One sector rules on investment

Mai Ghandour, Tuesday 18 Oct 2022

Egypt’s real estate sector remains a reliable investment in the face of economic strains and booming prices, experts tell Mai Ghandour

Egypt s real estate



Investing in real estate has long been an integral part of Egyptian culture, and with inflation reaching unprecedented levels it has once again proved its strength against other types of investments such as gold or certificates of deposit.

According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), the total number of housing units built in Egypt in fiscal year 2020-21 amounted to around 336,300, with total investments of LE150 billion, up from 194,200 units in 2019-20 with investments of LE79 billion.

Social housing came out on top in 2020-21 with 169,100 units and accounting for 50.3 per cent of the total, while middle class and upper middle class housing represented 123,700 and 17,100 units, respectively. Luxury housing made up 7.8 per cent of the total over the year at 26,300 units.

In August, the real estate sector topped the trading value of sectors traded on the Egyptian Stock Exchange (EGX) at LE7.1 billion and 4.6 billion shares. In the third quarter of the year, the real estate sector led the top gainers in the EGX, with a trading value of LE15.2 billion, a trading volume of 9.1 million shares, and a market share of 21.8 per cent.

According to CEO and managing director of developer Tatweer Misr, Ahmed Shalabi, the first half of this year witnessed strong sales in the real estate sector, with first quarter sales high on an annual basis.

The increase in sales was due to people still wanting to buy real estate despite its high price, because it is an asset that preserves its value. “Despite the rise in prices in the first half of the year by approximately 15 to 20 per cent, expected by the end of the year to reach more than 30 per cent, there is still a strong demand among purchasers,” Shalabi said.

Developers like Misr Italia Properties, SODIC, Orascom Development Egypt (ODE), and Palm Hills have all achieved a boom in sales. Misr Italia achieved contractual sales worth LE4.2 billion in the first half of 2022, with 58 per cent growth over the same period in 2021.

Meanwhile, SODIC generated gross contracted sales of LE6.67 billion, an increase of 77 per cent over the LE3.76 billion of gross contracted sales recorded in the same period of 2021. ODE achieved sales of LE4.7 billion in the first half of 2022, with 16.9 per cent growth compared to the same period in 2021. Palm Hills Developments achieved new sales of LE10.7 billion in the first half of 2022, a 38 per cent growth compared to LE7.7 billion in 2021.

Sales growth was largely driven by an increase in the number of units sold and new projects launched by developers.


DEMAND: Fathallah Fawzi, chair of the Middle East and North Africa (MENA) section at the Real Estate Development Consultancy and chair of the construction committee at the Egyptian Businessmen’s Association, told Al-Ahram Weekly that “we have a population growing by 2.5 million people every year, in addition to one million marriages per year, creating a demand for a minimum of 500,000 units per year.”

Having a home is a basic need, just like having food and water, Fawzi said. Thus, demand will likely always outstrip housing production. Approximately 300,000 units are produced per year, while there is demand for 500,000, signaling a shortage of available units.

As the prices of building materials have been increasing, the prices of units have also been going up, he said. In a period of five years, prices could double, but demand will likely remain the same, if not increase.

Fawzi said that building materials are available in Egypt, with no shortages. However, their prices are increasing due to the rising prices of fuel internationally. Egypt also imports many building materials, leading to higher prices, especially for fully-furnished units. These have become increasingly desirable, Ayman Sami, country head of JLL, a UK real estate services company, told the Weekly.

He said that as real estate gets more expensive, its value as an asset increases, and with inflation, prices are skyrocketing. On the other hand, due to the US dollar exchange rate and the devaluation of the Egyptian pound, the local currency is depreciating in value.

Thus, if you are a buyer, now is the right time to purchase property before its price goes up even more. If you are a seller, it is better to wait, Sami said. He explained that long installment plans are becoming the new normal for all kinds of developers as an alternative to mortgages but catering to different socio-economic classes.

Mortgages are less widespread as they have very specific requirements and take more time on longer repayment plans. Installment plans through the developers themselves are becoming more convenient for many people and are more socially inclusive, since the banks can require certain income levels before granting a mortgage, Sami explained.

Both forms of financing are similar in terms of duration, he said.

Demand for property remains high, Sami stressed, elaborating that this goes back to Egypt’s population growth. The demand also underlines people’s purchasing power, which is becoming stronger as a result of current attractive payment terms.

But purchasing power does not always align with demand, Fawzi said, which is why the government is supporting projects for mortgage loans, and the private sector is following suit with developers offering payment facilities over several years.

Sami expects that real estate in Egypt will inevitably keep on getting more expensive, but that this will not necessarily affect demand for property, which is considered inelastic.

Once upon a time, the US dollar was equivalent to LE3, but today $1 is getting closer to the LE20 threshold and is anticipated to go higher. It is therefore to be expected that inflation will cause all products, property included, to rise in price.

The CEO of developer Inertia said in September that since he started in real estate back in 2008 the global and local scene have seen huge changes. The 2008 world financial crisis, the 25 January 2011 Revolution, the devaluation of the Egyptian pound, the Covid-19 pandemic and the Russian-Ukrainian war have directly impacted prices.

People who bought houses at the beginning of the journey may have made up to 300 per cent profits, he said.


SOCIAL HOUSING: Today, social housing units with an area of 90 square metres cost around LE250,000. Units of the same size in the private sector cost at least LE1 million, according to Fawzi.

The sector’s achievements in 2021 included preparing plans for about 238,000 social housing units within the “Housing for All Egyptians” initiative and approving planning and designs for 296 urban, service, and investment projects.

These projects include about 55 projects in the new 4G cities and 12 projects on the North Coast. They span over 38,000 acres in 12 new cities and provide about 300,000 job opportunities.

Around 2,272 allocation requests were approved for 480 plots on 5,700 acres, along with 690 attribution orders, and 1,350 offers to develop the construction sector, in addition to residential and service activities in the new cities.

The “Housing for All Egyptians” initiative started in response to President Abdel-Fattah Al-Sisi’s directive to provide suitable housing units for all citizens, as the project allows them to pay the cost of unit without charging for the plot of land.

It includes segments of the population that have not previously qualified for social housing, whether because their income exceeds the maximum limit or for other reasons. The first stage of the initiative extends to cover the entire country.

The average area of a new unit is 110 square metres, while social housing units range between 70 and 90 square metres in size. Governmental housing uses only local materials, while luxury housing has been facing shortages due to a dependence on imports, Fawzi said. The governmental social housing initiatives target the low- and middle-income levels.

Real estate expert Abdel-Magid Gado told the Weekly that in order to grapple with inflation, developers as well as buyers need to study the economic, social and cultural aspects of real estate. Furthermore, the developers need to create property at an economical cost to the highest quality and in record time.

The backbone of any society is its middle class, and most real estate projects should target this segment, Gado said.

BUYERS’ CONCERNS: One retired investor told the Weekly that he had sold a unit in 6 October City that he had bought in 1997 for about LE35,000. It was sold last year for LE1.3 million to a buyer with a loan from the National Bank of Egypt at an interest rate of three per cent and a repayment period of 30 years.

At the same time, the investor bought a bigger unit in one of the compounds in 6 October city, and the sale was executed at pre-inflation prices. Thus, the deal was “an investment opportunity that cannot be missed”.

Likewise, Cairo buyer Mustafa Gamil, 30, bought an apartment in 2006 in the Shubra district for LE180,000 and sold it in 2021 for LE900,000 although it could have reached LE1.4 million. “Those who are willing to pay above a million need mortgages to do so. But due to the difficulty of the procedures in this case, the sale did not go through. Those who have cash generally have less than LE1 million,” Gamil said.

“At the end of the day, if I had not taken the LE900,000, I would not have been able to buy anything later on. I am not sure if I made a good deal or not.”

Sustainability and sustainable buildings are all the rage at present and will be the future of the sector, JLL’s Sami said. As cities around the world account for more than 40 per cent of carbon emissions, Egypt has plans to build more green cities, starting with Sharm El-Sheikh, the host of the COP27 Climate Change Conference in November.

Green cities entail that the energy used in their buildings is clean and renewable. Egypt announced in September that a UN-led presidential initiative known as the Sustainable Cities Initiative will be launched during the COP27 that aims to accelerate the implementation of international development agendas, including the UN Sustainable Development Goals (SDGs) and the 2015 Paris Agreement on Climate Change.

As sustainability becomes more a way of life, it is the responsibility of both the developer and the buyer. The developer is accountable in terms of construction and architecture, and the buyer and resident are responsible for using energy and water in a sustainable manner. This is especially critical today in the light of the world energy crisis, Sami said.

Running costs of green buildings are lower, Sami said, and construction costs are now almost the same as regular buildings. The concept of smart cities might seem expensive at first glance, but it is important to look at the running costs in the long run.

“By sustainable real estate, we are also not just talking about residential units, but also about commercial and public buildings. This is the way to achieving net-zero carbon emissions,” Sami concluded.

*A version of this article appears in print in the 20 October, 2022 edition of Al-Ahram Weekly.

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