93 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE stipulations if they intend to encourage acceptance of the instrument. Informality in the Moroccan real estate sector is another consideration for both OPCIs and government regulators attempting to encourage public acceptance of the investment vehicle. The informality raises concerns from two main angles: dynamics in acquiring the land itself and taxation of real estate revenues within Moroccan tax code. Currently, negative attitudes surrounding property and urban development are focused on the complexities of laws governing these lands as well as the informalities permeating the system, such as unregistered properties or out-of-date land maps. From the perspective of land acquisition, poor land governance is an issue that has caused problems ranging from heavy price speculation to underdevelopment of certain sector-specific lands. For example, in the industrial sector, where demand is high from an economic attraction standpoint, informality is causing high price volatility for the land, while the actual infrastructure development in such areas is stagnating (Chauffour, 2017). This price volatility stemming from informality poses a great threat to both the governmental goals for OPCIs and the OPCI firms themselves. With such high price speculation over the land itself, firms may find it difficult to make the initial investment, thereby hampering the government’s plans to use OPCI structures for generating significant developments in the country’s commercial real estate market. Morocco’s tax system encompasses both direct (income and corporate) and indirect (value-added, consumption, and customs) taxes. From the perspective of direct taxation, the informality under personal income tax regimes is of concern, as it may limit the appeal of formally organizing under the OPCI structure. Under the personal income tax structure, property developers may opt out of paying corporate income tax and instead pay under various personal income tax regimes, which may be more attractive, depending on the level of income generated (World Bank, 2022). The issue arises that, despite offering some tax exemptions to OPCIs, they may not be sufficient to overcome the benefit of tax avoidance under PIT due to lower rates and potential underreporting of income from properties. Recommendations Although challenges such as liquidity, leverage, and market impediments are inherent to operating within any financial market, some of the aforementioned challenges are specific to Morocco as it attempts to modernize itself in the global financial ecosystem. The informality in the real estate sector and the nature of interest rates are of note for decisions by OPCIs to acquire real estate and can be addressed through governmental intervention and mitigation approaches based on policy and regulation. Easing regulations and enhancing government–bank cooperation should incentivize more frequent use of the OPCI instruments in Morocco’s financial markets, thereby helping the country make substantial strides in its goals to modernize. Easing regulations to encourage OPCI instruments The objective of OPCIs is not to shift entirely away from individual- or company-owned properties and land assets; at the same time, OPCIs are intended to offer new methods of raising capital for land developments, moving assets off company balance sheets, and adding formality to the financial system pertaining to commercial real estate and the universe of investable assets for Moroccan and foreign investors. With market challenges arising from decreased transaction volumes and other inherent risks associated with real estate markets in Morocco, it is the formation requirements of OPCIs that should be targeted to increase their adoption. To encourage use of the investment vehicle by existing firms (or potentially new ones), the stipulations surrounding taxation and distribution should be relaxed to encourage a larger offering of OPCI investment vehicles and, subsequently, a greater pool of assets in which investors can share. The initiatives pursued in the 2023 Finance Law underscore the government’s willingness to encourage OPCIs and its simultaneous objective of savings mobilization. To further encourage OPCIs, the government should amend stipulations pertaining to corporate tax exemptions. As seen in Table 2, the framework for OPCIs allows total corporate tax exemption, assuming the real estate contributed is held for at least 10 years. Easing this requirement to a minimum holding period of three to five years will allow managers of these firms to exercise more control over investments and adjust more efficiently to changing market conditions. Furthermore, the distribution requirement of 85% of financial operations should be lessened to 50% yet maintaining a corporate tax exemption under the stipulation that the 35% increase in retained funds are allocated to project development and adoption. By increasing the capital for fund managers, the overall OPCI cash flows can grow from new projects, and Morocco’s real
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