Saturday,21 July, 2018
Current issue | Issue 1306, (4 - 10 August 2016)
Saturday,21 July, 2018
Issue 1306, (4 - 10 August 2016)

Ahram Weekly

Thriving in tough times

Driven by solid demand, Egypt’s real-estate sector continues to thrive despite political and economic uncertainties, writes Nesma Nowar

Thriving in tough times
Thriving in tough times
Al-Ahram Weekly

The huge turnout and long queues that blocked traffic in Cairo’s Nasr City district to reserve residential units at iCity, a residential compound in New Cairo, recently can only attest to the main driver behind Egypt’s real-estate market: demand.  

The project is the country’s first public-private partnership between Egypt’s Mountain View-Saudi Sisban on one side and the New Urban Communities Authority (NUCA), representing the Ministry of Housing, Utilities, and Urban Communities, on the other. Reservations for units took place over two days in late May and saw a tremendous turnout.  

In a country of more than 90 million people and some 800,000 marriages every year, demand for housing remains high at all income levels. Egypt offers strong demographics backed by population growth at two per cent annually and a growing and young population.

Because of this demand, accompanied by the view that investing in real estate is an attractive hedge against inflation, Egypt’s real-estate market has remained resilient despite the political turmoil that has damaged other parts of the economy over the past five years. It has been one of the few areas that has benefitted from the uncertainty and instability Egypt has witnessed since the 25 January Revolution.

Investing in real estate has long been seen as a safe haven against inflation and the falling value of the Egyptian pound, especially after a devaluation by the Central Bank of Egypt (CBE) in March caused the pound to fall to LE8.78 against the US dollar on the official market.

The currency devaluation has had a mixed impact across all real-estate sectors, according to the Cairo Real Estate Market Overview Q2 2016 report by John Lang La Salle (JLL), a leading investment and advisory firm. 

In the residential market, the report says that the devaluation will encourage local investors to turn increasingly to real estate, which they perceive as a relatively safe investment option that provides a hedge against inflation and further currency fluctuations.

The devaluation also makes the Cairo market more attractive for Egyptians living abroad and overseas investors, the report says.

The depreciation of the Egyptian pound should provide a boost to Cairo’s tourism and hospitality sectors as the country will be perceived as being cheaper by foreign tourists. However, benefits in the short term for this sector are contingent upon improving the security situation and lifting flight bans to tourist areas, the report says.

The immediate impact of the currency devaluation is more challenging for the office and retail sectors, according to the report, as rental prices are often agreed in US dollars and imports of foreign goods have become more expensive.

But experts believe that real-estate activity in Egypt will continue to thrive because demand continues to outstrip supply of new units and new housing cannot keep up with the country’s rapidly growing population. The market currently suffers from a housing gap of some three million units, reports say.

Affordable housing is particulate lacking. According to the Oxford Business Group’s (OBG) Egypt 2016 report, most demand is concentrated in lower and mid-end developments, which typically range between LE300,000 ($40,890) and LE600,000 ($81,780) per unit. 

However, due to the price of land, which puts strains on profitability, the majority of low-end projects can only be undertaken by the public sector. The private sector only participates in mid-range projects, and this remains a challenge.

According to HC Securities and Investment, an investment firm, most listed developers cater to the upper-middle segment of the market, with unit prices ranging from LE800,000 ($109,040) to LE2.5 million ($340,750).

The middle and lower segments of the market, for people on average monthly incomes below LE50,000 ($6,815), thus remain underserved. The OBG report says the government has been working on a number of measures on both the demand and supply side to remedy the situation, including initiatives to support the growth of a mortgage industry in Egypt.

Overall, Egypt’s real-estate market has a bright outlook as demand for primary homes remains solid and new mega-projects, such as Cairo Capital, are expected to result in additional investment in the residential sector, strengthening the market.

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