Al-Ahram Weekly Online   6 - 12 December 2007
Issue No. 874
Features
 
Published in Cairo by AL-AHRAM established in 1875

My humble abode

For the middle class, owning an apartment is increasingly a far-fetched dream: Mohamed El-Sayed finds out about this, the latest brand of urban dispossession

Click to view caption
Al-Sheikh Zayed City is one of the areas where the contrast between the high-class complexes and the low-income housing is very visible

"I want to live near my mum in New Cairo," the fiancée tells her husband-to-be. "Well," he responds breathlessly, ignoring the domestic disaster this spells to focus on the more urgent financial issue, "let's see if we can find something not more than LE130,000 [$21,000] in the area." The treasure hunt commences, it takes months and, though the couple never find what they are looking for, they do register the magnitude of the housing crisis the Egyptian middle class is up against today. Classifieds, Internet sites and agents all gave the same verdict: a 100-m flat outside Cairo costs no less than LE200,000 (roughly $36,000); and that is well beyond that couple's reach; and the same goes for most. As it turns out, many reasons account for the unprecedented rise in housing prices over the last two years, especially in Greater Cairo, home to a quarter of the population:

"Not for everyone" is how one newly arrived Gulf-based construction company advertised its upscale flats over an entire page of a popular daily: one of dozens such forays into a market that remains absurdly exclusive. Such companies, many of which hail from the Gulf, are believed to be behind the rise in housing prices. Real-estate brokers point to companies like Damac, Emaar and SODIC, which in taking on increased demand for luxury apartments and villas on the part of the rich, have managed to raise prices across the market. Less than a year after construction started, the latest such luxury complex -- Madinaty, northeast of Cairo -- has sold some LE3 billion worth. Aiming at "world- class apartments for middle-class people", the smallest flat in this development (about 70 sq m) costs roughly LE250,000 -- less than the typically middle-class husband-to-be's LE130,000 by more than half. Another 2,500 purchases were made at the ultra- expensive Uptown Cairo on the Muqattam hills. According to Ismail Osman, former chairman of the Arab Contractors Company, it is in luxury housing that demand continues to exceed supply; and with Gulf-based companies willing to buy land in New Cairo at LE4,000 a metre, the Housing Ministry policy of auctioning land caused prices to skyrocket.

Even what is touted as middle-class housing, then, in effect targets a rich base of buyers conspicuously willing and able to spend millions on suburban accommodation, but other than government-subsidised projects targeting those who earn less than LE1,000 per month -- 63 sq m plots of land on which prospective owners will build their own houses in newly developed communities throughout the country -- there are, for those who earn LE1,000-5,000 per month, very few options. "It's a catastrophe," exclaimed Inaam Mohamed, marketing officer at a construction company, referring to the auction policy: "Nothing's available at a reasonable price for middle-class people. You would be lucky if you found a 100-m unfinished flat in a middle- class district like Zahraa Al-Maadi or Madinet Nasr for LE180,000. And in a relatively upscale district like New Cairo, you will not find a 100-sq m flat for less than LE200,000, and then only in an unfinished state -- it will take two-three years to finish. In the last year alone, a sq m in a middle-class flat rose by LE500-700." Mohamed agrees with the view that, once luxury housing prices in a given area have risen, they will pull up the prices of lower- to middle-class flats in the same area: "You'll be surprised. A sq m in Ezbet Al-Haggana [a slum adjacent to Madinet Nasr] has hit LE1,000."

Developers, for their part, point to a rise in the cost not only of land but of construction materials like cement, wood and steel. According to Hesham Talaat Mustafa in the weekly business magazine Al-Ahram Al-Iqtisadi, "the construction of a sq m [per flat] costs LE1,200." But even though such materials have reached record price levels in the last two years, they alone do not account for what is generally perceived as unreasonable inflation. For 6 October City resident Amira Shawki, 24, and her fiancé, the drive to own living space resulted in a complete scan of that extended suburb. "A reasonable 100- sq m flat in 6 October now costs no less than LE200,000, which is quite a sum even in instalments." Developers also point to the presence now in Cairo of more than 200,000 Iraqi refugees, many of whom are sufficiently wealthy to buy accommodation, who have targeted middle-class units in 6 October and Madinet Nasr, among other districts. Oil-rich "Gulfies" who had bought houses in Lebanon, too, began moving to Egypt after last year's war. But since the government floated the Egyptian pound in January 2003, when the pound lost some 90 per cent of its value against the US dollar, Egyptians too have contributed to raising demand by investing every last penny of their savings in real estate -- especially flats -- the returns on which were felt to be far higher than steadily dwindling interest rates over time.

"A strange phenomenon," according to Mohamed, "the brunt of which the next few generations will bear. Older generations are at a remove, but people who are starting out are already suffering." But Hesham Talaat Mustafa, CEO of the Talaat Mustafa Group, the contractors now fast bringing Madinaty into being, claims it is free-market economics, pure and simple: "The cost of building flats is determined by supply and demand, but people's incomes are not keeping pace -- that is the crux." Real-estate financing companies who offer various equivalents to the British mortgage system have proven unequal to the task of resolving the issue, however. As Mohamed puts it, "you have to keep paying instalments for 20 years or more, at an average interest of 12-13 per cent. The total price is just too high." Such companies are in fact seen as part of the problem, since the availability of unlimited loans encourages suppliers to raise prices. Osman feels the only viable solution is rent: "In Egypt, we need as many as 490,000 new flats every year, not counting replacements for flats that need to be demolished, and 90 per cent of this market is lower- to middle-class." Apartment buildings should be constructed for rent, perhaps with the help of government subsidies. But the official report issued last month by the Ministers Council says the vast majority of Egyptians prefer to own their living space.

Talaat says incomes should go up to match "the mechanisms of the free market -- and this should be a priority of policymakers in the coming period". For now, the government might also provide developers with cheap land on which to build 80-90 sq m flats targeting the LE1,500-2,000 income group. He has also suggested that Gulf-based companies should be required to dedicate 30-40 per cent of their work to middle-income housing. None of which seems to say much to the fact that, in 2006, flat prices rose by 15 per cent and have witnessed an added 35 per cent increase since the start of 2007. While government and contractors go on playing the blame game, no light glitters at the end of the tunnel. Shawki and her fiancé, for their part, have resigned themselves to living with the husband's parents in Qalyoub, 60km from downtown Cairo. "A few years," she says in exasperation, "after which conditions will have hopefully improved."

Real estate figures

- The real estate sector (construction and related activities) has contributed a share of 8.6 per cent in the 2006/2007 Gross Domestic Product (GDP), compared to 8.2 per cent in the previous year.

- A noticeable revival in construction activities has pushed the real growth rate in the real estate sector to 14 per cent in 2005/2006, compared to only four per cent during the previous year. This figure surged to 15.8 per cent in 2006/2007. The real estate sector has incorporated 11 per cent of the work force in 2005/2006.

- The general index for construction permits in Egypt has also risen, reaching 137.7 points in 2006/2007, compared to 90.7 points in 2004/2005.

- Spending on housing represented 16 per cent of household expenditure in 2004/2005. The figure does not match up to middle-income states, such as Iran (26.8 per cent) and Philippines (19.6 per cent), but is higher compared to countries such as Bulgaria (13.3 per cent) and Azerbaijan (6.2 per cent).

- Preliminary data from the national census of housing and population for 2006 indicate there are 11.5 million buildings in Egypt, including 27.8 million residential units, representing a 49.5 per cent rise from the previous year's census.

- The figure for actual inhabited units stands at 16.5 million, only 59.9 per cent of total available units. The number of units utilised for work purposes is estimated to be three million, which is 10.6 per cent of the total number of units.

- According to the 2006 census, 20.8 per cent of all housing units in Egypt are vacant, 59 per cent of which are in urban areas, with the remaining in the countryside.

- A total of 89.9 per cent of buildings have access to electricity, while 81 per cent have access to water.

- Foreigners' purchase of Egyptian real estate has seen a noticeable decrease in 2006/2007, with the figure estimated at LE22.7 million, in comparison to LE90.8 million in the preceding year.

- The overall value of housing loans from banks and mortgage companies has risen from LE15.8 million in 2004/2005 to LE514 million in 2005/2006, with an increase of 3153.2 per cent.

These facts are part of the study: Real Estate Market in Egypt, conducted by Egypt's Information and Decision Support Centre.

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