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Al-Ahram Weekly 21 - 27 October 1999 Issue No. 452 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 21 - 27 October 1999 Issue No. 452
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Profile Travel Living Sports People Time Out Chronicles Cartoons Letters In search of the ideal home
By Niveen Wahish
Switch on the television or open a newspaper these days and you are sure to come across at least one advertisement for the ideal home. With glossy photographs and promises of gardens, spacious rooms, swimming pools and even golf courses, real-estate developers are pulling out all the stops to seduce the house buyer and fire the imagination of those looking for their dream home. New developments can be seen lining the Cairo-Alexandria and Cairo-Suez desert roads or along the Qattameiya Road; others are being built in new communities such as the Sixth of October City, Sadat City or El-Obour City. But these homes are likely to remain just a dream for the average citizen. Priced upwards from around LE1,200 per square metre, the new residential areas are closed to all but the most affluent of buyers.
To encourage customers to buy, however, most companies are allowing payments over a five-to-seven-year period, something which intrigued Mahmoud Yehia, 36. Currently living in an inherited apartment in an old Cairo building, Yehia wanted to find a better, more modern home for his family, and so he decided to investigate purchasing an apartment in one of the new condominiums under construction in the Sixth of October City. But he discovered that despite the instalment system these apartments were still far beyond his budget, with a 100 square metre apartment costing over LE120,000. Five per cent of this (LE6,000) was payable in advance, a further 10 per cent (LE12,000) was payable two to three months later, and then a further LE3,000 had to be paid every three months after that. When he moved in he would have to have paid another 10 per cent, followed by the balance in quarterly instalments. This system would have meant that even if Yehia had been able to tighten his belt sufficiently and come up with the instalments, he would have been left with nothing to meet his other expenses, such as his children's school fees. And there would not have been a penny to furnish the new apartment.
"I would need to have at least LE30,000 in the bank before I attempt anything like this," Yehia said.
However Yehia is not alone in having had to give up the dream of owning his own new home. For "the majority of the housing units available have become too expensive for the average young man," according to Ahmed Ezzat of the marketing department of the National Real Estate Investment Company. In Ezzat's opinion, apartments in the new cities should be much cheaper than they are, since land in the new cities is cheap. Land in Sixth of October City for example ranges between LE300 to LE500 per square metre, while investors may get it as cheap as LE150 since they have to install the necessary infrastructure themselves. If this were not the case then "the new communities would defeat the purpose for which they were created, which was to encourage citizens to relocate away from the capital," he said.
But Ezzat argues that real estate companies, far from looking for first-time buyers, are targeting the well-to-do who already have apartments and may only be looking for an extra unit in one of the new projects as a long-term investment. "They are the only ones who can afford it," he says, and his opinion is shared by many. Nevertheless, Amm Abdou, a real estate broker, does not believe that the price of apartments in the new cities is too high. "It is a good investment," he said. "Once the new houses are completed, the new areas will have a promising future, and the price of units will be much higher than it is today," he says.
Sherif El-Mansy, Marketing Coordinator at the Sixth of October Development and Investment Company (SODIC), explained this idea further. El-Mansy's company is currently developing a large-scale housing project called 'Beverly Hills', which is a city-style development designed to house some 100,000 people. "To encourage people to move outside Cairo, we provide them with all the services they need, which is why we decided to build a complete city rather than just condominiums," he says. SODIC's project will be completed in phases over a 10 year time span. "Once it is completed, prices will not stay the same," he said, since he then expects the price of a unit to increase by at least 15 per cent. El-Mansy points out that those who bought units a year ago when the project was launched can now expect to sell them at a 15 per cent profit.
Almost all these projects involve luxurious, highly priced apartments, however, and this has created a glut at the The top end of the market. This in turn has led to a general recession in the real estate market, because units in the new residential areas are added to the existing supply of expensive apartments within Cairo itself, and this has led to the many empty apartment buildings that overlook the Nile. With sales this year having been slow, even though summer is traditionally the season when potential customers are most likely to buy, the recession seems set to continue. And while Nabil El-Gohary, Chairman of Contra Real Estate Development, points out that real estate, like other businesses, has its ups and downs -- "If we looked at a curve for real estate performance, we would find ourselves at the lowest part of the curve now," he says -- he too attributes the current recession to an oversupply of expensive units.
According to El-Gohary most real estate companies target potential customers whose annual income ranges from LE65,000 to over LE860,000. However this high-income group has usually already been saturated with offers and already owns more than one home or holiday home. The market has failed to appreciate this, and, while the building of top-end villas and townhouses continues apace, there is a large and unfulfilled demand for affordable apartments in the lower end of the market. El-Gohary comments that despite this "only a few companies have changed their plans from offering just villas to offering apartments as well." In his opinion it is up to the developers to measure correctly demand and then meet it: "Real estate developers must know what the market requires," he says.
Finally, the solution to the recession in the housing market, according to El-Gohary, lies not only in the new law but also in proper marketing. "It is not enough to market Egypt locally," he says. "It is impossible for Egyptians alone to buy all these new, expensive apartments"; real estate developers should also do more marketing abroad.
Asked about the high cost of the new developments outside Cairo, El-Gohary comments that prices in the new communities cannot be cheaper, since if they were, investors would not be able to recover their expenses. In spite of the recession, apartments in the new cities still cost about LE1,200 per square metre, not much lower than prices in residential areas in the city centre, which range between LE1,400 and LE2,000 per square metre.
Dream homes and luxurious neighbourhoods are abundant, but who wants to buy?
photos: Sherif Sonbol and Magdi Abdel-Sayed
El-Mansy of the Beverly Hills development agrees and maintains that the prices of available units are not exaggerated, but rather "represent the actual cost of the unit." He points out that although real estate development companies can acquire the land cheaply, they have to make heavy investments in order to build on it. "When we buy the land, it is just a plot in the desert, and we have to put the infrastructure in place, such as water, drainage, electricity, and roads, as well as adding landscaping. All this adds to the bill." And, expensive or not, El-Mansy says that the units offered by his company have been very well received and have been quickly snapped up. He does not believe that supply for these units is outstripping demand, at least not in the new residential areas, but he nevertheless admits that developers have seen better days. "Things are slowing down for other reasons than excess supply. There is a lack of liquidity in the market, which is causing individuals to hang on to what they have rather than investing it," he comments, adding that the new developments target people who not only have money to spend but who also do not mind waiting for their apartment to be finished.
The large number of new residential areas is also having a direct effect on the price of apartments in central Cairo, according to El-Gohary. Apartments in the Mohandessin and Dokki areas of Cairo, for example, can now be bought at LE1,800 to LE2,000 per square metre, whereas five years ago the price in these two districts was not less than LE3,000 per square metre. The new condominiums are also changing people's attitudes with many now more eager than ever to move to cleaner, quieter areas if they can afford to, El-Gohary says. And the new roads that are being built, such as the 26th of October axis, are making the new cities more accessible. "At the same time the centre of Cairo is becoming more suitable for office space," he adds.
"Today you have the choice either to keep your apartment in the city or to move to a bigger place at the same price a little outside," El-Gohary says. If one has money to spare, then this is the most opportune time to buy apartments in the city centre, he says, for "the best time to buy is during a recession."
What could ease the recession, according to El-Gohary, would be the enactment of the long-awaited draft mortgage law. This would allow a large segment of society, which is currently faced with financial constraints, to own a house and pay for it by instalment over 40 to 50 years. In fact, El-Gohary predicts that "the length of the [real estate] recession depends on the issuing of the mortgage law."
The draft law, designed to encourage banks to extend loans to limited-income clients, was submitted during the last session of the People's Assembly but was not passed since under the proposed legislation the property would be used as collateral for the loan and banks would be given the right to repossess in the event of default on the part of the borrower. This arrangement would not have been legal however, since article 1052 of the Civil Code bans the confiscation of mortgaged property. It has been suggested that Articles 52 and 53 of the Banking and Credit Law be amended to exempt banks from Article 1052, thus enabling them to repossess mortgaged housing units should the need arise. But the issue is still unresolved.
However Mohamed Mahmoud Ali Hassan, head of the People's Assembly Housing Committee and chairman of the Federation of Egyptian Contractors, does not believe that the solution lies in the proposed new mortgage law. The banking system should not be asked to use depositors' money to finance the purchase of homes, he says, when there is a risk of borrowers defaulting, and suggests instead that specialised companies be set up to help potential home owners.
Hassan further thinks that the draft law would benefit only a few real estate investors by enabling individuals to buy from them, and it would do nothing to solve the current housing problem. Even if the law went into effect, not everyone could afford to take out a bank loan. He admits that the current distortions in the market, in which there are more expensive units than there are more needed cheaper units, may be occurring because homebuilders think building cheap units is not worthwhile. Construction costs are high, which is why cheaper units have only been made available by the government or by cooperatives.
Unfortunately, Hassan says, incomes have not increased as fast as have the costs of construction. Forty per cent of the population have an average annual income of around LE3,500, he says, and, obviously these people cannot afford to pay LE300 a month in rent, let alone pay cash for a new apartment or find monthly instalments of around LE1,000.
The solution to current housing problems in Hassan's opinion would be to set up a special fund to support middle- and low-income families. The fund would pay part of these families' rent, and this subsidy would be arranged in such a way that it would decrease as the family's income increased. If such an idea became a reality, it would enable a greater number of families to occupy already existing apartments rather than having to wait in line for new, cheap units to be built.
On a different note, the problem is not limited to homes, but also affects holiday homes. Not a week has passed since the beginning of the summer without an exhibition offering special rates to encourage individuals to buy their dream vacation home, mostly on the north coast or in Ain Sokhna and Ras Sidr. But even these resorts are very expensive, with prices going into the seven figures. El-Gohary says that there is a need for small-sized moderately priced units, even in vacation areas, and Ibrahim El-Desouky of Adnan Resorts in Ras Sidr comments that 65 square metre studios are generally picked up faster than are larger villas. The price of the latter may be as high as LE3 million.
