Egypt’s Property Market Fragile

Jones Lang LaSalle reports that asking prices and sales prices of residential real estate in Egypt are on the rise, but political upheaval may threaten the progress as …

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Jones Lang LaSalle reports that asking prices and sales prices of residential real estate in Egypt are on the rise, but political upheaval may threaten the progress as the year progresses. Egypt’s property market has performed erratically over the past few years during a time of protracted civil unrest, but that hasn’t stopped prices from rising in key areas like Greater Cairo and New Cairo in the second quarter of 2013. Political uncertainty is contributing to economic instability and both inflation and unemployment are on the rise. Even so, rental rates and yields are increasing and foreign and domestic demand is up. For more on this continue reading the following article from Global Property Guide.

Egypt’s property market remains robust in the first half of 2013. However, the future of the housing market is now uncertain, amidst ongoingpolitical crisis.

Since Mohammed Morsi succeeded Hosni Mubarak in June 2012, the newadministration has faced rising dissatisfaction, amidst complaints of prosecutionsof journalists, attacks on nonviolent demonstrators and granting himselfunlimited powers. Morsi was ousted by means of a military coup and declaredunseated in July 3, 2013. The military suspended the constitution, establisheda new administration and initiated a fierce cracked down on the Muslim Brotherhood.

The real estate market has been hard hit by this civil unrest in thepast three months, according to local property experts. However, the impactremains unknown until Q3 2013 figures are released.

Before the coup, the property market was doing surprisingly well, withhouse prices and rents rising. Demand from domestic and foreign homebuyers wasstrong. Residential construction activity was picking up.

In the second quarter of 2013, the average askingprices for residential property across Greater Cairo rose by 8% from the previous quarter, according to Jones Lang LaSalle.

In New Cairo,the average sales price for apartments soared by 11% q-o-q to US$1,125 persquare meter (sq. m.) in Q2 2013. Likewise, villa prices also increased 3% toan average of US$1,741 per sq. m. over the same period.

In 6thof October City, the average sales price of apartments fell by 3% to US$897per sq. m. in Q2 2013 from the previous quarter. On the other hand, askingprices for villas rose by 10% q-o-q to an average of US$1,111 per sq. m. in Q22013.

Property prices in Egypt rose 13.7% (4.5% in realterms) in 2005, but then stagnated. House prices dropped 0.4% (-4.4% in realterms) in 2006, and fell 0.6% (-10.4%) in 2007, according to the 2008 EgyptHousing Survey conducted by Bearing Point Inc, which has a cross-Egypt sample.House prices fell further in 2008, due to the global crisis. Then by end-2009,house prices in the secondary market had fallen by about 37%, according tolocal real estate analysts. However, house prices started to recover in 2010,fuelled by strong domestic and foreign demand.


  Average price(US$/sq.m.) Q-O-Q (%)
New Cairo    
Apartments 1,125 11.0
Villas 1,741 3.0
6th of October City    
Apartments 897 -3.0
Villas 1,111 10.0

Source: Jones Lang LaSalle

Egypt saw erratic house price movements in the past few years.  Thefollowing data come from various sources:

  • Property prices in Egypt rose 13.7%(4.5% in real terms) in 2005
  • House prices then dropped 0.4% (-4.4%in real terms) in 2006
  • House prices fell 0.6% (-10.4%) in2007, according to the 2008 Egypt Housing Survey conducted by Bearing PointInc, which has a cross-Egypt sample.
  • House prices fell further in 2008, dueto the global crisis.
  • By end-2009, house prices in thesecondary market had fallen by about 37%, in real terms, according to localreal estate analysts.
  • Egypt’s housingmarket has strongly recovered in early-2010, mainly due to robust economicgrowth. House prices were estimated to have risen by about 10% in 2010.

In the second quarter of 2013, there were about4,400 residential units completed, according to Jones Lang LaSalle. Of these,about 73% were located in New Cairo, which included the following:

  • Madinaty (Talaat Mostafa Group) – a huge residential compound which delivered about 2,000 apartment units in the third phase of the project
  • Lake View – delivered 350 villas in the third phase of the project
  • Hype Park – delivered 50 apartments and 50 villas
  • Layan Residence – delivered 140 villas in the second phase of the project
  • Family City – completed about 300 apartment units in Q2 2013
  • High Land – offered 150 apartment units during the latest quarter
  • Hayat Heights – delivered 192 apartment units in Q2 2013

In 2012, the total residential stock rose by 10.45%to 74,000 from the previous year. Existing major residential developments inGreater Cairo included Katameya Heights (New Cairo), Palm Hills October (6thof October City) and DreamLand (6thof October City). In addition, future supply of residential units in Egypt isexpected to increase in the coming years with the construction of the Cairo Festival City (New Cairo), Mivida (New Cairo), Westown (6th of OctoberCity), Kenana (6th ofOctober City) and New Giza.

Foreigners cannot register more than two pieces ofreal estate, which cannot exceed 4,000 square metres (sq. m.), and theirpurpose must be for a family member to live in. The property cannot be sold orrented for the first five years. The purchase sum must be brought into Egypt inforeign exchange. When ultimately rented, property owned by a foreigner must berented furnished, which has very major tax disadvantages.

One way around these restrictions is the ‘signature validity court verdict’,which is explored in the ‘Buying Guide’. Thisavoids formal registration, and allows resale of the property immediately.

Economic slowdown, but inflation remains high

From 2006 to 2008, the Egyptian economy grew by a spectacular 7% annually. The economy expanded by 4.7% in 2009 and 5.1% in 2010, despite the global crisis. However, the economy slowed sharply in 2011 and 2012, with real GDP growth rates of just 1.8% and 2.2%, respectively.

In the year to end-June 30, 2013, the country’s GDP grew a tepid 2%. Economic growth is expected at 2% in 2013.

In the second quarter of 2013, the overall jobless rate was 13.3%, up from 12.6% in the previous quarter. Currently, youth unemployment in Egypt was estimated at over 20%. The total number of unemployed people increased 36,000 in Q2 2013 to reach 3.6 million.

High inflation remains one of Egypt’s major problems. In September 2013, the overall annual inflation rate increased to 10.15%, up from 9.7% in August and 10.3% in July 2013, mainly due to food price hikes, based on figures from the Central Agency for Statistics and Mobilisation and Statistics (CAPMAS). The country’s inflation rate averaged 12.3% from 2007 to 2011 before falling slightly to 8.6% in 2012, according to the International Monetary Fund (IMF).

Political uncertainty

Politics is increasingly a worry. Hosni Mubarak, who became Egypt’s president for about three decades, was ousted in 2011. The regime is corrupt and unpopular. Arbitrary arrests touch not only the extremists, but also the middle class.

Mohammed Morsi succeeded Hosni Mubarak in June 2012. However, as president, Morsi granted himself unlimited powers. In addition, the new administration faced complaints of prosecutions of journalists and attacks on nonviolent demonstrators. Because of these issues, Morsi has been ousted by the military, after mass protests erupted in June 30 2013 which saw millions of protesters calling for the president’s resignation. Government headquarters have been vandalized and burned while senior leaders have been detained.

By July 3, 2013, Morsi was declared unseated and the military suspended the constitution and established a new administration headed by the chief justice. Moreover, the military initiated a fierce cracked down on the Muslim Brotherhood.

Rising rents and high yields!

Rentsvary widely within cities, but have generally been rising in the past months. InMohandeseen, in the city of Giza,which is attractive to rich locals, rents are soaring. A luxury apartmentrenting for EGP17,500 (US$3,085) per month in the past six months, are nowrented at EGP39,275 (US$6,925) per month.

In Heliopolis,an upscale district of Cairo, monthly rents range from EGP 4,271 (US$753) for a150 sq. m. apartment to EGP 23,651 (US$4,170) for a 500 sq. m. apartment, basedon the 2009GlobalProperty Guide research.

The average rental yield in Egypt was 7.3% in 2009. In Maadi,rental yields are spectacular at an average of 12% in 2009. Although yields are5% lower than the 2007 Global Property Guide estimates, foreigners still liketo live there. Prices start from US$600 per sq. m., to around US$1,000 per sq.m..

Vacancyrates are generally low in Egypt.

Mortgage market set for take-off?

The Egyptian mortgage market dates to 2001, when PresidentialDecree No. 277 created the Mortgage Finance Authority (MFA).Itstillrepresents less than 1% of GDP.Lendinghas remained low partly because the complex registration process takes about 6months to complete. The market now stands at around EGP 4 billion (US$705million) (early-2010), up from EGP 208 million (US$36.7 million) in 2005.

Most Egyptian and foreign property buyers pay cash. Cashpurchases represented 57% of all property transactions in Egypt from 2003to 2008, according to the 2008 Egypt Housing Survey.

However by mid-2010 there were 11 mortgage financecompanies (MFCs), up from only 2 in 2005. The government plans to expand themortgage market to EGP 10 billion (US$1.76 billion) in the next 3 years,according to Moustafa El-Haiawan, board chairman of Egypt´s Mortgage FinanceFund, which will subsidize about 10,000 housing units in 2010, and 65,000 unitsby 2012. Low-income households with a maximum monthly income of aroundEGP20,000 may qualify for the subsidies.

The average term period for mortgage loans was 16.1 years,according to Investment Minister Mahmoud Mohieldin.

Currently, the average mortgage interest rate is 12.45%p.a.. The CBE’s overnight deposit rate was 8.25% in July 2010, the lowest sinceNovember 2006. The central bank last cut its benchmark rate in September 2009.

Analystspredict that the central bank will keep its key rate steady for the rest of 2010.

Strong foreign and local housingdemand

In 2009,housing demand was about 816,000 units, based on studies conducted by USAID andPrime Research.

Bothforeign and local demand is rising rapidly:

  • With over 500,000 marriages annually, there is a strong demand for housing, especially first time buyers.
  • Egypt’s economic growth is rapid
  • Foreign demand from second homeowners, is rising, mainly due to the country’s tax-friendly laws, which charge no tax to non-resident property owners, aiming to encourage investment from overseas property buyers.

Shortage of affordable housing

The Egyptian housing market faces a supply shortage,especially in the low-income segment, which has a shortage of about 40,000units per year. Over 5 million people have been pushed into the cemeteries of Cairo’s City of the Dead.

About 90% of the country’s housing supply is builtinformally, while only 10% is built by professional property developers. Morethan 11 million people, out of the country’s total population of almost 82million, live in informal slum settlements.

About 44.4% of Egypt’s housing stock is occupiedby owners, while about 35.7% of the housing stock is rented. Other tenure typesare gifts, and in–kind privileges (14.1%), and public housing (5.5%).

To address theproblem, the Ministry of Investment has introduced a program to subsidizedlow-income housing, by giving priority to first time buyers. Debt finance hasbeen extended to low-income families through the Guarantee and Subsidy Fund(GSF), providing up to 15% of the value of a residence.

Investment hotspots

The luxury, foreign and second-home property market israther different from the gritty realities we have been talking about in muchof this report.For this market, the buyingopportunities in Egypt – andparticularly the newly-built opportunities – can be conceptually divided intothree areas: Cairo, the Red Sea, and the Mediterranean Coast.

1. Cairo

  • Emaar’s Uptown Cairo
  • The EGP 12 billion (US$2.2 billion)Uptown Cairo was being constructed by the developer Emaar Misr. The developmentoffers several residential villages, a golf course, malls, sports and leisurefacilities, as well as a business park. This is the first wholly foreign-owneddeveloper to enter the Egyptian market.

  • Katameya Heights
  • The super-luxurious Katameya Heightslaunched prior to Uptown Cairo, covers an area of about 1.5 million sq. m. Katameya Heights, introduced in 1997, were purelylocal. Formerly a stretch of desert, Katameya Heights is now a largesuburban area, with large houses, and has attracted enormous interest. Theresort offers marvelous clubhouse, beautifully designed golf course andluxurious villas.

  • Rehab City
  • Rehab City, a realestate development located in New Cairo, is being developed by Talaat MoustafaGroup (TMG). The development is located on the Cairo-Suez road. It offers manyshopping malls and a cinema complex. Rehab City is preferred by manyupscale locals.

  • Madinaty
  • With a total budget of EGP 60 billion(US$11 billion), Madinaty is considered one of the biggest and most expensivereal estate developments in New Cairo. Developed by Talaat Moustafa Group(TMG), it will include 80,000 residential villas, townhouses and apartments.There will also be recreational and commercial areas, schools, medicalfacilities and hotels. Madinaty is adjacent to El Shrouq City. Constructionbegan on July 2006, and it is expected to be completed in 2011.

  • New Cairo City
  • Emaar Misr is also building a5,000-home 3.8 m sq. m. project, New Cairo City.The development is considered a new extension to Cairo, the capital. New Cairo City,when completed, is expected to feature several villages offering gated villas,townhouses and high-rise apartments.

    Mivida is a EGP 6 billion (US$1.1 billion) residential development located at thefifth district in the New Cairo City.The 3.8 million sq. m. development will feature 5,000 apartments, townhousesand villas.

2. Red Sea

  • Sharm el Sheikh
  • Sharm el Sheikh is now the country’smost luxurious and attractive resort, newer and more upscale than Hurghada,host to 5-star hotels and international conferences. Sharm has a vibrant nightlife, and boasts many nightclubs, the longest continuous bar in the Middle East, and a marina which can handle private yachtsand sailboats. Zoning laws limit building heights (limited to three stories),which has prevented the surroundings’ natural beauty from being spoiled by highrises.

    Sharm’s development has been led bytourism, though hotels such as the Ritz-Carlton have sold private villas. Newresidential developments tend to follow this hotel-based pattern, such as the just-completedSierra ResortNabq Bay;the Laguna Vista Residence in Naqb Bay; the Carlton Resort,Hadava. Fully residential is Montazah in Ras Nasranr.

  • Hurghada
  • Hurghada is the most popular seasideresort in Egypt,though it is overcrowded and now slightly seedy. Hurghada has an internationalairport with direct flights to major European countries, as well as flights to Cairo. The city isdivided into three parts: Downtown (the old part); Sekalla (the city center);and El Memsha (the modern part).

  • Gamsha Bay
  • In GamshaBay, 60 kilometers north of Hurghada,a 320 million sq. m. tourism and housing project is being developed by Damac,which developed the Dubai Towers, and will becompleted over 10 years. The development has a total budget of EGP 2.9 billion(US$16 billion).

  • Sahl Hasheesh
  • Eighteen kilometers South of Hurghadalies Sahl Hasheesh Bay,where a purpose-built resort flanking 12.5 kilometres of sandy beach is beingbuilt. Covering 32 million square metres, by the time it is completed in 2014Sahl Hasheesh will have 20 5-star hotels and 8 golf courses. The EgyptianResorts Company (ERC) owns the exclusive development rights.

  • Port Ghalib
  • Much further south near Marsah Alam,two and a half hours from Luxor, the Port Ghalibproject is being developed by Al Kharafi Group of Kuwait along 18 kilometres ofshoreline. It opened in November 2007, with around 100 properties for sale, anda further 350 in the pipeline. Marsah Alam has a newly-built internationalairport, an international convention centre, a man-made lagoon, and amultiplicity of sports facilities. A marina and the usual mix ofhotel/residential mix are planned.

3. Mediterranean Coast

  • Marassi
  • The Marassi resort, worth around EGP9.92 billion (US$1.74 billion), is being developed by Emaar. It is located on a7-km coastline at Sidi Abdel Rahman on the Mediterranean near El Alamein. Marassi resort will offer up to 3,000 hotel rooms, luxuryvillas, chalets, a marina, an 18-hole golf course and healthcare facilities.

  • Almaza Bay
  • Travco, the main German tour, isbuilding Almaza Bayat Marsa Matruh on the Mediterranean between Alexandriaand Libya.The Almaza Bay Resort has a total area of 5 million sq. m. and boasts about 2.5km of flawless beachfront in one of the most pristine beaches in the world. Thethree major developments in Almaza Bay include the Jaz Almaza Beach Resort, JazCrystal Resort and Jaz Oriental Resort.

This article was republished with permission from Global Property Guide.

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