As a result of the ongoing political unrest, the expansion of Egypt’s real estate sector has slowed considerably in recent years. Since demonstrations kicked off in early 2011, developers, investors and potential purchasers have postponed many deals, and, in some cases, cancelled projects outright. While uncertainty has continued to grow in some segments, as of mid-2013 the country’s residential market was widely considered to be a bright spot. Demand for housing – particularly at the top end of the market – has jumped, with prices up by around 15% in the first half of the year, according to CI Capital Holdings, a Cairo-based investment bank. This increase bodes well for local property developers, which have invested heavily in the high-end residential segment in recent years.

The jump in demand for housing can be partly attributed to ongoing uncertainty about Egypt’s short-term political and economic outlook. As the Egyptian pound has lost value against the US dollar – the currency was trading at an all-time low of more than LE7 to $1 in the second quarter of 2013 – many wealthy and upper-middle class Egyptians have gone on a property buying spree in an effort to hedge against further losses to currency devaluation. Rising demand for residential property can also be attributed to the government’s recently introduced economic recovery plan, which is expected to encourage investment; the short- and medium-term potential for rising inflation rates, which is expected to push up the value of the housing market; declining interest rates; and Egypt’s long-term economic fundamentals, which are considered to be strong.

RESIDENTIAL DEVELOPMENT: In addition to the general market slowdown, the revolution and related protests have had a number of more specific effects on the sector. With the majority of the largest demonstrations taking place in central Cairo, over the past two years many Egyptians have sought to relocate to a handful of new “satellite” developments. This urban flight, which has been underway among businesses and some residential investors for the past decade, has become increasingly prevalent since 2011, as Egyptians that can afford to move have looked to settle far from the demonstrations in the city centre. New Cairo and 6th of October City, to the east and west – respectively – of the Nile and the capital’s urban centre, have both become popular destinations for residential investment and end-user relocation in recent years. Major projects that have either recently been completed or are currently under construction include: Cairo Festival City, Mivida and Katameya Heights, in New Cairo; and Palm Hills October, DreamLand, Kenana and Westown in or near 6th of October City.

MARKET CONDITIONS: The luxury and high-end housing market has been a major component of many developers’ portfolios for decades, and much of this is now focusing on the satellite developments. As of the end of June 2013, Jones Lang LaSalle estimated the residential stock in New Cairo and 6th of October City to be at 78,500 units, up from 74,000 at the end of 2012 and 67,000 at the end of 2011. A further 25,000 new units could be completed by the end of 2013 although, as of mid-September, it remained likely that at least some of these would be delayed as a result of ongoing unrest.

Residential property prices in the developments have fluctuated since early 2011 and this continued through the first half of 2013. According to Jones Lang LaSalle, the average sales price for an apartment in New Cairo was $1125 per sq metre as of the second quarter of 2013, up from around $1050 per sq metre the previous year. However, sale prices fell slightly in 6th of October City, from $920 per sq metres in June 2012 to $897 per sq metre the following year.

NEW FOCUS: The revolution has also impacted the type of residential real estate being developed in Egypt. Prior to 2011 most developers focused on large-scale, high-end projects, while rapidly increasing demand for affordable housing went largely unmet. However, populist protestors zeroed in on this issue in 2011 and 2012, calling for more low-cost housing in Cairo and throughout the country as a whole. In mid-2011 the Ministry of Housing, Utilities and Urban Development announced a plan to build 1m new affordable homes by 2016. Since then some private developers have followed suit, shifting away from expensive villas and instead focusing on lower-cost apartment buildings.

POTENTIAL ECONOMIC TURNAROUND: The jump in activity in the residential market since the beginning of 2013 is closely related to Egypt’s weakening economy. As of mid-2013 revenues were stagnant or declining throughout the country, the Egyptian pound had lost nearly 13% on the US dollar and the country’s foreign currency reserves had declined by around half since the end of 2010. The current government, which has been in power since July 2013, has taken an aggressive stance on economic issues.

In late August 2013, the government announced a LE22bn ($3.13bn) economic stimulus plan, which is expected to be rolled out within a six-month period. The plan, which included subsidies aimed at reducing the price of food and fuel by 10-15% in an effort to counteract rising inflation rates, will be funded in part by aid from a number of wealthy Gulf countries, including Saudi Arabia, Kuwait and the UAE.

The stimulus plan is only the most recent in a series of government policies aimed at addressing the nation’s economic issues. In August 2013 the Central Bank of Egypt cut interest rates for the first time since 2009, reducing both the deposit and lending rates by 50 basis points. In late September the bank cut rates again, by another 50 basis points, in an effort to boost economic growth. The government’s efforts have had a positive impact in recent months. As of August 2013 inflation had slowed slightly to 9.7%, down from 10.3% in July; the country’s foreign currency reserves had increased slightly; and, according to the central bank, the Egyptian pound had stabilised and, since late August, had even appreciated slightly.

IMPACT ON THE RESIDENTIAL SEGMENT: Both the economic decline in the first six months of 2013 and the apparent recovery since then have had, or are expected to have, a positive impact on the housing market. It remains unclear how Egypt’s evolving political situation will impact the real estate sector as a whole for the remainder of 2013 and through 2014. That said, with domestic economic improvements potentially underway as of time of publication, many developers are looking forward to steadily rising revenues for the foreseeable future. Indeed, based on the increase in market activity in the first half of 2013, demand for new residential space could potentially continue to rise through the end of the year whether Egypt’s macroeconomic situation improves or not. Regardless, the country’s recently lowered interest rates and the government’s stimulus plan are widely expected to result in a bump in demand for residential real estate for the foreseeable future. With this in mind, and provided the domestic political situation remains stable, local residential developers are planning for continued growth.