Stability sees sales and building on the rise

After a sharp decline in real estate activity in 2011, the market has crawled back and many companies should see full-year figures for 2014 return to pre-revolution levels. Players in the market predicated their expectations for the year on continued stability. They were not disappointed, and higher sales volumes and values have been reported throughout 2014 as Egyptians returned to the market.

Upward Trend

Mohamed El Banany, vice-president of business development in Egypt for international real estate sales group Coldwell Banker, was precise in his assessment of the past – and the future. Reviewing events since 2010, he told OBG, “We deal with all the credible developers in the country, so we are a mirror of the market. Our 2010 turnover of LE1bn ($142m) represented a peak year.” Twelve months later turnover had been cut by two-thirds to LE350m ($49.7m) and even a slight recovery in 2012 took his gross figure of LE550m ($78.1m) to around half the 2010 peak. In 2013, buoyed by a rush to hedge against the sinking pound, sales shot up to LE1bn ($142m), equalling in value the level of three years before.

Speaking in May, 2014, El Banany was already confident of heading towards a 2014 turnover of LE1.5bn ($213m) – a new record – provided only that stability was maintained. Indeed, there were already a number of positive signs by mid-year. Ian Albert, Middle East regional director for the global real estate consultancy Colliers International, told Daily News Egypt in Cairo, “We saw towards the end of last year and the first half of this year, particularly in residential units, a significant increase, both in the volume of sales from the major developers to the number of sales that they’ve launched into the market.” It wasn’t only volumes that were up. Albert said there had been some price increases of up to 30% – “and that is significant”.

The type of development at present being proposed has also, in some cases, changed as well. Mohamed El Mikawi, the managing director of Al Futtaim Group Real Estate – Egypt, told OBG, “The political and social unrest has increased the demand for space in mixed-used developments, as they offer higher security than traditional urban areas.”

Residential Property

The residential market was the strongest-performing sector in Cairo in the third quarter of 2014, with sales recovering ahead of rents in most locations as confidence returns, according to a report by Jones Lang LaSalle (JLL). With the exception of villa rents in 6th of October City, sales and rents increased across the whole basket monitored by JLL. Overall both prices and rents in New Cairo remain above those in 6th of October City, says JLL, although the gap has narrowed in recent months. The international real estate consultancy forecast that, as market confidence grew, the residential sector would recover its dynamism and show continued growth in prices and rentals over the remainder of 2014 and into 2015. Although political problems had caused some developers to call projects to a temporary halt, Sixth of October Development and Investment Company (SODIC) finished phases three through five of its Westown project in 6th of October City a year ahead of its scheduled completion date.

Al Futtaim Group Real Estate’s Mikawi said, “The devaluation of the local currency has allowed many Egyptians to find in real estate a safe and affordable investment. The upper-middle class and upper class are the main targets for new developments, although the middle segments and the younger population are increasingly being taken into account.”

El Banany pointed out a further consequence of protecting the value of savings through buying property. “People are hedging the currency by buying real estate and this leads to an increase in prices,” he told OBG. Property completions were also being snapped up and therefore leaving an unfulfilled demand. “Most of the big developers have been delivering recently,” he said. “New land coming through the government is a little further away and, even though it is further out because there is none left in developments like 6th of October City, land prices can be LE2500 ($355) per sq metre without any infrastructure,” said El Banany. The inevitable consequence of this is that the homes will also be more expensive. However, with hopes, or even prospects, of much discussed lower interest rates for mortgages and further allocation of land resources, property was still an attractive hedge for Egyptians.


Although not as common as places like Bangkok or, still, Dubai, there is a certain amount of “flipping” occurring in Cairo. Flipping involves committing to buy a property, usually off plan, and then finding a buyer when the next phases of the development are released, which are usually more expensive. That means the original buyer is now holding a property worth more than he or she paid for it.

Coldwell Banker’s El Banany acknowledged this, saying, “There are speculators, as in other places, but not to the same degree because real estate is seen from the beginning as a long-term investment.”

Basil Ramzy, the chief development officer for SODIC, said he thought flipping was relatively rare. “Our mission is to create communities that people actually want to live in,” he told OBG. “There is now more momentum for people to buy to occupy rather than buy to make money. There are now leisure facilities, eateries, schools and other facilities in the urban communities to rival anywhere else in Cairo.” Ramzy did recognise the much more common phenomenon of hedging, however; even there though there were incentives to actually move into the new houses. “More and more people are finishing off their new homes quickly,” SODIC’s Ramzy added.

According to Khaled Younes, general manager of operations at Sakan Finance, a mortgage supplier, there was another circumstance that triggered price increases. “Stability and security will trigger a boom in prices,” he told OBG. “Year two in a development may be 25% more expensive and keeping a unit throughout the construction period could produce a 60% profit,” Younes added. That in and of itself would provide a good reason for flipping in many parts of the world, but Egyptians have a greater cultural attachment to home investments than some other nationalities.

On The Hunt

Given a boost in sales, SODIC, which is one of Egypt’s largest listed real estate developers, plans to invest LE2.4bn ($340.8m) in 2015 and is hunting for new projects. The company’s managing director, Ahmed Badrawi, told Reuters news agency that SODIC was likely to have invested around LE2.5bn ($355m) by the end of 2014. “The market is strong and we are investing strongly. We are planning for the next five years, which is why we have bought new land and increased our capital,” he added.

SODIC has eight projects on the go and a land bank covering 11m sq metres. He forecast that results for the second half of the year would match those of the first six months, when SODIC made a profit of LE90.53m ($12.9m) on revenues of LE635m ($90.2m).

The announcement of its results and its intention to raise LE1bn ($142m) by issuing 250m LE4 ($0.57) shares strengthened the price of its stock. At the beginning of November 2014 SODIC issued a statement saying it had covered 99.2% of its discounted rights issue and had no plans to raise further funds. In early November SODIC shares were trading at EGP16.33 ($2.30), still below previous highs. Some two-thirds of the money raised is intended for a mixed-use development on the firm’s 1.3m-sq-metre site in Heliopolis. The remainder has been earmarked to go towards buying land outside Cairo.

Social Housing

While SODIC’s projects are geared towards the middle and upper ends of the market, a gigantic social housing scheme has been agreed between the government and Arabtec, a construction company based in the UAE. The land, spread over 13 plots, is being provided by the army, although it was not known as OBG went to press whether it would be a gift or sold to the developers. Work on the first phase is scheduled to begin before the end of 2014, with 120,000 of the eventual million homes due for delivery in early 2017. The $40bn project will be built in at least four stages, starting with phase one in Obour, Badr and New Minia. Press reports have spoken of both five years and ten years for the project to be completed. A decade seems more likely than the shorter period, given the number of homes to be built, with attendant services and infrastructure. One effect of the Arabtec project is that it may contribute to increased costs across the whole construction industry. “Arabtec’s million houses will suck up much of the cement and steel and labour, so prices will rise through shortages,” said Coldwell Banker’s El Banany.

The Commercial International Bank is investing around $70m for the housing finance initiative of the Central Bank of Egypt (CBE) to finance low- and middle-income housing projects. The CBE announced in 2013 that it had allocated some $1.44bn to finance low-income housing projects through the Egyptian Mortgage Finance Fund. This would have the effect of halving the normal rates of interest on housing loans – 14.5-17% – to 7-8%.

Market Mismatch

Despite the announcement of the Arabtec project, the whole real estate sector suffers from a mismatch of supply and demand, according to Emad Al Masoudi, CEO of the Aqar Map online real estate portal. He said the government and real estate developers should cooperate to correct this mismatch by providing housing units for those on low incomes. The figures that Al Masoudi produced dramatically demonstrated his point. Dividing the whole of housing demand into three categories, Al Masoudi said low-cost housing demand was 60%, with 25% supply. Middle-income housing demand was 32%, he said, with a 50% supply and, at the most expensive end, 25% supply was chasing only 8% of demand.

Populated Area

A similar theme was taken up by Darwish Ahmed Hassanin, CEO of the Saudi Egyptian Construction Company, a 50:50 partnership between the Saudi and Egyptian governments. “The highest demand for the next five years will be for middleincome apartments,” he said in a September 2014 interview with the online portal Marcopolis. Echoing Al Masoudi, he added that in previous years, high demand for luxury apartments squeezed out property suitable for the middle- to low-income population.

As in numerous sectors, as in population, Egypt suffers from crowding almost everything and everybody into a relatively small area on each side of the Nile. Egypt’s population of around 90m lives in only 5-7% of the country’s total land area. Khalid Bahig, vicepresident and CEO of New Homes, told OBG, “High demand for existing developments is starting to become a problem, which is why the government needs to find a solution to the lack of land availability.”

Hassanin also said the president also favoured an extension to the living area, which could, for example, see the inhabited space increase to 20% of the country within the next 10 years. The biggest and most obvious effect on the real estate market would be a vast increase in the areas where homes could be built, and that would slash the price of land.

Shopping Malls

Although residential developments are resuming activity on a bigger scale than in 2010 and are likely to absorb much of the equipment, labour and construction materials available, the passion for shopping malls is unabated. Majid Al Futtaim (MAF), the Dubai-based private developer and owner of Mall of the Emirates, is working on a two-level Mall of Egypt located on Al Wahat Road in 6th of October City. The shopping and leisure centre is due to open in 2016 and will comprise a gross leasable area of around 165,000 sq metres, with more than 420 stores and some 50 food and beverage outlets.

Just as Mall of the Emirates introduced indoor snow skiing to the Gulf, so the Cairo centre will have Ski Egypt, billed as the first indoor ski slope in the whole of Africa. The cost of the project is put at LE4.9bn ($695.8m) and the developers say 98% of the mall’s senior operations team and staff will be Egyptian. In addition to the mall itself, MAF is upgrading the surrounding roads by spending LE250m ($35.5m) to improve access from and entry to Al Wahat Road.

Still, one professional in the business injected a notion of caution. Collier International’s Albert told Daily News Egypt, “The retail market is interesting. There are a lot of projects coming on that are not necessarily all designed to what people want.” Pointing out the commonalities among malls generally, Albert stressed the breadth of competition “in a very narrow field”. Albert added, “Everyone is producing a very similar product. Of course malls can succeed but you want variety because just as variety exists in society, so does the shopping experience that needs to go with it.”

MAF took the thought on board at least a year ago when it widened its ideas for malls to include community services, a concept it is planning throughout its retail complexes. And in any case, the uniqueness of the only indoor ski slope in Africa is unquestioned.

Growth Of New Cities

SODIC’s Ramzy said even though he saw developments the size of New Cairo and 6th of October City as expansions of the capital rather than satellite cities they were nevertheless growing into areas where millions of people would live. “They all need offices, schools, medical facilities and shopping. The developments are so big there cannot be just one shopping area. 6th of October City is 40 km long in some parts,” Ramzy said.

The current population of 6th of October City, which was founded in 1979, is approximately 1m, according to Ramzy. The eventual total is expected to be some 3.7m. Sheikh Zayed City has 200,000 residents at present, he added, but the total will rise to 500,000 by 2017 and “in any case the market is different”.

Office Market

According to JLL in Cairo, the capital’s office sector remained relatively unchanged over the third quarter of 2014 with just one new project being added. An extra 4000 sq metres of space released at City Stars Properties brought office stock to 890,000 sq metres. Rents have remained flat over the past year and although vacancy rates, at 27%, remain high, JLL reports increased interest from international occupiers for additional office space in New Cairo. JLL rent monitoring assessed that the average rents for comparable buildings to be exactly the same in the third quarter of 2014 as they were in the third quarter a year before. The levels, in US dollars per square metre per annum, were around $420 in Central Cairo, $300 in sector 1 of New Cairo, $216 in sector 2 of New Cairo and $216 in West Cairo.

The vacancy level in part reflects the exodus of businesses during the worst of the political and economic upheaval over the past several years. Although there are clear signs that companies are beginning to return, it is thought that some may switch from 6th of October City to New Cairo because of the latter’s better accessibility. One analyst in JLL’s Cairo office noted that New Cairo was also benefitting from a tendency by some foreign companies to “follow the pack”.

Property Tax

The Real Estate Tax Authority (RTA) began in early November 2014 distributing 2.7m taxation notifications to property owners, according to a statement issued by the Ministry of Finance. The announcement admits that many of the notices may have been sent to people whose properties are valued at LE2m ($284,000) or under and who therefore may not be liable to property tax. The exemptions in this category apply only to primary homes. Secondary homes are subject to the tax. The notification said that errors could be corrected by appealing to the local RTA office. The ministry estimates that 75-80% of all housing units in the country will be exempt.

Landlords who own properties let under the 1977 and 1981 rental laws, which froze rents at below-market rates, will also not be subject to the new taxation scheme. In many cases, monthly rents of just LE20 ($2.80) are charged for properties in upmarket areas of the capital like Zamalek or Garden City that are now worth millions of pounds. All other properties will be subject to verification under the scheme. According to guidelines from the Ministry of Finance, the tax ranges from LE120 ($17) per year for LE2m homes worth ($284,000) and up to LE10,200 ($1448) per year for LE10m ($1.42) homes. Commercial property taxes start at LE126 ($18) per year for premises valued at LE100,000 ($14,200), rising to LE3150 ($447) per year for a LE2.5m ($355,000) property.


The ups and downs of the past three years in Egypt’s real estate market seemed towards the end of 2014 to be finally evening out to a path of steady progress. Going forward, the type and balance of future developments will almost certainly change to better meet the needs of a greater number of Egyptians than has been the case in the past. Bahig told OBG, “Demand from the country’s large population and strengthening economic performance are the main drivers for growth in the real estate sector.”

The 1m-home housing project could well see its completion date slip in face of the practicalities of producing so many units in an atmosphere where there is huge pressure on resources. Even so, with so many programmes being pushed by the government in all sectors of the economy, in a decade Egypt could look a very different country than that on display today.

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The Report: Egypt 2014

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