Social housing: rent-to-own, a solution to the crisis?

The lease-accession or “IjaraMountahiaBitamlik” could offer opportunities of revival to the real estate operators, notably in the crisis segment of social housing. Deciphering…

Social housing has been in crisis for several years now, and its situation has not improved in 2020, as a result of the economic situation. In just a few months, significant losses have been recorded. The 40 MMDH of loss of earnings announced by the Minister of Housing, Nouzha Bouchareb, testifies to the gloom that reigns in this sector. However, the health crisis alone cannot explain the current situation of the social housing sector. The pandemic linked to Covid-19 has had repercussions that have added to other limitations characterising the current social housing model. These limitations have been identified for many years, explains one operator in the sector. They can be broken down into two main points. The first concerns the financial exclusion of a significant part of the population. The second limit, linked to the first, relates to the accelerated degradation of living environments due to the non-maintenance of residences. This is why a new paradigm has emerged. By revising the law and the fiscal framework in force for social and low-value housing at the end of this year, the Executive intends to take the social housing problem into its own hands, by means of solutions other than the classic route of exemptions. In
this perspective, and after a collection of opinions in the sector, more than one expert or surveyed operator sees in the “rental-accession” or “IjaraMountahiaBitamlik” (IMB), an option capable of reviving demand and facilitating the absorption of unsold stocks.

As a reminder, in the 2021 Finance Bill, the government has introduced two measures that have been welcomed by professionals, although they are still considered insufficient by many of them. The first concerns the continuation of the 50% reduction in registration fees for real estate assets, the value of which does not exceed 4 MDH until 30 June 2021. The second measure relates to the extension of the benefit of the exemption in favour of the Undertakings for Collective Real Estate Investment (OPCI) for rentals for residential use. In addition to these two measures, the flagship solution expected by professionals in the social housing sector is that of the IMB. Described by many experts as “life-saving for the sector”, this measure is expected to come into being soon. “It will help developers to sell off the stock of unsold housing and at the same time relieve the balance sheets of their partner banks, which are also in arrears. It will also address the challenges of accessibility and financial inclusion, as well as the sustainability of properties and environments,” says a real estate expert. Technically, lease-accession, as described in Dahir n° 1-03-202 of November 11, 2003, “is a sale contract by which a seller undertakes towards an acceding party to transfer to him, after a period of enjoyment for valuable consideration, the ownership of all or part of a building in return for the payment of a royalty”. The text of the law insists on the fact that “the royalty must include two parts: one amount relating to the right of use of the building and the other relating to the advance payment of the purchase price of the building”.

In practice, a bank may acquire ownership of an asset designated by the customer from a third party. This asset is made available to the customer on a lease-purchase basis for a specified period in return for the payment of fixed or variable periodic rentals. The said rentals include a portion relating to the lease and another corresponding to the payment of the purchase price of the asset. Once the term of the contract has elapsed and both parties have honoured their commitments, the asset will be transferred by the bank to the customer. In the field, two years have passed since the entry into force of a VAT exemption for the purchase of social housing via an Ijara contract under the 2019 Finance Law.

For the expert in participatory finance, Said Amaghdir, Managing Director of Finances Value, “the problem with the IjaraMountahiaBitamlik product was the similarities it presented with Murabahah. In the clauses of the standard contracts, the distinction between the two products was hardly perceptible, which posed a legal risk”. According to him, “this product had not been sufficiently refined at the Higher Council of Ulemas (CSO). It was necessary to carry out in-depth work to bring the principles of Ijara and Tamlik closer together in the sense of renting and not buying and selling, as in the case of Murabahah”. This is why, in the latest version of the model contract published last May by the CSO, the distinction between the two modes of financing was clearly established. However, the Ijara Mountahia Bitamlik model contract has not yet been promulgated. The CSO has forwarded it to Bank Al-Maghrib and the banks. The process has stopped there, the model contracts are still being studied at the level of the central bank. Some experts consider it quite feasible to envisage an entry into force of the readapted provisions by the end of the year. Will financial institutions share this view?

Support for fragile populationsThe
CNSS figures show that nearly 2.2 million informal workers are unable to take out conventional housing loans. This is why the State has set up the Fogarim
guarantee, which enables them to get into debt by guaranteeing 70% of the loan amount to the banks. The banks require at least 50,000 DH of initial contribution from the clients, to which must be added 20,000 DH of notary transaction fees. Only 3% of these households have these savings. “Lease-accession” is an answer to this problem. It will enable these households to become homeowners because it is less restrictive and more agile. It does not require a substantial advance payment and the notary’s fees are reduced”, says a banking official. The revival of the sector will depend in part on the effective implementation of this solution, and its success. Because despite the need for affordable housing, as shown by the deficit of 700,000 units, developers are struggling to sell off their stocks. The latter accumulate with an average production of only 120,000 housing units per year.

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