In Person: Experts share insights on Egypt’s real estate markets

February 28, 2020


Real estate is a cornerstone of Egypt’s economic vision, though many say it is in the midst of a slowdown driven by low purchasing power. Business Monthly spotlights the sector through the eyes of four key players.

Magued Sherif, managing director of SODIC Properties

How do you evaluate market activity post-devaluation?

Magued Sherif: Things have become very challenging, with higher construction costs and the skyrocketing of interest rates. Income has not risen by the same level, as we were hit by inflation. This has had an impact on affordability. However, the market continues to be very strong, because underlying fundamentals are strong.

What is a challenge you hope can be solved in 2020 to help spur investments in real estate?

Sherif: A major challenge is the cost of land compared to the percentage of sales. Most land transactions were in partnership with developers. It is very difficult to develop a feasible project on land that is as expensive as what we pay to the government

How do you find the state’s recent proposal to involve the private sector in social housing projects?

Sherif: It’s a very interesting proposition. There is a big pool of people who would like to buy, but can’t. The government, no matter how serious it is, will never be able to cater to this huge segment. It is something we would like to do once land is more affordable. Such a proposal also involves using different, efficient building systems.

How do you classify middle-income housing in terms of pricing?

Sherif: Middle-income units are probably between EGP 600,000 ($37,900) and 1 million.

What factors contribute to the slowdown of purchasing power?

Sherif: I think it is not really a slowdown. Post-devaluation, the numbers did not make sense. Regardless of affordability, there was an element of resistance as prices went up. Moreover, devaluation happened overnight and there were other economic measures taken, such as elimination of fuel subsidies and rolling out the VAT.

Other than smaller developers entering the market, what other challenges do you face?

Sherif: The challenges in 2020 are residuals from the challenges we have been facing the past few years, including interest rates going down and the ability to budget for new projects.This year will be all about the survival of the fittest and most credible.

The government wants to export real estate. Is this in line with the private sector’s vision? Have you been able to sell to foreigners?

Sherif: As of yet, we do not sell to foreigners. It takes two to tango, doesn’t it? You have to have a property to sell and a buyer who is interested. As Egyptians, we do not operate in a vacuum, we are part of a very big Mediterranean market. What is happening on the ground is not necessarily what is reflected in the media abroad. Until people start seeing stability, safety and security, a number of incentives need to be tackled for us to become competitive abroad. It is not Egypt or nothing, it is Egypt or Turkey, Cyprus, Portugal, Spain and Greece. We have to be realistic and convincing.

What are your expectations for 2020? Do you think there will be a real estate bubble?

Sherif: A bubble is something that bursts, it means that the value is a billion today and nothing, or 100,000, tomorrow. This never happens because we do not have an active mortgage market and we do not have debt in our system. Ninety-nine percent of buyers do not pursue mortgages. The maximum fluctuation we have seen in this country since real estate development started 30 years ago is stagnation of prices for a couple of years. I haven’t seen prices going down. Maybe there is a slowdown due to affordability issues, but we have a bigger market that continues to grow.

Fathallah Fawzy, founder of MENA Group

How do you evaluate real estate activity in 2019?

Fathallah Fawzy: Pre-2019, the government used to hold land tenders to get the highest prices possible. As the country needed more investments, tenders were ditched by the New Urban Communities Authority last year and consequently land became available for purchase by anyone. However, as a result of this abundance of land, new and inexperienced companies entered the market. My main concern is if new companies are not backed by enough capital to support construction and deliver units on time, a major trust issue between clients and developers will take place.
Another positive outcome last year was the shift to developing smaller units, ranging from 70 to 80 square meters. Smaller units are considered easier to purchase. This increased the percentage of the target audience from 5 percent to 8 percent.

What are some incentives you would like to see from the government in 2020?

Fawzy: It’s extremely important for industrial land to be affordable. Industrial developers need land at a reasonable price for their projects.

How do you find the state’s recent proposal to involve the private sector in social housing projects?

Fawzy: There have been many discussions with the Ministry of Housing in the past three years regarding this topic. It’s not a healthy practice for the government to price units in a free and constantly evolving market. A reasonable solution would be to set the size of units and allow market dynamics to control the price.

The government wants to export real estate. Is this in line with the private sector’s vision?

Fawzy: First things first. We still sell unfinished and half-finished units, which is unacceptable to foreigners. Moreover, the procedure for purchasing real estate is still a burden and could take days, if not weeks. In other countries, a deal can be sealed in less than 48 hours.

What challenges are affecting the real estate sector the most?

Fawzy: Purchasing power remains a problem. We work on 5 percent of annual demand, but most of the market is still not covered due to affordability concerns.

What are your expectations for the market in 2020? Is there going to be a real estate bubble?

Fawzy: There can’t possibly be a real estate bubble. There is no active mortgage system in Egypt, and yet there is actual legitimate demand. In 2020, I only hope units are delivered on time. If developers do not deliver on promised dates, there will be a massive trust issue that could affect the entire real estate sector.

Ahmed Shalaby, CEO and president of Tatweer Misr

How do you evaluate market activity post-devaluation?

Ahmed Shalaby: 2017 and 2018 were exceptional, as they witnessed a huge growth in the number of units sold and built-up areas sold. 2019 was good, but shouldn’t be compared to those two previous years. This is why everyone thought there was a slowdown. However, I do not see it that way. If you witnessed the growth of 25 to 40 percent in 2017 and 2018, then you witnessed the growth of 10 to 15 percent, there is still growth. Generally, I think real estate is doing well. I see the emergence of many real estate companies as a healthy sign for the sector.

How does the emergence of newer, smaller companies affect the market?

Shalaby: The real estate market is entirely dependent on credibility and trust. This means companies that fail to deliver cause a ripple effect impacting the whole market.

What are some incentives you would like to see from the government in 2020?

Shalaby: One very important thing for both clients and companies is mortgage financing. It would give buyers 15-20 years to pay, and companies would get 100 percent of the sale price at the time of delivery. This way we can have more liquidity to invest in new projects. Moreover, we all need to be open with the world to unleash the sector’s full potential. This requires more efforts between the government and private sector to promote Egypt internationally to both investors and buyers.

Why is our mortgage financing inactive?

Shalaby: The main obstacle is a decree in the Central Bank of Egypt related to not offering finance for under-construction units. We need mortgage financing to support us as developers from the beginning of the development process.

How do you find the state’s proposal to involve the private sector in social housing projects?

Shalaby: It’s a very good proposal. I recall that I fought for this proposal five years ago.The social housing program is expected to fill a huge gap in the market. The final outcome we agreed on with the Ministry of Housing and Minister Assem El Gazzar is really reasonable. A private sector company develops 30 acres for social housing — the land will be owned by the government under the social housing fund authority — in return for various incentives in terms of commercial services, clinics and office space. Seventy more acres will be left to the private company to develop. I believe it is a fair deal for both parties, and we are awaiting final approval from the government.

How is the real estate development law coming along?

Shalaby: The market is in dire need of a unified classification of the real estate sector. We are working toward creating a real estate union in cooperation with the government to put all the different laws together under one umbrella.The final version of the law includes seven or eight articles to pave the way to establish this union and is slated for discussion in Parliament in a matter of weeks. Once the law is issued, the union will be responsible for gathering all regulations and laws in discussion with relevant ministries, including housing, finance and planning. Our current concern is there are several active bodies representing the real estate sector reflecting diverse opinions, which I am afraid may cause miscommunication. Hopefully the law will aid in having a unified clear vision that protects clients, the government and developers.

There’s been an initiative to promote second-home destinations and move away from the city. Do you think in five or 10 years people might actually turn second homes into first homes and move?

Shalaby: For sure. This was our vision five years ago when we started Il Monte Galala in Ain al Sokhna. I was telling everyone that Sokhna would be a first home destination very soon, and I think this vision is becoming a reality. Galala, despite being a resort destination, has all the potential to be a first home development with hospitals and schools being constructed. There also is a huge campus for a university and they plan to start accepting students in September. As for New Alamein, I don’t consider it a second-home destination. It is an entirely new city developed to be the new capital of the Mediterranean. It will be huge with five strong economic bases, so I think we will see people moving there, without a doubt.

What will make Egyptians think about relocating away from the city?

Shalaby: Internationally, changing jobs has been the main reason for residential movement. In Egypt, people always have been attached to their homes; ease of mobility and change of workplace are crucial to changing the culture. One thing that might help is that the new generation is considering renting rather than buying, which I see as a huge shift. Seventy years ago, renting was predominant in Egypt. With changes in rental laws in the 1950s, the rental industry died and the culture shifted to ownership. Now, I think they need to bring this culture back. We need to have a balance between ownership and renting. This is healthy for the sector and for the economy as a whole.

How do you plan to integrate green real estate and sustainability into your properties?

Shalaby: Sustainability is not a choice anymore. In Egypt, we face challenges related to water, electricity and facility management, so opting for smart solutions is crucial. In Tatweer Misr projects, we build sustainable communities starting with a smart-enabled infrastructure and building our own sewage water treatment and desalination plants.
At Il Monte Galala, units have huge windows designed to provide natural light, as well as cross ventilation systems. Our partnership with Schneider Electric entails building and designing an infrastructure control platform to increase energy and water efficiency by 50 percent and reduce operational costs by 30 percent.

Do you suspect a real estate bubble?

Shalaby: There is no bubble. Although prices are considered high in Egypt, they are reasonable. We have huge demand across all segments.

Mohamed Khaled El Assal, Co-CEO of Misr Italia Properties

How do you evaluate the market activity in 2019?

Mohamed El Assal: The first half of 2019 was affected by high-interest rates and the entrance of new, smaller, and inexperienced companies to the real estate market. As the year went by, people gradually started filtering credible developers from those who were not. During the second half of 2019, Egypt cut interest rates a total of 4.5 percent, a move that is expected to further lure investors to the sector.

What are some incentives you would like to see from the government in 2020?

El Assal: The sector could benefit greatly from granting residency permits to foreigners who invest in property, rather than rent. The minimum investment required to obtain a residency permit should be $100,000, which would be a great source of FDI. Other incentives include the Central Bank of Egypt’s initiative for mortgage financing. There are concerns regarding the cap on the number of units financed per individual, as well as if it would apply to under-construction units.

Does Egypt need more international real estate developers?

El Assal: With an estimated population 160 million by 2050, the real estate sector should be consumed with developing at least 500,000 units per year. The truth is we are very far from this goal. Foreign investors are always welcome.

Have you started selling units to foreigners?

El Assal: We are mostly working with Egyptian expats who are interested in investing in the New Administrative Capital. We plan to focus on reaching out to foreigners, especially in the Gulf through real estate exhibitions taking place there.

Do you suspect a real estate bubble?

El Assal: I believe 2020 is the year of opportunities. The market will remain resilient, especially in the New Capital. We are not even close to a real estate bubble. We have strong demand and even with affordability problems, developers are working hard on extending payment terms to offer affordable installments. There has been no unreasonable increase in unit prices in Egypt at the moment, because the cost of land and construction materials is already high.