from 250,000 to 300,000 units per year, going forward. Consequently, total additional demand for new housing is expected to be around 2 million units by 2013. On the supply side, approximately 130,000 housing units are expected to be built every year, of these, 30,000 to 40,000 will be privately constructed, while, under the National Housing Program, the government will construct 1 million housing (low and middle income housing) units by 2009. However, the government may not be able to achieve its goal, given the construction industry’s lack of resources. Consequently, industry sources estimate that shortage in housing units will amount to 3 Million units over the next 15 years. Commercial Segment The demand for modern office space in Algeria has increased in recent years, primarily in the capital city of Algiers due to the increasing number of foreign companies (mainly oil and gas) setting up offices in Algeria to capitalize on the country’s rich hydrocarbon reserves. Added to that, the high oil price environment and liberalization of the financial services sector have attracted many foreign banks and oil and gas companies which demand quality office space in Algiers. The surge in demand for office space has triggered an increase in office prices and rentals. The prime office rent in Algiers stood at $538 per square meters (sqm), ranking the fifth in the MENA region, at the end of 2006. Hospitality and Tourism Segment The current capacity of hotels in Algeria is incapable of accommodating the number of tourists expected to visit the country. Furthermore, the country lacks sufficient numbers of international hotels and resorts where tourists’ beds stand at 81,000 as compared to 220,000 in Morocco, and 222,000 in Tunisia. According to a study conducted by the Accor group, Algerian cities critically lacked accommodation and the country needs around 36 mid-market hotels to meet demand. For this reason, many foreign hotel groups are recently entering the Algerian market such as the Marriott International. Algeria intends to attract 3 million tourists by 2013. To accommodate this large number of tourists, the government has been encouraging investments in developing hotels, roads, and transportation infrastructure. For instance, the Public Works Authority of Algeria plans to spend $8.2 billion in large public works projects, such as the East-West Highway and on upgrading secondary roadways. According to World Tourism Organization, Algeria’s total travel and tourism operating expenditures in 2007 are expected to total $155.9 million. By 2017, this spending is forecast to total $286.7 million, or 1.1% of total government spending. ### About Markaz Kuwait Financial Centre 'Markaz', with total assets under management of over KD1.3 billion as of December 31, 2007, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.