Interview: Magued Sherif
What are the main drivers behind growth in Egypt’s residential market?
MAGUED SHERIF: The main driver is demographics. Over half of the population is under 25, and there are over 900,000 marriages every year. The shortage is across all residential segments. We estimate the demand for higher-income segments to be around 30,000 units annually, of which less than half is met.
Naturally, the demand grows the wider the segment is, and demand for middle and lower-income brackets represent the bulk of the housing gap. Other drivers include migration from congested city centres to new communities that offer a better quality of life, as well as investment demand, with real estate acting as a hedge against inflation.
To what extent is there scope for the private sector to build affordable housing?
SHERIF: Developing affordable housing requires acquiring affordable land. Publicly listed companies have to return value to shareholders, and so must invest where they can make healthy returns. The middle-income segment should be addressed as the sizeable part of the market, but we can only do so if the government offers sizeable plots at prices that would enable companies to address this segment.
What impact has the currency flotation had on the demand for property in general?
SHERIF: The flotation has undoubtedly put pressure on disposable income and impacted affordability in the short term. However, it is believed that the initial shock is over and the market is starting to adapt. Interest rates are expected to decrease, and developers have already adjusted to these conditions by offering more efficient units of smaller sizes to accommodate affordability. We expect the real estate market to do even better in the coming period, with incomes catching up and more investments being directed at real estate due to the maturity of high-interest time deposits. Egyptians are looking to buy their own home, and house prices are always increasing, which is incentive to get on the property ladder as quickly as possible.
How can the mortgage market be reformed in order to improve access to housing?
SHERIF: A strong mortgage finance system that would make home ownership more accessible to a wider segment of the population is essential, especially with the increase in land prices and, consequently, the price of homes. The most pressing challenge with mortgages is interest rates, which are exceptionally high in this inflationary context, and even more so with the recent post-devaluation interest hike. The economy needs to grow to a point where inflation is controlled; this will lead to an environment in which affordable mortgages become possible. The rigid policies regarding land registration as a prerequisite for mortgages also need to be addressed. Policies need to be revisited to allow for more units to be part of the mortgage market.
How would you rate access to land in Egypt?
SHERIF: The New Urban Communities Authority has just released over 80 plots all over Egypt, with areas of up to 2800 acres with different bidding options. The government is bringing more land than usual to the market, but the gap is still vast. The government needs to make approximately 23,600 acres available per year for development to accommodate annual housing needs. Only 3000 acres are developed annually, which means that there is an annual deficit of more than 20,000 acres. There has been a movement towards revenue-sharing co-development agreements, which developers have taken to alleviate the burden of expensive payments for land. This model is fairly new and is still being tested on the ground.
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