Interview: Ahmed El Hitamy
How are land prices affecting the sector’s ability to keep up with growing demand?
AHMED EL HITAMY: The greatest segment of growth in the real estate sector is in the lower- and middle-income housing segments due to population growth. Land prices can make it a challenge to build housing that is affordable for people in these respective segments. However, developing with economies of scale can help to make this feasible, as can design efficiency. In addition, developers are using local building materials whenever possible, and the quality of cement, steel and brick produced in Egypt meets international standards. The government recognises the inherent challenges that come with building for this segment and has created a mechanism to facilitate the acquisition of land for social housing in the form of providing completed units in exchange for land.
The single greatest cost pressure for developers has been the currency fluctuation. This has been the most pressing aspect, with high volatility over the past year. The positive side of that has been increasing interest in real estate from the more affluent segments of the society, who see it as a safe haven or as an alternative investment opportunity.
An important issue that needs to be tackled in light of increased unit prices and diminishing purchasing power following the flotation of the Egyptian pound is the activation of the mortgage system. The government has developed some initiatives that help by offering preferential interest rates for the low-income segment. However, a great deal more needs to be done in this regard.
Is infrastructure development keeping up with Cairo’s eastward and westward expansion?
EL HITAMY: There has been huge investment from the government side in terms of expanding infrastructure to meet the growing market demand, and a lot of progress has been achieved in this area. The financing for such expansion is made possible through the sale of land plots. Given current land prices, this has proven to be an effective financing tool for the government. Having said that, the growing need for infrastructure is of such a magnitude that it will require private sector involvement. In that respect, some of the developers are satisfying their infrastructure needs independent of the government. This approach, in addition to lifting some of the burden off the shoulders of the government, allows the developer to develop their own construction schedule and finance the project at their own pace.
It is worth mentioning that in light of the country’s limited water resources and the increasing cost of power supply, the government may introduce some regulations and amendments that could enhance and enforce sustainable construction. Consumer views towards sustainability and efficiency have not yet impacted the market, but going forward it will become increasingly more important as tariffs change and the cost of living rises.
Where is the greatest demand for housing?
EL HITAMY: The greatest deficiency in housing supply is outside Cairo, particularly in the Nile Delta, Upper Egypt and Alexandria. This deficiency is mainly due to the limited amount of land available, which forces these cities to grow vertically rather than horizontally, thereby putting pressure on infrastructure. The absence of large, renowned developers in these areas provides a great opportunity for investment and development, especially given that the price per sq metre may reach levels that are double those in Cairo. The challenge in the delta is the lack of available land for housing due to regulations that limit the use of agricultural land. The importance of meeting the increasing demand in those areas not only lies in enhancing the urban landscape locally, but also in taking some of the expansion burden away from Cairo.
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