Egypt’s real estate and construction sectors have become primary drivers of GDP growth. In June, Trade and Industry Minister Ahmed Samir said real estate now accounts for “more than 20% of GDP,” up from 16% in 2020.
According to government data, real estate and construction contributed more to GDP than manufacturing (16%), wholesale and retail (14%), and agriculture (11%) by the end of fiscal year 2022/2023.
Most state and private developers target Egypt’s wealthiest market segments. According to the Property Report 2021, published by property consultants Savills Egypt, “Development of … large mixed-use developments [led] to a strong increase in the supply of Grade A residential developments.”
Within that top tier, unit prices increased rapidly throughout 2023 due to local, regional, and international factors. “Surging prices in Egypt’s real estate market have maintained an upward trajectory” since 2020, Mohamed Rashed, a Real Estate Development Chamber board member, told Ahram English in November.
In Egypt, the size of the high-income market segment is shrinking. In its latest poverty report, CAPMAS said the official rate was 29.7% in FY 2019/2020. “Some 60% of Egypt’s population is either poor or vulnerable,” the World Bank said at the time. Since then, inflation has remained chiefly over 30%, up from 5% in 2020, indicating that a bigger portion of society can no longer afford Grade A homes in 2024.
However, real estate companies are betting that with more than 100 million mostly young people, there should be enough home buyers in that diminishing high-income segment to make their Grade A strategy feasible.
Astronomical pricing
Private sector developers have always focused on Grade A properties, thereby not competing with the government in building low and middle-income homes. The state also developed financing programs, like the EGP 100 billion Social Housing and Mortgage Finance Fund, announced in 2018, to attract more low and middle-income buyers.
For the private sector, being sidelined from low and middle-income housing was likely a relief as building such properties means a mandated price ceiling, tight profit margins and government oversight.
The benefit of having no price ceiling came in handy in 2022 when construction material prices soared in the wake of the conflict in Ukraine. In the first quarter of the year, steel rebar prices increased by 40%, cement doubled, and aluminum tripled.
Further contributing to the rise in construction costs were Egypt-specific factors, including multiple devaluations of the pound (From EGP 16 in 2017 to nearly EGP 50 at press time) and supply chain disruptions caused by maritime attacks on ships headed for the Suez Canal. In Enterprise’s April 2022 survey of local developers, the sentiment was, “If it was just one factor [real estate cost hikes] could have been a lot easier to hedge or digest.”
That led to astronomical price jumps. In November, Tarek Shoukry, head of the Real Estate Development Chamber of the Federation of Egyptian Industries, told Parliament that real estate prices would end 2023 nearly 130% higher than in 2022.
Another reason prices of new properties are increasing is private developers capitalizing on the trend of living in smart (fourth-generation) cities. In addition to the novelty factor, which commands a premium, smart cities and homes require significantly more digital infrastructure, making them more expensive to build, according to Crown Energy, the energy and utility arm of Crown Oil Group, in a July 2023 blog post.
Lastly, private developers spend significantly on a project’s design and show off its exclusivity, pricing it beyond the reach of most people to enhance their project’s image. “Buyers and investors are [also] willing to pay a premium for properties associated with developers known for their foundational integrity, enhancing the property’s marketability and facilitating faster resale,” noted Pristine Properties, a property matchmaker.
Low-tier risks
Catering to the lower end of the market has unique risks for private developers.
Richard Burns, CEO of the NHP Foundation, a nonprofit affordable housing provider, said in an April 2023 Forbes blog that homes targeting low and middle-income households are filled with challenges. “All of us in the affordable housing industry are, to some extent, joining the betting craze by trying to predict how an unprecedented number of unique events will impact affordable housing,” he said.
Some of the top risks include evictions, as the rising cost of living makes it more difficult for low and middle-income tenants and buyers to pay their bills. Burns also cited insufficient incentives for private-sector developers to build such homes.
Additionally, such projects must be huge and built quickly, as the rising cost of living means more youth and families can’t afford Grade A property but don’t qualify for the government’s subsidized housing. That is evident in Egypt. The Middle East Business Intelligence, a think tank, noted, “The cost of living in Egypt has continued to increase … and despite the raising of interest rates by the CBE [which increases financing costs for developers] to counter [inflation], it has done little to alleviate rising costs.”
Lastly, Burns stressed the need for innovative financing options for builders to make investment in this price-restricted segment feasible. “There are no simple answers for dealing with these risks,” he said. “It will take ingenuity, creativity, and a certain amount of luck.”
Betting their future
Real estate developers in Egypt are betting that the country’s large, fast-growing young population will have enough high-income households to afford the increasingly expensive Grade A properties they build.
The real estate sector in Egypt is “unlike any in the region” mainly because its population grows by nearly 2 million yearly, according to the Savills report. “The population is extremely young, with many still yet to enter their prime and purchasing years.”
The other bet is on Egypt’s resilient GDP, which grew despite COVID-19 lockdowns and wars in Ukraine and Gaza. “This has resulted in an extremely buoyant real estate market that still shows little sign of slowing down,” the report said.
Local developers also bet that Grade A properties will attract those buying real estate as an investment. The sector is “the preferred investment asset due to an inherent cultural preference,” Savills said. That activity increased with the pound’s successive massive devaluations since 2016 and record-high inflation. “Investments in real estate were therefore considered even more as a safe hedge against inflation.” the report said.
Developers’ other bet is on the government. Since 2015, the state has been vital to real estate and construction growth, with the New Urban Communities Authority (NUCA) and other state bodies commissioning property developments in the New Capital and other emerging cities.
That resilience will only increase. In June, the government said it plans to build 38 tech-first, fourth-generation cities to house 30 million people.
