Egypt real estate: No room for the poor

Salma El-Wardani , Sunday 9 Jan 2011

While the private sector chooses to develop lucrative luxury housing, the crisis in low budget housing continues

Photo: Reuters


Back in the 1980s there was famous TV series called "Howa w Heya" (He and She). Two young lovers (legendary actors Ahmed Zaki and Souad Hosni) were looking for an apartment, only to find all houses too expensive for them. Ending the appointment with a broker, the young woman asked: "Then what about all these vacant apartments? Who’s going to occupy them?" He replied: "Those who already own houses!"

The scene later developed into a bitter joke among Egyptians, given realities in the real estate sector in the country: too many investors, sellers, developers and tycoons creating a market only for those who can afford to buy more than one house, pushing out all those looking for cheaper housing. 

"Most of our clients are targeting the real estate sector for investing," says a property consultant at a real estate company who preferred to stay anonymous. "It’s because the new compounds and the so-called gated communities are too expensive for the lower and middle classes, and for the upper class it’s quite an investment."

The company, one of several that started operating in 2001, has like other companies operating in the market suffered in 2010 as corruption whistleblowers exposed shady deals in the industry.

In the past, and according to state laws, only projects that promised to provide middle or lower-middle class lodgings at low prices were to be granted cheap state-owned land and tax exemptions. This stipulation has been laid dormant.

Madinaty, New Giza and Palm Hills, are flagships of upcoming rich communities granted cheap or free state-owned land. Palm Hills, for instance, founded by Mansour and Maghraby Investment and Development Company (MMID), the company owned by the family of the current minister of housing, has one of the largest land banks in the country with most of its revenues during the period 2007-2009 coming from the resale of land. An HSBC report published in early 2010 gave a strong recommendation to its investors to buy Palm Hills shares, giving the company a very good rating of overweight V, partly based on an "inexpensive and diversified land bank". The report, entitled "Picking winners in the Egyptian Real Estate sector," spotlighted Palm Hills Development, along with Sodic and the Talaat Mostafa Group.

“For the sake of whom is the government offering tycoons our lands so cheap so they can triple their wealth?" asks Khaled Ali, labour lawyer and head of the Egyptian Centre for Economic and Social Rights. "Selling state lands is nonsense," he added.

According to HSBC, while Palm Hills bought land at a very low cost, an average of LE155 per square metre, all its products are oriented to the richest 12 per cent of the population, with a minimum price of LE1.2-1.5 million per unit.

On the other end, "The only public housing project, Ebny Betak (Build Your House), launched by Mubarak has a total land bank of just 12 million square metres, which accounts for less than a quarter the total land bank of the Madinaty luxury housing project," adds Ali. 

According to the Egyptian Centre for Housing Rights, out of a population of 70 million Egyptians, some 11.5 million people — or 16 per cent of the population — live in informal housing. Compounding this is are cutbacks in government-funded public housing for the poor and the fact that the private sector has concentrated on the more lucrative development of luxury properties.

Also notable is a downward trend in the number of units that the government has produced. In the period 1986-90 (the second five year plan), the public sector produced 52,600 units. This figure slipped by 40 per cent in the next period (1991-95) to 32,500 units. In the fourth five-year plan, 1996-2001, the government further cut the target to only 30,000 units, with a further reduction of 2,500 units in the fifth five year plan.

As part of President Hosni Mubarak's 2005 election campaign, the government is spending around LE20 billion in direct and indirect subsidies via the National Housing Project. Through the project, the government sells land at discount prices to private companies, such as Orascom Development Holding and Nasr City Housing, on the condition they use it to build low-income housing.

Last August, the government said it had already delivered to customers a total of 303,000 housing units, and are in the process of building further 215,000 units, though this is small compared to overall demand.

As a result of the lack of low-income residential projects, many developers, including Orascom Development, have started building smaller units.

But with prices ranging from LE500,000 to LE1.5 million ($87,000-$260,000), according to a recent report by Reuters, the majority of Egyptians are already priced out the market. UN figures put per capita gross domestic product (GDP) at LE10,000 — or $1,780 — a year.

"The unfair laws and the unjust way of distributing the state’s assets has led to a clear class gap, with many Egyptians living in cemeteries and shantytowns, while others owns three and four villas, and are investing in others," said Ali.

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