Tunisia's recent peaceful elections will reassure buyers
Last Updated: January 25, 2015
Every year Tunisia hosts millions of tourists from Europe and the Middle East. The capital city, Tunis, is approximately 3 hours away from key European cities like London and Paris via airplane. The coast is just 50 miles away from Sicily.
Fuelled by a bustling tourism industry, Tunisia's property market has attracted a great number of foreign buyers looking for affordable properties in prime locations to spend their holidays. Amazing to think that it was only in 2006 that the real estate market was opened to foreign ownership.
Major companies have been investing – from an estimated 6,270 private developer housing units in 2006, developments increased to almost 12,000 units in 2010, according to UN-HABITAT. From 827 registered construction developers in 2001, the number has grown to 1,290 in 2007 and to almost 3,000 in 2013.
Despite post-Arab Spring uncertainties, interest in Tunisian real estate remains high, boosted by the successful elections of October-December 2014. According to Centre for Affordable Housing Finance in Africa (CAHF), property prices have been increasing at a rate of 8% per year since 1990, and have continued to rise following the Arab Spring revolution, which started in Tunisia.
Prices may continue to rise as Tunisia continues to struggle with inflation and pressure on its foreign reserves. As an aftermath of the economic slowdown resulting from the revolution, inflation increased in 2012. Consumer price inflation increased from 4.2% y-o-y in December 2011 to 5.9% y-o-y in December 2012 and further to 6.6% y-o-y in March 2013, the highest inflation rate since October 1995. However, inflation slowed to 5.0% in 2014.
The real estate and construction sector is an important contributor to Tunisia's national GDP and employment. In 2014, the number of jobs by the construction and settlements sector was measured at 456,000, which represents 13.5% of total employment, according to CAHF. The housing sector also accounted for three percent of the revenues of the state via taxes collected from rental and property management, VAT generated by construction and local land taxes.
Yields are moderate in Tunisia
The rental market in Tunisia is very strong due to the high domestic demand for rental accommodation in addition to the demand from Europe and Tunisia’s neighbours Algeria and Libya.
According to UN-HABITAT, housing unit rents in Tunis range from TD 288 (USD 150.1) to TD 4,490 (USD 2,339.6) per month. The lowest rents are found in Ben Arous district, ranging from TD 190 (USD 99) to TD 1,250 (USD 651.3) per month. Presumably rents in other low-income areas outside the Tunis region are less, say in the TD 110 (USD 57.3) to 160 (USD 83.4) per month range.
Knight Frank estimates residential yields in Tunis to be around 9%.
Income tax rates range from low to high in Tunisia
Rental Income: Rental income is taxed at progressive rates, from 15% to 35%. A standard deduction of 30% is given to cover income-generating expenses leading to effective tax rates ranging from 12% to 21%.
Capital Gains: Capital gains tax is levied at 10% if held for less than 10 years, and 5% if held for more than 10 years.
Inheritance: Inheritance tax is levied at varying rates, depending on the relationship between the deceased and the heir. Spouses and direct descendants are taxed at 2.5%.
Residents: Tunisian residents are taxed on worldwide income at progressive rates, from 15% to 35%.
Buying costs in Tunisia are low
Roundtrip transaction costs are around 9.10%. The transfer tax is 5% while real estate agent’s commission is typically 3%. Various registration fees add up to around 1.10%. The buyer pays for all the costs.
Tunisian law is pro-landlord in the free market segment
Rent: The rent can be freely negotiated. There is no legal maximum annual rent increase for free market tenancies, but any increase must be stipulated in the contract (typically, 5%).
Tenant Eviction: At term, the lease may be renewed by tacit agreement for the same period, or ended, if a notice is given by either of the parties in advance through a bailiff or by registered mail. Once the notice is given, eviction is swift. The court system is highly efficient.
Tunisia ready for democracy?The birthplace of the Arab Spring seems to be on track to be the first Arab Spring country to complete a transition to democracy.
Following the ouster of President Zine al-Abidine Ben Ali in January 2011, a new legislative body, the National Constituent Assembly, was elected to navigate Tunisia to a political transition. In October 2014, for the first time since its independence from France, Tunisia successfully held competitive parliamentary elections.
The elections went smoothly. Habib Essidof of the anti-Islamist Nidaa Tounes (Tunisia's Call) party, which won the most seats in October's parliamentary election, was nominated Tunisia's new prime minister.
Then came victory in the Presidential elections of the 87-year old Beji Caid Essebsi, also of Nidaa Tounes, in the November and December 2014. Mr Essebsi had also served in the governments of post-independence leader Habib Bourguiba as well as Ben Ali, so is seen as a force for stability.
The Islamist party Ennahda, which led Tunisia's last government but was beaten by Nidaa Tounes in October's parliamentary election, did not field a candidate. Essebsi's main opposition came from Moncef Marzouki, the interim president and a human rights campaigner who has cast himself as a guardian of the spirit of the revolution.
In 2013, political uncertainty and weakness in the banking sector prompted downgrading of Tunisia sovereign credit ratings twice to a Moody’s rating of BB- with negative outlook, though this has held steady since. Tunisia’s successful transition to democracy, however, may improve sentiment. According to Fitch Ratings, “The prospect of a new Tunisian government in the coming weeks is positive for the sovereign’s credit profile.”
Over the 1962-2000 period, the Tunisian economy grew by an average of 5.3% per annum, with per capita income increasing 3.2% per annum, according to UN-HABITAT. From 2000-2010 average GDP growth was 4.4%. During the revolution in 2011 growth went negative, to -1.9%.
The economy has since recovered with 2.8% growth in 2013. But Tunisia runs a substantial trade deficit, largely attributable to slack demand in the euro-zone which buys 70% of Tunisia's exports, and industrial unrest in the phosphate-producing regions of the interior, according to CAHF.
Unemployment declined to 15.2% at the start of 2014 from 18.1% in 2012, still well above the pre-revolution level of 13%. The government, post-revolution, has pursued expansionary fiscal and monetary policies to encourage job creation. The authorities recently announced their intention to launch a bond issue, the first since the revolution, by end-January 2015.
Inflation slowed to 5.0% in end-2014 from 6.6% in March 2013, but remains above levels seen before the revolution. The African Development Bank (AfDB) point to monetary factors and the Libyan crisis to the rise in inflation. The crisis in Libya also fuelled black market exports to Libya at higher than market prices, thereby pushing prices upwards in Tunisia.
The dinar, whose exchange rate is controlled by the Central Bank, has depreciated in relation to the dollar and the Euro, generating inflationary pressures that could accelerate if Tunisian foreign reserves continue to dwindle and the balance of trade worsens.
Foreign exchange reserves fell from TND 13.1 billion on September 2010 to TND 11.5 billion a year later, and have gradually stabilized since then at TND 10.2 billion – representing 113 days of imports as against 186 and 147 in 2009 and 2010, respectively. Foreign currency reserves on September 2013 totalled TND 11.29 billion, the equivalent of 103 days of imports, after inflows of foreign aid and an overseas bond issue.