Solid real estate
Thanks to strong fundamentals, Egypt's currently stagnant real estate sector is bracing for a boom on the long term, Nesma Nowar reports
Like many other vital sectors, Egypt's real estate economy has had its share of the slowdown following last year's revolution. But the sector succeeded in reporting a growth rate of 2.2 per cent in the first half of 2011, according to the General Authority for Investment.
According to Hisham Shoukri, executive president and CEO of Rooya Holding, a real estate developer, the revolution has primarily resulted in lower sales transaction volumes. He said that sales have slumped by 40 per cent in 2011 compared to 2010. "This is temporary," Shoukri told Al-Ahram Weekly. "The market will pick up again once political stability and security are restored."
Real estate experts believe that 2011 represents something of a lost year for the sector, with consumers delaying decisions to lease or purchase real estate until greater certainty returns to the market. Shoukri said analysts need to distinguish between the desire to purchase real estate -- which constitutes demand -- and taking the decision to buy.
Shoukri added that in Egypt the desire to buy real estate persists, but consumers are worried, and are therefore postponing their decision to buy for some time. However, once things settle down and the real estate market starts to look up, consumers will take the jump. "This will create accumulated demand, which will boost the market over the coming years," he said.
According to Shoukri, this happened in 2005, 2006 and 2007, when the real estate market witnessed a boom following a slowdown. "This is the privilege of a market with strong fundamentals like Egypt's," he told the Weekly. "It guarantees a strong comeback after periods of stagnation, making up for its own slowdown."
One of these fundamentals, according to Shoukri, is the unmet demand for housing by a fast- growing population, of whom 50 per cent are below 25 years of age. "Egypt's youth means a huge demand on real estate, due to their desire to marry and buy property," he said.
"While we have 300,000 marriages which need 300,000 housing units annually, the whole real estate market produces only 120,000 to 130,000 housing units," Shoukri said. "There is a huge gap between supply and demand."
Similarly, Egypt's commercial real estate sector is suffering from a shortage in retail and office spaces. In addition, as soon as the tourism sector rebounds, it will further create demand for new hotels. "That is what distinguishes Egypt: there is demand in all sectors," he said.
For the coming period, Shoukri expects a boom in residential real estate, affecting high-end, middle-income and affordable housing. Also, commercial real estate will witness a boom especially, according to Shoukri, in Cairo's new districts. He added that previous projects in these areas have been successful, given the fact that land pricing in these areas is lower than in central Cairo.
However, Shoukri does not expect change to happen before the last quarter of 2012. By then, presidential elections will have been held, while political stability will be completely restored.
Jim Drysdale, director at the Royal Institution of Chartered Surveyors (RICS), agreed that there is a huge demand in Egypt's residential and commercial real estate sectors. The RICS is a leading international professional body that deals with land, property and construction qualification and standards.
Drysdale said that there is a shortage in office space in downtown Cairo and business centre districts. Married couples, he said, place heavy demand on the residential real estate sector.
However, in order to capitalise on Egypt's promising real estate market, Drysdale told the Weekly that it is very important to have an open and transparent legal framework through which lands are operated. "Transparency is very important for the real estate market," he said.
After the 25 January Revolution, the country's real estate sector has been blighted by legal issues over land ownership. Several real estate developers faced legal challenges to their holdings, after accusations of acquiring the land through illegal direct allocation. "Uncertainty over land transactions could drive investors away and it should be addressed," said Drysdale.
According to Drysdale, if legal and political uncertainties go, Egypt's real estate market could see a quick return of stability, as well as the emergence of prospects for real improvement.
This trust of the international business society in Egypt's real estate market and the capability of the Egyptian economy to recover and grow in the upcoming period was apparent at Cityscape Egypt/Next Move real estate exhibition held this week in Cairo. The four-day exhibition hosted exhibitors from across the nation and featured leading real estate agents and mortgage institutions. The exhibition, which ends today, served as a platform for real estate professionals to conduct business, discuss strategies to develop and regulate the real estate industry, meet private and institutional investors and create joint venture partnerships.