The real estate sector in Egypt is looking to build on its strong 2006 performance, with new regulations encouraging home ownership. The hoped-for result? As mortgage financing becomes increasingly available, economic growth is expected to help fuel a property boom.
While some analysts have voiced doubts regarding a continuation of the Middle East’s real estate boom, pointing in part to the slowing of the market in the last months of 2006, such concerns don’t appear to be affecting Egypt.
In part, the Egyptian real estate sector has not experienced the same frenzied activity as in the Gulf states, nor seen the same massive levels of investment. Growth has been somewhat more measured, but has increased over the past two years.
Strong price gains in some areas, mainly around Cairo, have occurred. However, the high level of appreciation in some parts of the market does not presage an equally spectacular fall.
According to Maher Maksoud, CEO of the 6th of October Development and Investment Company (SODIC), one of Egypt’s largest home-grown property developers, there is no risk of the real estate bubble bursting.
“Not even close,” said Maksoud in one recent interview. “Egypt is changing significantly. We have a massively frustrated demand for all kinds of real estate, not only housing. Purpose-built office and retail space is still a rarity. The demand has existed for several years now, but the economic situation in the country has previously stood in the way.”
This changing situation has been accelerated by the entry into the market of major Middle Eastern property developers, though many of the ventures by such firms in the Egyptian market have been in the tourism sector. One of the most notable exceptions has been the Dubai giant Emaar, which last year announced plans for a massive $14 billion development outside of Cairo, combining residential, commercial and recreational facilities.
A chronic shortage of housing
Lavish as this and other top of the market developments are, they do little to address the chronic shortage of housing facing the man in the street. Recent figures show that Egypt needs 2.5 million housing units just to meet existing demand and a further 350,000 annually to keep pace with its burgeoning population growth.
One project that will go some way to help is the Talaat Moustafa Group’s Madinaty City development to the east of Cairo. When completed, the new satellite city will comprise 80,000 residential units, a mix of apartments, villas and townhouses, complementing the group’s nearby Al-Rehab development, home to some 200,000 people.
Egypt’s residential property market has received a number of boosts from the government, which in recent years has simplified and speeded up the registering of property and slashed registration fees to $350. The state has also been encouraging the country’s banks to be more active in providing financing for prospective homebuyers. Currently, there are just 12 banks and two mortgage financing companies operating in the domestic market, a figure the government hopes will increase this year.
At least in part, it appears that the government’s hopes are being realized, with Dubai-based finance firm Amlak announcing on Jan. 9 that it would be expanding into Egypt to offer financing and real estate services.
Amlak is to offer long-term housing finance of up to 20 years, using financial models in line with the principles of shariah. Until recently, most home financing on offer in Egypt had a maximum term of just five-years, limiting the number of Egyptians who could avail themselves of the service.
Entering a small market
Amlak is entering what is by global standards a small market. Figures released by the Egyptian Mortgage Finance Authority show the level of mortgage loans at less than 0.5% of GDP. This compares with the UAE’s figure of 2% in 2005, or 39% in the EU.
There is the danger that many middle income earners could be priced out of a market that is just opening up to them. With land and housing prices rising well above the 2006 inflation rate of 12%, potential buyers could be playing catch up in the still tight market.
However, with the Egyptian economy tipped to expand by around 7% this year, and both greater access to financing and an expanding middle range property market, many more Egyptians may end up owning the roof over their heads.
