Egypt's cities expected to increase housing availability

 

With the aim of enhancing the economy and providing sufficient housing for its growing population, Egypt has made construction plans for a series of new cities. These large-scale projects are expected to have a positive impact on the construction sector and help ease congestion in Cairo. There has already been a positive impact on the dynamics that underpin real estate business activity. “The sector is being pushed, to a large extent, by the projects to build the new cities,” Ayman Sami, Egypt country head for real estate consultancy firm JLL, told OBG. “These projects started during the first four-year presidential term, and they have been advancing in terms of infrastructure.” However, these new cities are likely to raise issues regarding resource usage, as well as social and economic mobility.

Population Growth

Part of the reasoning for building new cities from scratch is based on Egypt’s population growth rates. According to World Bank figures, the country’s population rose to 97.5m in 2017, up from 79.5m a decade before, and it is expected to reach 100m before the end of 2019. Most of the population has historically lived along the fertile stretch of land that encompasses the Nile Valley, as well as in the Delta region. However, successive governments have attempted to improve conditions for settling outside of Cairo, leading to the construction of satellite cities and gated communities around the capital.

According to some estimates, Greater Cairo currently has a population of 25m people. Relieving pressure on the city’s infrastructure and improving the liveability of the megalopolis is an important step for long-term development, but ensuring that a sufficient number of people choose to move to the new cities will require a combination of market instruments, affordability and a housing supply that can cater to financial means beyond those of the higher-income brackets.

“Building a living city takes time and requires not only the construction of homes, but also the establishment of services and other life necessities for residents, in order to encourage them to move,” Yasser Assem, chairman and CEO of local architecture and engineering firm Pavillion, told OBG. If this can be accomplished, Egypt’s current capital and its surrounds are expected to house up to 40m people by 2050.

New Capital

One of the most ambitious urban construction projects currently under way in Egypt is the new capital city. Set to become the location of Parliament and other governing bodies, the New Administrative Capital is already under construction in the desert to the east of Cairo. When the project was announced in 2015, it was estimated to cost $45bn and take around seven years to build. The new city spans 70,800 ha, located between Cairo and the Suez Canal, a critical sea passage for international commerce.

Although the final budget of the project may differ, and will be influenced the costs of material inputs, the development of the new capital has been divided into three phases. The first is expected to cost $15bn, and will include a central business district, a government area for ministry offices, the new Parliament, the presidential palace and eight residential districts, according to information from the Administrative Capital for Urban Development (ACUD), the state institution in charge of developing the new city. This initial space will encompass an area of 16,200 ha. When completed, the city is expected to house between 5m and 6m people. This should relieve some of the resource stresses that afflict the current capital. “We need to move part of the population from old Cairo into the new capital. The infrastructure in Cairo is old, and there are frequent traffic jams. Despite continuous attempts by officials to improve the infrastructure and the traffic situation in Cairo, a new administrative capital is necessary,” Khaled El Husseiny Soliman, government and international coordination manager at ACUD, told OBG.

The project is an ambitious endeavour. The government district alone is set to include 36 buildings, which will house ministries and other facilities. The new city will also feature a park area twice the size of New York City’s Central Park; up to 2000 schools, universities and other learning centres; and more than 660 hospitals and health centres. Current plans have set aside space for as many as 40,000 hotel rooms and 1250 mosques.

Work on the new capital is advancing apace. The military was reportedly in charge of building part of the city’s initial road network and owns a 51% stake in ACUD. An Egypt-based company, Arab Contractors, is also heavily involved in the project. The firm signed a LE2bn ($112.4m) contract with the government, which will include work on the new capital’s Parliament building, as many as 78 residential buildings, a mosque, and roads and utilities infrastructure.

Settling In

The success of the new capital also relies on attracting private developers to structure residential and commercial offers that entice Egyptians to invest in the city’s real estate market. In early 2018 real estate firm Talaat Moustafa Group Holding announced it would invest LE35bn ($112.4m) to develop real estate in the new city. Another Egyptian developer, Constructa, has announced plans to build the city’s first mall, which is set to include five floors of office space and three floors of retail areas. Other developers have started promoting residential units in the new capital.

However, the new capital has faced a change in its initial cost planning. Due to the steep depreciation of the Egyptian pound since late 2016, construction materials, especially those that need to be imported, have become more expensive. “It is accurate to say that the costs have become higher because of the lower pound, but this is just something we have to deal with. Currently there is a strong political will to complete the project,” Soliman told OBG.

By The Sea

On the Mediterranean coast, the New Alamein City project, which aims to establish a city for 400,000 people in an area of roughly 16,800 ha, has also been progressing. The project has an estimated building cost of $112m. Although the North Coast has long been the location of large-scale, high-end, gated communities, these properties have catered mostly to people on summer holiday, and therefore the population can vary widely between seasons. New Alamein City hopes to attract people away from the more congested cities to live year-round on the coast.

Another project on the agenda is New Aswan City, which will be situated on the west bank of the Nile, roughly 12 km from the city of Aswan. New Aswan City will be an urban centre near one of Upper Egypt’s most important cities, and the authorities expect it to house up to 850,000 people by 2023. The city is projected to span 9240 ha and will be developed in three phases. It will also house cultural facilities and a medical complex.

Judging Demand

These large-scale urban projects offer a bevy of new development opportunities. “The development of the New Administrative Capital and other new cities is having a huge impact on the real estate and construction sector as key opportunities in the current market are tied to the investment in these mega-projects,” Ahmed El Attal, chairman of local real estate developer El Attal Group, told OBG.

However, the projects also entail a certain level of risk. Accurately estimating demand for new housing and other infrastructure will be critical to the success of the projects. “Another challenge is ensuring that investment in hospitals, schools and industrial activity is maintained. These are the elements that will drive the rest of the investment into these new cities,” Sami told OBG. Large-scale construction of new urban areas will also need to secure adequate access to utilities. Sufficient access to water resources is already one of the country’s most pressing development issues.

According the Ministry of Housing, around 500,000 new affordable homes will be needed in order to keep up with demand. The Centre for Affordable Housing Financing in Africa has noted pervasive vacancy in newly constructed residences due to the fact that they are too expensive for the majority of prospective renters. This suggests that Egypt’s housing problem is more related to a mismatch between supply, demand and price, rather than limited availability. To solve this, it is critical that the new cities offer affordable housing.

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The Report: Egypt 2019

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