Libyan Housing PPP

Author:Mr Adrian Creed
Profession:Clyde & Co

We have outlined in this update a summary of how a Public Private Partnership (PPP) might be structured in Libya for the delivery of new housing for rent.

Arguably, the dissatisfaction with property, housing and land issues was one of the main triggers for the revolution in Libya. In a speech in mid-January 2011, Gaddafi sought to appease popular discontent over the housing crisis in Libya by encouraging Libyans to occupy the unfinished apartments then still being built throughout the country. When this led to a desperate scramble for those apartments, Gaddafi retracted his statement and sent the police to forcibly evict occupants, fuelling further frustration towards the regime.

To date, any form of affordable housing PPP in Libya has been impossible because of the very difficult and confused state of Libyan land law, the absence of a viable and sophisticated private sector, the inability of banks and local finance institutions to take a proper security package over real estate assets and the unwillingness of landowners to develop anything other than high end accommodation in order to maximize their return on investment.

Any reforms to Libyan land law are inevitably going to be controversial and will take a long time to bed down. However, Libya simply cannot delay its affordable housing initiatives until after new legislation is passed to safeguard and protect the rights of private sector landowners, compensate displaced parties for the nationalization and appropriation of their property and tackle the problem of illegal developments on land designated as "agricultural land".

Consequently, with the current high demand for affordable housing in Libya and moves by the Libyan government intended to encourage the private sector, it may now be an appropriate time to consider developing a "pathfinder" housing project whereby the government sets the high level objectives, the output specifications and gives the private sector developers and lenders full title guarantee on the site, together with certain payment guarantees where such housing is to be utilized by government employees. The private sector, through a compulsory competitive tender process, would then be tasked with actually building, managing and maintaining a new housing project for a finite period of time, say twenty years.

If Libya did decide to engage with the private sector to help deliver affordable housing solutions, it would need to recognise that it is very difficult to make the financial model work unless there is some element of state support or subsidy. Why would the private sector ever develop cheap housing when it could sell or rent expensive housing at a much higher profit margin?

A spin-off benefit for Libya if it were to develop a pilot housing PPP is that although the first such project will be challenging to develop, if such a project can successfully achieve financial close, it will send a powerful and very positive signal to the local and international developer and lender communities. They will inevitably conclude that if Libya is capable of putting together a properly structured pilot PPP in the housing sector, there is nothing to stop the government from doing the same in other sectors. This in turn will pave the way for the use of similar modern, efficient and transparent new procurement approaches in a wide variety of sectors right across the country.

The UK Approach

The UK has faced similar challenges in the past and...

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