I saw something odd in Marrakech recently. Along the main avenues there was a considerable amount of construction going on. But also properties right next door that had clearly been vacated years ago without receiving new buildings. And newish buildings and shop space that were boarded up. Freshly painted fronts of closed restaurants that looked like they'd opened and failed within the past year, right on downtown main street.
Moving out a few blocks from the main drags, there were entire abandoned buildings. And in the Medina / Old Town, buildings that had been abandoned so long ago that they were in ruins, roofless. Right in the middle of extremely densely developed urban quarters. Add to this the townspeople's timeless habit of using abandoned properties as no-fee garbage dumps, and you can imagine the squalor.
What are the economics of this? Our recently published guide book described an ongoing demographic takeover of the Medina where foreigners are buying up the old riad houses and renovating them as holiday homes. In the face of this demand, the locals are selling out and moving to the suburbs. So there is some demand for properties in Marrakech. But it seems weak or inefficiently mediated. Very alien to me, coming from a country where we only occasionally see severely dilapidated buildings way out in the countryside.
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Maybe the property is owned by a family clan going back to pre-record times and it is a major research project to track down the various relatives who own a share in the property.
-Do you know how the property owners prevent the empty plots from being taken over by squatters? There must be some kind of authority enforcing ownership.
In India the clerks who are determinimg who owns what land tend to be extremely corrupt (especially in rural areas).
My hypothesis is that their colleagues in Marocco don't help out with the deeds unless you grease the wheels with lots of money.
I can't answer your question directly. but I can offer a few datapoints:
At least in Spain and in several other places, you get a break on the land tax if you are building something on the property. So putting up something - anything - will mean a cheaper yearly tax bill. On the other hand, you don't need to pay a property tax as long as the building isn't finished.
Here in Japan, a business bankruptcy can take several years to clear through the courts, and the property stays in stasis until then.
Also, frequently a developer wants to buiold a large structure, but the site is divided into multiple small lots. Until they all agree to sell - or pass away - the other lots will tend to fall into disuse or be temporarily converted to parkimg lots or the like.
I was going to comment that I had seen the same thing in the capital of an extremely poor country where I have worked - but the fact is that I've also seen the same thing in the large U.S. city where I live. There are neighborhoods where it is a short walk from nicely rehabbed buildings to the nearest abandoned crack houses. In fact, there are whole blocks full of lovely old buildings falling to wreck and ruin, while more are built out in the suburbs - this must seem bizarre to you, but America has issues involving poverty, crime, race, and inequality at a level that would probably be unimaginable in Sweden.
I've read about inner city decay in US cities but never understood it. In Sweden we tore our city centres down in the 50s and 60s, replacing them with ugly glass-fronted buildings, and it takes major social engineering to keep the rents on those properties from going through the roof these days. We don't really have ghettoes, but the housing estates with cheap rents where recent immigrants live tend to be at least half an hour's commute from the city centres.
There are a number of factors at play here. The first and most important is what Birger alludes to: ownership. In Morocco property is split between heirs, and with many Moroccans no longer in Morocco, or family disputes quite common amongst siblings, no agreement means abandoned building.
Another factor is that property taxes are effectively non-existent, so there is little pain in leaving it the way it is.
Certainly in areas such as Gueliz, which are the highest rent areas, the problem is also very much the greed of landlords. Since Morocco has no real credit market for property, and because there is "face" involved in the price achieved, many landlords will only rent at rip-off levels that are unsustainable, so instead just wait and wait.
A final factor is that tenant rights are very strong so the disincentive to let a tenant come in if you want to redevelop something is huge as you can't get them out again. In our apartment building in one of the highest rent streets in Marrakech, 3/4 of the flats stand empty because the landlord wants to empty the building out so they can tear it down and rebuild it or have an easier time selling it. Never mind that all of the existing tenants have been there for over 10 years and none show any interest in leaving--they will just wait, after all the current owners were gifted the building from their grandfather.
When walking around Gueliz in particular, one mourns the number of abandoned buildings, but somehow it is comforting that property rights are respected enough that the government doesn't seize the assets or force redevelopment.
There is also a lot of money at stake in areas where zoning can be changed, so there are also a lot of old villas that are being torn down to make way for ugly, non-descript buildings that have higher rental values--and anyone who might buy such a building and do it up is deterred because of the ridiculously high asking prices.
The current global property crisis has had very little effect on prices in Marrakech, it has simply meant that transactions have trickled to a standstill.
Thank you Eben! So family disputes are keeping many property owners from acting economically rationally? And landlords prefer to make no money over making middling money? In order to gain "face"? In the eyes of whom? And what is the benefit of amassing a lot of face?
"So family disputes are keeping many property owners from acting economically rationally?" Martin, I'm a lawyer and sadly the answer is very simple "Yes".
Cities go through life cycles; 30 years ago I lived in the now "World Heritage" city of Bath. Houses 100m from the world famous Royal Crescent that are now gleaming beautiful and very expensive were then down-market bedsits and squats covered with >200 years of grime from coal fire smoke.
You see a lot of weird things with real estate.
In New York City, the old Alexander's department store which is in a major upmarket shopping district and just across the street from the tony Bloomingdale's department store sat vacant for 15-20 years. The story was that the mid-western owners of the block were holding out for top dollar, not wanting feel cheated once they made a deal. The building is now the headquarters of Bloomberg News, a major supplier of business information and news. (Bloomberg is also the mayor, but that was sort of a hobby.)
New York City does have high real estate taxes, but in high rent areas, and especially in transitional areas, one often finds single story buildings housing convenience stores. These are called "taxpayers". The idea is to build something relatively cheap, at least cheap when compared to the kind of skyscraper allowed under the zoning laws. This would raise one's taxes slightly, but also pull in enough rent to cover the tax bill. These structures might last for decades, but then there would be a boom and a wave of development, and they'd all get torn down and replaced by much larger buildings.
Seth, run that by me again please. Why do people build small houses in high-rent areas?
@Martin: Kaleberg is discussing commercial rather than residential real estate (these things are viewed as being separate in the US), but the same questions apply. Obviously a developer will want to build the largest structure that he can feasibly build on the parcel, subject to the constraints of zoning laws and what he believes the market will support. County and municipal officials have an incentive to maximize their tax base, so their interests align with the developer's.
There are two possible resolutions here: (1) the parcel is so small that it won't support a marketable tall building (stairways and elevators would consume too large a fraction of the footprint), or (2) the building in question is a pre-existing building. I'm not familiar with New York City, but it's reasonable to assume that one can find examples of both of these scenarios there.
So the term "tax-payer" means that the earnings from the building just barely support its own tax weight? And a tax-payer is a building that for one of the two reasons you mention can't be made to generate more revenue than that?
Real estate--whether you are a developer or a landlord--is like any other business. Your revenue must begin to exceed your expenses before you run out of cash reserves, or your business goes into bankruptcy. (Which doesn't necessarily put you out of business, at least in the US; Donald Trump is a notorious counterexample.) Property taxes are a significant cost in many parts of the US (it varies from state to state, and even between different parts of the same state.
If you own an existing building and the rent is enough to cover your expenses, then it is often a rational decision to keep that building in place. Most landlords are not developers, so for them to upgrade a one-story building to something bigger would require substantial risk, as well as resources they don't have. And for a non-developer landlord, typically all you would get out of redevelopment is the one-time payment from the developer who buys your parcel.
If the property in question is a house that you live in, the calculation is a bit different: factor in emotional attachment and the cost of moving, as well as how much you pay for how much space, and how convenient the location is for your work and the lifestyle you want. (Many Americans like to have large gardens, a factor which contributes to our suburban sprawl.)
People may also be a bit more cautious now than they would have been a few years ago. The US was one of many countries to have a bubble in residential real estate during the last decade. (Some EU countries, including Spain and Ireland, were severely affected as well; I don't know how badly Sweden was affected.) Many houses and flats were built on speculation for occupants that never came (and for some of the more badly located properties, never will). That will probably deter some real estate investment for many years.
As a native Moroccan and a big believer in open market and welcoming investors into Morocco, I am appalled by Johannsson message about greasing the wheels. In fact, many these so called Euro investors come to make fast & quick easy money w/o paying fair taxes and worse they do not care less about Morocco. So think twice, there are laws in the work and watchful eyes ....
Dear Martin,
I was wondering if you could link to (or otherwise share) the 'recently published guide book described an ongoing demographic takeover' that you mentioned? I'm doing research on tourism and property in the Medina, and would love to read this. Thanks for the post and all respondents; many interesting counter-examples and suggestions have been given.
Nice one,
Joe
Insight Guides, Marrakech Smartguide, Ed. Paula Soper, 2nd ed., Apa Publications 2012
"Recent decades have seen Marrakech change dramatically as many riads, the old courtyard houses of the medina, have been bought by foreigners, who have turned them into pleasure palaces for their own use, or more often into luxurious and stylish boutique hotels and guesthouses, the subject of so many lifestyle magazine features." (p. 4)
"The disadvantage, however, is that prices for riads are now so high that Moroccans cannot afford them any more; they have moved into new apartment blocks and have a different lifestyle." (p. 108)