Interview: Magued Sherif
What factors are driving demand for new residential developments across income segments?
MAGUED SHERIF: Demand is driven by strong demographics. Egypt has a population of 90m, of which half are under 25 years old. There are also more than 800,000 graduates and a similar number of marriages every year looking for new units. The accumulated housing gap is reported to be 3m units with another 300, 000-500,000 units added every year. Private developers collectively bring 20,000 units to the market annually. That barely scratches the surface of upper middle and higher income demand for residential units, let alone the entirely unaddressed middle-income segment. The other element driving demand is the devaluation of the Egyptian pound, and the belief among Egyptians that investing in real estate is the best way to hedge against this. It is a home-buying culture, with affluent families buying properties for their children as well as second homes in coastal cities.
How concerned are you that a property bubble may be forming in Egypt?
SHERIF: This concern is largely overblown. Even if only a fraction of Egyptians are in the upper segments, they still remain under-supplied simply due to the sheer size of the population and the need for new units. Even homes bought as investments are often rented out, also addressing a very real housing need. I believe the private sector could do more to address middle-income housing and is actually eager to do so. The insurmountable demand makes addressing this segment a very lucrative investment. However, the going rates for land, and the size of the plots being offered by the government, do not make addressing middle-income housing feasible for private developers, who must deliver profits for their shareholders. The government needs to make addressing this segment more appealing by offering larger plots at prices that will result in an affordable end-product for a large segment of the population. When the government itself brought middle-income units to the market in 2015, prices ranged from LE2500 ($340.70) to LE4200 ($572.40) in New Cairo, which was considered expensive. When the cost of land alone exceeds the LE4000 ($545.20) mark as seen in the latest government auctions, it is not possible for developers to bring a competitive product to the market.
How can the land auction system be improved so that costs are kept under control?
SHERIF: Land prices are becoming a real issue. There is simply more demand than property, and no regulations are in place to stop bidders aiming too high. The new real estate policy is expected to regulate this by classifying developers according to track record and development capacity, allowing them to bid on plots that match their abilities. To completely tackle the issue, the government must also bring more land to the market in each auction. This, along with the new policy, should bring prices to a more reasonable level.
What changes can be made to mortgage regulations to make them accessible to lower segments?
SHERIF: A strong mortgage finance system that makes home ownership more accessible to a wider segment of the population is essential. The current off-plan sales system, where the developer plays the role of financier, is a result of a lack of mortgage financing and adequate options for home buyers. This must be changed and a more effective system put in place. The main issues with mortgages are interest rates – naturally high in an inflationary environment – and rigid policies on land registration as a prerequisite for home loans. The economy needs to continue to grow, and inflation must be controlled. This will lead to an environment where affordable mortgage rates appear. Policies need to be revisited to allow for more units to be part of the mortgage market.
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