Thursday,19 July, 2018
Current issue | Issue 1200, (5-11 June 2014)
Thursday,19 July, 2018
Issue 1200, (5-11 June 2014)

Ahram Weekly

Can housing be affordable?

For a young couple, finding a home can be a disheartening ordeal as a result of the country’s long-running housing crisis. Hayat Hussein digs into the issue and speaks to Hussein Al-Gibali, an adviser to the minister of housing, about ways of resolving it

Al-Ahram Weekly

Back in the 1980s, Egyptian films often discussed the ordeal faced by young couples as they searched for a first home to share together. One such film, Al-Shaqqa Min Haq Al-Zawga, or “The Apartment Belongs to the Wife,” portrays the life of a young couple that shares an apartment with a teacher, gives birth to a child, and immediately starts fighting over the right to the apartment as a whole. The husband loses and finds himself renting a room in one of the Cairo cemeteries.

Another film from the same period, Karakon Fil Sharaa, or “Prison in the Street,” also ends up with a couple dwelling in the cemeteries which had then just started to attract an underclass of dwellers that wanted to be in Cairo but could not get a better place to live.

According to government figures, Egypt will have to build nearly 500,000 residential units per year in order to meet pent-up demand for dwellings. To illustrate the magnitude of the problem, it is noteworthy that when the Real Estate Credit Support Fund (RECSF) offered 10,000 units for sale recently, it immediately received 150,000 applications.

Some blame the government for pursuing policies that favour luxury housing for the scale of the problem. Others blame greedy investors who think only of profit margins. Still others say that the housing crisis is simply a symptom of a country in need of larger overhaul.

INADEQUATE PLANNING: RECSF chairperson May Abdel-Hamid says that while 75 per cent of Egyptians need government support to buy a house, the lack of government plans to help them explains much of Egypt’s current housing crisis.

Her view is shared by former housing minister Hasaballah Al-Kafrawi, who said at a conference a few years back that the housing crisis was due to erroneous economic policies, especially the government’s privatisation programme and the sale of government-owned land.

The privatisation programme began in 1992 and led to the sale of factories that produced building materials, such as cement and steel. Once these factories had left government ownership, their new owners hiked up prices, causing the cost of building materials and then buildings to spiral out of reach of average Egyptians.

A case in point is that of Ahmed Ezz, a crony of the former Mubarak regime who bought the Dekheila Steel Factory and then began raking in immense profits that turned him into one of the country’s wealthiest men within a few years. Ezz is now facing trial on charges relating to his business practices.

Mohamed Zeitun, former board chairman of the Cairo Housing Company, said that it was wrong for the government to leave much of the housing market in the hands of private business. In his view, the way the government sold land to private investors was also flawed, and he criticised the policies of former housing ministers Ibrahim Suleiman and Ahmed Al-Maghrabi, both of whom are also facing charges connected to the mishandling of government-owned land.

Sherif Sami, chairman of the Egyptian Financial Supervisory Authority (EFSA), said that private investors focused on money rather than social need, meaning that they build for the rich rather than for the poor.

One woman who spoke to Al-Ahram Weekly, Mona, whose last name has been withheld to protect her privacy, said that after buying a housing unit in an upscale neighbourhood in Cairo her husband refused to rent the family flat in Matariya for fear that prospective tenants could renege on the rent.

The litigation procedure is so flawed in Egypt that landlords are often wary of dishonest tenants, for if a dispute goes to court it may take years before a ruling is passed.

People who have leases on rented flats often close them rather than rent them out for fear of litigation, Zeitun said.

As a result, in the middle of a grinding housing crisis some experts say that nearly one out of every five flats in Cairo is left empty by owners wary of unreliable tenants.

A new rent-control law passed in the mid 1990s allows landlords to set the rent and the duration of contracts. But even this law has failed to resolve the years of landlord-tenant distrust that followed the imposition of rent controls by the post-1952 regime.

In the 1950s, most vacant apartments in Egypt were available for rent. Now, however, most units are designated for sale, partly because of private businesses wanting to turn a quick profit, and partly because investors don’t trust rental arrangements.

“The policies of the state favoured home ownership over rentals, although the latter is more suitable for this country,” said housing expert Salah Hegab. Speaking to the Weekly, Hegab said that the rent controls introduced after the 1952 Revolution had discouraged investment in rental property.

In a country where wages are low and unemployment is high, rental property is more suitable for the majority of the population, Hegab said. Because of the shortage of rental property, the young are propelled unprepared onto the pricey property market, he said, and to make things worse they often select units that are too big for their immediate needs.

“The young should be spending their money furnishing small-sized rental properties, not buying spacious homes they cannot afford,” Hegab added.

STIMULATION PACKAGES: The government has come up with schemes to help alleviate the housing crisis, and the recent passage of a law encouraging investors to build for the poor was a positive sign, according to Hegab.

According to this social housing law, people who build affordable rental units can obtain credit on easy terms. Two months ago, the Central Bank of Egypt (CBE) also came up with an initiative to subsidise housing credit to the tune of LE10 billion a year.

According to this initiative, banks offering housing credit can borrow from the Central Bank at 3.5 per cent interest, then lending to prospective home buyers at no more than eight per cent. The initiative could bring down the cost of family home from LE200,000 to about LE65,000. “This is much bigger help than anything the RECSF can offer,” Abdel-Aziz said.

The RECSF was formed in the mid 1990s, among other things to offer non-refundable grants of up to LE25,000 to families with monthly incomes of under LE2,500 to buy their first homes. Beneficiaries of such grants are not allowed to sell their homes within the first seven years after purchasing them.

Sometimes people apply for such loans under false pretences, though Abdel-Hamid warned that violations were punishable by law. “Some people want to take the loan and then sell the house and buy a taxi, for example. But this is illegal,” he said.

Beneficiaries from the RECFS grant qualify automatically for mortgages running for up to 20 years. The RECFS sometimes also sells units built by the Ministry of Housing, and when a buyer applies for a grant it vets the property to make sure the contract is legally valid and the home meets safety and health standards.

“My job is to provide support and protect my clients from scams,” Abdel-Hamid remarked.

However, Sarah, whose last name has been withheld to protect her identity, tried to apply for a bank loan more than once and failed every time. The first time, her application was rejected because the apartment she wished to buy did not have proper title deeds, and the second time the bank wanted evidence of family income, and both Sarah and her husband could not prove that their income was adequate, as most of it came from freelancing.

Mortgage schemes are relatively new to Egypt, and the lack of registration of housing units, coupled with the difficulty of establishing family income when most of it may be from the informal economy, militates against popularising a model that is the main form of financing real estate deals in the industrial world.

Experts say that Egypt’s mortgage market is still, at just LE5 billion, just a fraction of what it would be in countries with equivalent income. Only two per cent of Egypt’s real estate assets have title deeds, mostly because the cost of registering property is deemed to be excessive.

Experts have been urging the government for years to reduce the cost and simplify the process of registration, in order to stimulate the real estate market and the economy in general. However, for the time being most registered property is in the new cities. Egypt has 23 of these, with 44 planned for 2017, and most of the new developments have proper registration and title deeds.

The idea of building new cities started during Al-Kafrawi’s time as housing minister. These cities are located on desert land in order to reduce encroachment on the country’s scarce agricultural land, and they were meant to reduce the pressure on Egypt’s older urban centres.  

In order to apply for a mortgage, a family has to prove its income. This can often be a problem as nearly 60 per cent of the Egyptian economy is informal, with cash, but not receipts, changing hands.

HOUSING SCHEMES: Over the years, the government has come up with schemes to increase the supply of affordable housing. The Mubarak Housing Project was among these schemes, as were several plans suggested by the Future Society, run by Gamal Mubarak, son of ousted former president Hosni Mubarak.

The latest of these schemes is a project aiming to build one million housing units in a partnership between the army and the UAE developer Arabtec. Little is known about this project, and experts say they need to know more about its financial details and land use before passing judgement. However, some have pointed out that the projected cost of the homes is likely to be higher than what the average family can afford.

Another way of stimulating home building is through cooperatives, which are usually but not always run by labour unions. Cooperatives are given certain advantages in terms of loans and registration, and they usually operate at a reasonable profit margin. But delays in delivery and recurring instances of alleged corruption have dampened enthusiasm for this pattern of development.

The EFSA, which regulates the non-banking financial sector, also recently sanctioned the trading of housing bonds in the stock market. According to EFSA chief Sami, the move should help raise cash for real estate projects around the country.

Zeitun faults the state for abandoning its role in providing affordable housing for the public. Relying on the private sector to produce building materials and build homes is the main reason for Egypt’s shortage of affordable housing, he said.

Hegab believes that the problem would be less acute if the government planned, regulated, and kept an eye on private business. If an investor buys land to use in a certain way and then fails to honour the contract, the government should withdraw the land without delay, he remarked.

Hegab would also like the government to approach the housing issue in a more methodical manner. It has a National Centre for Research Studies, he said, which could provide the needed expertise in mapping and surveying housing needs, for example.

Housing should also be made more compatible with the environment. In some areas, adobe housing is more suitable to local needs, while high rises may be suitable for other areas, he pointed out.

Finally, Hegab would like to see a shift away from buying homes to renting accommodation, especially among the young. A change in culture could go a long way, he pointed out. “You see people living in small spaces and yet buying huge pieces of furniture that clutter the entire house. This doesn’t make any sense,” Hegab concluded.

Reassuring the landlords

Why have successive governments failed to resolve Egypt’s housing crisis?

One cannot say that successive governments have failed to address the crisis. The five-year plans had a housing component, for example. The 1982-1987 plan was particularly successful, as it provided 180,000 new units, nearly 60 per cent of the target. This was quite an achievement considering the economic difficulties of the time and the lack of funding.

The housing gap in urban areas at the time was 250,000 units, and the government did not include rural areas in its plan, as families in the countryside usually gave their children a place to live after they got married. But lifestyles in the countryside have changed, and the government later started including rural areas in its plans. The countryside now possesses 40-45 per cent of the total units the government plans to build, which is equal to the ratio of the rural population to the population as a whole.

Where is the real problem in your view?

The real problem is that there has been no fixed strategy for stakeholders in housing. We have three types of stakeholders: the tenants, the landlords and the lawmakers. In the 1950s and 1960s, the state handled everything. It was able to assume this role because the size of the population, at around 30 million, was still manageable. In housing, the government had to become the provider because of the rent controls that curtailed market-driven investment.

By the way, it is not true that the regime led by former president Gamal Abdel-Nasser was the first to introduce rent controls in Egypt. During WWII, when Egypt was under British occupation, the government introduced rent controls and banned evictions. This happened because of the sudden rise in building costs and rents. It was an exceptional situation, and yet it was enshrined into law in 1947. This introduced two arrangements that were quite significant and were bad news for landlords. One was to freeze rents, and the other was to ban evictions.

The 1960s saw three new laws that reduced rents further so that the private sector withdrew altogether from the rental property market. It used to be the case that wealthy individuals would build residential buildings as long-term investments. The private sector provided all the country’s housing needs until the 1940s as a result. Supply at the time so outstripped demand that landlords often burned incense for good luck in flats in order to get tenants.

When the supply of new residential units went down, prices of real estate went up. The private sector started building for sale, although owning one’s house is an unsuitable option for families on limited incomes. This is why the state is now trying to encourage renting property. One cannot rule out the state trying to subsidise rents.

If the declining role of the private sector caused the imbalance, what can governments do about it?

The role of the government is to provide social housing. The state has tried to meet this demand for decades. Since 1996, several projects have been carried out, and these have involved heavy subsidies. The Mubarak Housing Project and the Future Society Housing Project provided 70,000 units between them, for example. The National Housing Project that ran from 2005 until 2011 also succeeded in building 600,000 units, outstripping its original target of 500,000 units.

This project relied on several elements, including building units for sale, stimulating investment, and encouraging people to build their own houses. Those who qualified for the Build Your Own Home Scheme received 150 m2 of land at LE70 a metre with credit facilities involving installments over 10 years with a three-year grace period.

The government also started a Social Housing Project aiming to build one million units in new cities and various governorates by 2011. The governorates provided the land and the Ministry of Housing handled the construction. So far, 200,000 units have been finished, a few for rent and most for sale. The area of each unit is up to 63 m2, and buyers are asked to pay LE5,000 as a down payment, to be followed with a mortgage plan.

Some people have complained that the apartments built under these schemes have been too small. What is your view?

If you have two children who want to get married at the same time and you have only one flat of 120 m2, will you give it to one of them and tell the other to wait? The costs are high and the allocations for these projects have been massive – nearly LE1 billion for the latter project alone. It is fair to provide the largest possible number of people with residences, even if these are on the small side.

Why has the role of the cooperatives been decreasing?

Cooperatives can be an important formula for resolving the housing problem. These get funding at an interest rate of no more than five per cent, compared with the current interest rate of more than 10 per cent. They are also allowed to pay mortgages over 40 years and are entitled to obtain land at 25 per cent less than its market value. But people have lost faith in them, perhaps because of the corruption that has taken place in some of them. However, there have been very successful models, such as those of the teachers, officers and journalists. The ministry is now working on amending the cooperative law of 1981 to suit the new situation and new housing patterns in the country.

What laws have been passed to streamline tenant-landlord relations?

Law 4 of 1995 stipulated that if rental contracts expire without anyone living in the residential unit, the ownership goes back to the landlord and the flats are rented out under the new rental law, meaning that the duration of the contract and the amount of the rent are determined by both the landlord and tenant. The inheritance of a contract for old rental units is now limited to one generation, so that after the death of the children of the original tenant the unit reverts to the landlord. The old law allowed three generations of tenants to benefit, including third-degree relatives. Another law gave the tenant the right to sublet the unit without consulting the landlord, but this turned out to be illegal. The number of old rental units is now two million, with the result that this problem in the private sector has relatively abated.

In 2006, a law was passed that upheld the right of the landlord to evict tenants at the end of a contract. If the landlord had registered the contract with the notarisation office, he had the right to ask the tenant to vacate the unit when the contract was over.

Law 114 of 2008 addressed the issue of maintenance. It called for the formation of a tenant association, with members paying a monthly contribution to carry out maintenance on the building. This wasn’t the case earlier, as the old rental laws made the landlord responsible for all the maintenance, which was difficult because of low rents. Tenants used to refuse to contribute to maintenance, and the law was on their side.

The Ministry of Housing, acting in cooperation with other ministries, economists and civil society organisations, is examining ways of resolving the problem of old rental properties and bringing them up to fair market value within a timeframe that is not too disruptive to tenants, many of whom have limited incomes. The ministry is examining similar models, such as in Croatia which liberalised the relationship between landlords and tenants as part of the legislative requisites for joining the EU. Nearly 40,000 families were about to be evicted before the Croatian government backed off and rescinded the new law.

Long-term problems cannot be solved overnight. It is important, however, to encourage the private sector into the game, for the problem cannot be resolved otherwise.

The state has issued many laws to encourage the private sector to build for low- and medium-income families. But it still prefers to construct villas and luxury units. Why?

The private sector must be brought back into the game, and it is the responsibility of the state to lure it back. Private business must not infringe upon the rights of the state, but it must be allowed to make money. The disruption in tenant-landlord relations has been remedied to a great extent. But the private sector now has little vision or awareness of the situation, and may even have become lazy. It will take some time for investors to see that things are now different, and the state should keep them informed.

The shortage of land with the necessary infrastructure is still a problem. What is the impact of this on the housing situation?

One of the reasons the state did not finish building all the units it planned was because some governorates did not have the necessary land for development. The New Urban Communities Agency (NUCA), part of the Ministry of Housing and a non-profit-making organisation, found that the cost of one metre of land in the new urban centres was about LE250 even before supplying it with infrastructure such as sewerage, water and electricity.

The NUCA is currently putting together a comprehensive plan for the entire country. Sometimes part of the funds allocated for New Cairo is used for New Aswan, so as to get the job done even when the money is short.

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