As many real estate developers look forward to the summer to boost demand and clear their property stock, others are betting on these developers stumbling and halting their projects.
Theses investors aim to buy stagnant real estate projects at low prices, rework them, and turn them into profitable ventures.
This emerging business model is particularly gaining traction in Casablanca, where businesspeople closely monitor project stoppages to contact the owning companies and negotiate terms for acquiring their fixed and movable assets, as well as their debts to suppliers, and in some cases, even banks.
Monetary statistics from Bank Al-Maghrib show a 1.1% increase in total real estate loans by the end of last April, reaching 304.4 billion MAD. Out of this, 54.3 billion MAD are loans to real estate developers, marking a 4% rise compared to the same period last year.
However, these figures hide another reality related to the financial situation of construction and public works companies.
The financial strain is the main reason behind the halting and freezing of many real estate projects.
Developers, particularly the bigger ones, often subcontract work to other companies, only to face numerous issues that disrupt the progress of their projects.
The reasons for the freezing of real estate projects vary widely. Some projects stall due to construction work that fails to meet required specifications, thereby preventing them from obtaining necessary compliance and occupancy permits.
Others face issues such as bank reservations caused by developers’ inability to repay loan installments.
Disputes with project owners or bankruptcy declarations due to high construction material costs, inability to cover labor expenses, and equipment rentals also contribute to project halts.
For this reason, new investors in stagnant real estate projects are turning to accounting and audit firms to assess the project’s true financial status before making purchasing decisions.
Exploiting the seller’s need, often financially distressed, for liquidity, they negotiate for the best price to secure substantial returns on investment.
Meanwhile, buyers initiate negotiations with project creditors—whether banks, suppliers, or handling companies—to settle debts, often securing discounts on original amounts and associated late fees.
Younes Taouil, a real estate developer, emphasized that the acquisition of stalled real estate projects goes beyond mere profit-making. It serves to instill confidence in the sector and its stakeholders.
In a statement to Hespress Ar, he noted that a halted project represents a loss not only for the owners and companies involved but also for the state’s treasury and, most significantly, for the customers who deposit substantial down payments into the accounts of real estate companies, facing the risk of not receiving their properties within the agreed-upon timeframe.
Taouil highlighted the current practice of not recognizing “Vente en l’état futur d’achèvement” (VEFA) contracts, which are agreements for the sale of off-plan properties.
This forces homebuyers to make significant financial down payments, sometimes reaching up to a third of the property’s value, in exchange for a mere receipt.
Taouil further explained that some owners of stalled real estate projects have taken steps to compensate their customers, demolish existing buildings, and convert the project’s designation from residential to commercial, constructing office, business, and hotel spaces.
He clarified that the lack of knowledge among some investors regarding the intricacies of the real estate sector has entangled them in projects that never materialized, resulting in significant financial losses.
Touil reiterated the pressing need to regulate the sector and establish a specific law governing the profession of real estate developers.
This, he asserted, would help prevent a range of issues that undermine the interests of stakeholders in this vital sector, particularly banks, and deprive the state treasury of substantial tax revenues.
Debt architecture by investors acquiring stalled real estate projects is governed by a set of legal provisions, procedural measures, and negotiation strategies. These are designed to ensure transparency and security in financial transactions during the acquisition process.
Mechanisms such as share purchases and asset exits, as well as installment payments of debt amounts and guarantee bills and others, play a vital role in protecting creditors and buyers.
In these complex transactions, investors often seek the assistance of specialized accounting and consulting firms to guide them through the process, safeguarding their interests, maximizing investment returns, and avoiding potential legal disputes that could hinder the transaction.
Salim Chahabi, a financial and banking consultant, risk management departments in banks have raised concerns recently regarding the growing volume of defaults on outstanding loans owed by real estate developers.
This has resulted in a substantial accumulation of illiquid real estate assets for these banks, particularly in the current market conditions characterized by declining demand.
Chahabi, in a statement to Hespress, emphasized that debt architecture remains a strategic option for credit institutions to ensure effective debt recovery.
He noted that past attempts by banks to partner in real estate projects as part of restructuring plans have proven unsuccessful, as real estate development is not a core competency for banks, and they lack the necessary expertise in this domain.
Zineb Sariji, a real estate management architect, confirmed that the involvement of banks in the practice of real estate revival is fraught with risks.
She stressed that foreign credit institutions that preceded their Moroccan counterparts in this have sought the help of specialized real estate management companies.
In a statement to Hespress, Sariji pointed to the importance of risk management in case of financial difficulties, where it is necessary to adopt the leading American approach globally in this regard.
This approach allows investors to buy shares and debts in troubled projects, and create a joint leadership for these projects, until they are out of their crisis and achieve their goals, before sharing profits based on the value of the contribution.
add your comment
Terms of publication : Not to offend the writer, people, sacred things, or attack religions or the divine self, and refrain from racist incitement and insults.