Egyptian Real Estate Poised For Rebound After Disappointing Year

After plunging in 2008 and 2009, the Egyptian real estate market appears poised to rebound in 2010. With new construction projects announced, steady economic and demographic growth, government …

After plunging in 2008 and 2009, the Egyptian real estate market appears poised to rebound in 2010. With new construction projects announced, steady economic and demographic growth, government stimulus and a conservative mortgage market that has weathered the global crisis, experts believe that the Egyptian real estate market could see significant improvement and growth in 2010. See the following article from Global Property Guide for more on this.

The Egyptian housing market plunged in 2009, with record high construction costs exacerbating the already worsening situation.

By end-2009, house prices in the secondary market had fallen by about 37% to EGP 1.5 million (US$274,725) from EGP2.4 million (US$439,560) a year ago, according to local real estate analysts.

Many homebuyers who made down payments canceled their orders in 2008, as the nervous atmosphere caused by the global crisis spread to Egypt. Cancellations peaked in the last quarter of 2008 and the first quarter of 2009, said local property developers. The luxury property market slowed particularly sharply.

Property companies adjusted their business models by offering apartments and smaller units, rather than houses and villas. The low-end market has a shortage of about 40,000 units per year. Dwelling prices in this market range from EGP 400,000 (US$73,260) to EGP 500,000 (US$91,575).

In 2010, the housing market is expected to show considerable improvement, with demand coming back.

Some local property markets in Egypt (e.g. some areas in Cairo, the Mediterranean Coast, and areas within the Red Sea) rose rapidly in value from 2005 to early 2008. Then from mid-2008 and during most of 2009, the housing market slowed sharply due to the global crisis. The wider Egyptian property market rose 13.7% (4.5% in real terms) in 2005, but then stagnated. House prices dropped 0.4% (-4.4% in real terms) in 2006, and fell 0.6% (-10.4%) in 2007, according to the 2008 Egypt Housing Survey conducted by Bearing Point Inc, which has a cross-Egypt sample

In the first half of 2008, house prices fell 2.7% (-12.9% in real terms) y-o-y. Though no recent survey data are available, house prices are generally believed to have dropped further in 2009, because demand from wealthy foreign buyers and holiday makers had fallen, due to the global crisis.

Recovery on the horizon

The year 2010 is expected to be better than 2009 for the following reasons:

* New construction projects have been announced.
* Steady economic growth, with GDP growth rates predicted to be 4.7% in 2009 and 4.5% in 2010
* Demographic growth continues. A large middle-aged population ensures that local demand for housing will continue. There are about 500,000 marriages annually in Egypt.
* The Egyptian property market does not rely heavily on foreign investments, and most demand comes from local homebuyers, shielding the local market somewhat from the global crisis.
* A conservative mortgage market has shielded Egypt from the contagion brought by the global crisis.

Economic boost

The Government of Egypt has introduced three stimulus packages to mitigate the impact of the global crisis since 2008.

The first came in October 2008, an EGP 15 billion (US$2.75 billion) package. A second package worth EGP 8 billion (US$1.47 billion) was included in the June 2009 state budget.

Then, in January 2010, came another stimulus package worth EGP 11.2 billion (US$2.05 billion), which includes:

1. About EGP 9 billion (US$1.65 billion) for water treatment projects
2. EGP 1 billion (183.3 million) for social programs
3. EGP 500 million (US$91.65 million) for developing land near suburban areas
4. EGP 200 million (US$36.66 million) for the development of Cairo’s ring road
5. EGP 300 million (US$55 million) for housing projects

Rents and yields

In Heliopolis, an upscale district of Cairo, monthly rents range from EGP 4,124 (US$753) for a 150 sq. m. apartment to EGP 22,836 (US$4,170) for a 500 sq. m. apartment, based on the latest Global Property Guide research.

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The average rental yield was 7.3% in 2009, down from 9.06% in 2008. This was because of the lower demand for rental accommodation, due to the economic slowdown.

However, rental yields are still spectacular in Maadi, at an average of 12% in 2009.

Economic slowdown

The Egyptian economy grew by a spectacular 7% annually from 2006 to 2008. The economy then slowed in 2009, with real GDP growth of 3.2% in Q3. In 2010, 4.5% real GDP growth is projected by the IMF.

The budget deficit could be well below the officially forecast 7% of GDP during 2009/10, said Minister of Investment Mahmoud Mohieldin.

Egypt’s housing and construction sectors were among this better-performing industries, but tourism was hit by the global crisis. The number of tourist arrivals is expected to fall 1% to 3% in 2009, according to the Egyptian Tourism Ministry. However in 2010 tourist arrivals are expected to rise by 3% to 5%, as Europe emerges from recession.

The unemployment rate in Egypt was 9.37% in December 2009, up from 8.7% in 2008.

Almost non-existent mortgage market

The Central Bank of Egypt (CBE) cut interest rates several times after February 2009, despite inflation of 16.2% in 2009, up from 11.7% in 2008, and 10.95% in 2007. But since November 2009 rates have been steady at 9.75 % on loans, and 8.25% on deposits. The inflation is expected to slow modestly to 8.5% in 2010, according to the IMF.

The Egyptian mortgage market is relatively young. In 2001, Presidential Decree No. 277 created the Mortgage Finance Authority (MFA) to develop the mortgage financing market in Egypt.

Despite high hopes, lending has remained low, and only 10 companies offer mortgage financing. The mortgage market was worth just EGP 3.7 billion (US$675.6 million) by December 2009, well under 1% of GDP, said Iman Ismail, managing director of Egyptian Mortgage Refinance Company (EMRC).

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

Despite this, real estate constitutes about 8.6% of the country’s GDP, and over the past three years, has grown by 22% annually, according to the Ministry of Investment.

Housing supply mismatch

There’s an over-supply of properties for the upper-end market in Egypt. According to the 2008 Egypt Housing Survey, there were about 1 million unoccupied apartments in Cairo. But there’s a great demand for lower-income housing. The low-end market has a shortage of about 40,000 units 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 built informally, while the remaining 10% is built by professional property developers. More than 11 million people, out of the country’s total population of almost 82 million, live in informal slum settlements.

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

The Ministry of Investment has introduced a program to subsidized low-income housing, by giving priority to first time buyers. Debt finance has been 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 property buying opportunities in Egypt can be conceptually divided into three 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 development offers several residential villages, a golf course, malls, sports and leisure facilities, as well as a business park. This is the first wholly foreign-owned developer to enter the Egyptian market.

  • Katameya Heights

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

  • Rehab City

Rehab City, a real estate development located in New Cairo, is being developed by Talaat Moustafa Group (TMG). The development is located on the Cairo-Suez road. It offers many shopping malls and a cinema complex. Rehab City is preferred by many upscale locals.

  • Madinaty

With a total budget of EGP 60 billion (US$11 billion), Madinaty is considered one of the biggest and most expensive real 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, medical facilities and hotels. Madinaty is adjacent to El Shrouq City. Construction began on July 2006, and it is expected to be completed in 2011.

  • New Cairo City

Emaar Misr is also building a 5,000-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 the fifth district in the New Cairo City. The 3.8 million sq. m. development will feature 5,000 apartments, townhouses and villas.

2. Red Sea

  • Sharm el Sheikh

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

Sharm’s development has been led by tourism, though hotels such as the Ritz-Carlton have sold private villas. New residential developments tend to follow this hotel-based pattern, such as the just-completed Sierra Resort Nabq 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 seaside resort in Egypt, though it is overcrowded and now slightly seedy. Hurghada has an international airport with direct flights to major European countries, as well as flights to Cairo. The city is divided into three parts: Downtown (the old part); Sekalla (the city center); and El Memsha (the modern part).

  • Gamsha Bay

In Gamsha Bay, 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 be completed over 10 years. The development has a total budget of EGP 2.9 billion (US$16 billion).

  • Sahl Hasheesh

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

  • Port Ghalib

Much further south near Marsah Alam, two and a half hours from Luxor, the Port Ghalib project is being developed by Al Kharafi Group of Kuwait along 18 kilometers of shoreline. It is opening in November 2007, with around 100 properties for sale, and a further 350 in the pipeline. Marsah Alam has a newly-built international airport, an international convention center, a man-made lagoon, and a multiplicity of sports facilities. A marina and the usual mix of hotel/residential mix are planned.

3. Mediterranean Coast

  • Marassi

The Marassi resort, worth around EGP 9.92 billion (US$1.74 billion), is being developed by Emaar. It is located on a 7-km coastline at Sidi Abdel Rahman on the Mediterranean near El Alamein. Marassi resort will offer up to 3,000 hotel rooms, luxury villas, chalets, a marina, an 18-hole golf course and healthcare facilities.

  • Almaza Bay

Travco, the main German tour, is building Almaza Bay at Marsa Matruh on the Mediterranean between Alexandria and Libya. The Almaza Bay Resort has a total area of 5 million sq. m. and boasts about 2.5 km of flawless beachfront in one of the most pristine beaches in the world. The three major developments in Almaza Bay include the Jaz Almaza Beach Resort, Jaz Crystal Resort and Jaz Oriental Resort.

This article has been republished from Global Property Guide. You can also view this article at
Global Property Guide, an international real estate analysis site.


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