The Egyptian real estate market has proven itself remarkably resilient to the political and economic tensions the country has experienced over the 2011-17 period. However, while real estate has historically been seen as a safe bet in uncertain times, economic headwinds, especially strong in late 2016 and the first half of 2017, stoked by government reform efforts, are proving to be a tougher proposition. All segments of the market have been affected by rising costs and stifled demand. Although the situation began to improve in the second half of 2017, many developers, unaccustomed to such adverse conditions, are still feeling the effects.

General Environment

Nonetheless, the general long-term demand drivers in the market look positive. The country, home to nearly 100m people, is the most populous in the Middle East, the third most populous in Africa and the 14th most populous in the world. Its population is continuing on a rapid expansion path. Between 1994 and 2014 the population grew by 46%, and it is currently increasing at an annual rate of 2.5%. While this is partly driven by improved health outcomes and reduced mortality, the fertility rate in the country is also high. As such, Egypt is a young country with more than 50% of the population under the age of 25. This alone creates a strong demand for housing.

The pressure for housing will inevitably be felt most acutely in the largest cities. Around 43.3% of the population lives in cities, and the number of urban dwellers has been growing by an additional 1.8% each year. Cairo is home to more than 20m people, while Alexandria accounts for a further 4.8m. Estimates for annual domestic housing demand range from 350,000 to 500,000 units. At the low-income end of the market, the annual supply of apartments does not exceed 30,000 units. Consequently, there is a substantial opportunity for revenue generation in volume-driven segments.

Despite these favourable demand dynamics, government and private players have yet to determine how to solve the issue of affordability. The Egyptian economy grew at an annual rate of 2.9% to 4.3% between 2014 and 2016, driving GDP per capita up from $12,000 in 2014 to $12,600 in 2016. Nevertheless, 27.8% of Egyptians still live in poverty, with more than 25m citizens earning less than LE482 ($31.75) per month, according to the 2015 “Household Income, Expenditure, and Consumption Survey” of the Central Agency for Public Mobilisation and Statistics, compared to the average annual family income stood at LE44,200 ($2910). The share of Egyptians living in poverty increased by 1.5 percentage points from the previous survey conducted in 2012/13, indicating that inequality is on the rise.

The challenge remains increasing access to housing for these segments of the population as well as for middle-income earners. Despite concerted and prolonged efforts – including government subsidies – access to affordable credit for potential homeowners remains a primary factor dampening demand (see analysis). As such, the general focus of the formal real estate market has been on the country’s highest earners, as the top 10% account for 25% of national spending.

Reliable Returns

In this high-earning segment, developers have achieved strong returns on investment. Real estate is seen as a safe and steady asset, and has been able to maintain value through various periods of uncertainty and instability. However, the challenging macroeconomic environment has dealt a blow to the formal real estate market. Before the government made the decision to float the Egyptian pound, triggering an initial depreciation of more than 30% in November 2016, real estate prices had been increasing by as much as 35% per year.

Prior to the float, when there was a parallel exchange rate, real estate was seen as a much safer means of holding capital than cash. “Due to the parallel currency exchange last year, people were already buying property in US dollars at the rate we have today,” Mohamed Hassan Allam, managing director of Hassan Allam Holding, told OBG.

However, the fallout from the devaluation has had a sizeable impact on real estate developers and potential buyers. Compounded by the government’s decision to reduce fuel subsidies under the 2016/17 budget, developers have been squeezed by inflationary pressures (see Construction analysis), while potential homeowners and investors have seen their purchasing power decrease substantially. These factors have had a significant influence on both supply and demand in the market.

Investors hope this to be a period of short-term challenges, as part of longer-term government reform efforts aiming to increase domestic investment. In the first quarter of 2017 the pound began to stabilise at around LE18:$1, and JLL noted that foreign investment inflows were on an upward trajectory, as market optimism was beginning to return. The situation continued to improve throughout the first half of 2017. “Despite the currency flotation and the rising price of properties, real estate developers have seen a steady increases in sales over the first two quarters of 2017,” Ahmed Mohamed Shalaby, managing director of Tatweer Misr, an Egypt-based shareholding real estate company, told OBG. “This has resulted from sustained, strong local demand, driven primarily by population growth and the widespread notion of real estate as a safe value, especially in challenging times.”

Regulatory Reform

The government has embarked on a reform agenda supported by a $12bn IMF loan package, which was approved in November 2016. One of the first steps was the passage of Law No. 72 of 2017 – known as the investment law – in May of that year. The new legislation provides various incentives, including tax deductions for investments in underdeveloped areas, subsidies for industrial land acquisition and the restoration of free zones for the private sector. These incentives are anticipated to attract increasing volumes of investors to the domestic market.

The government hopes that such measures will kick-start the economy, an outcome that would provide a boost to real estate demand. In talks with OBG, Khaled El Kady, chairperson of International Engineering Company, expressed his optimism regarding the outlook of this legislation for the construction and real estate sectors alike. “The new investment law should facilitate the development of manufacturing projects in Egypt, which means that a number of factories should be entering the pipeline in the months and years to come,” he told OBG.

Other industry players also believe greater state involvement in the sector could have wide-reaching advantages for the economy. “The importance the government is placing on construction and real estate is yielding results for those involved in such sectors, and has a positive knock-on effect on job distribution and salaries along the entire value chain,” Asser Hamdy, CEO of Orientals for Urban Development Egypt, told OBG.

Various provisions of the law mean that the country could see a greater degree of foreign investment. “The new investment law aims to significantly reduce the red tape and bureaucracy in Egypt, while giving foreign companies new tax and non-tax incentives to invest,” Darwish Ahmed Hassnin, CEO of Saudi Egyptian Construction Company, told OBG. “Because of this, we hope to see an influx of international developers into the country.”

Office Space

In the short term, however, the real estate sector continues to experience fallout from the currency flotation and subsidy reforms. The implications are particularly challenging for the office segment of the market. Vacancy rates are increasing and rental rates are falling in the main business area of New Cairo. Rates have fallen from $35 per sq metre to $25 per sq metre, while the actual rate is closer to $22.

The downtown area – which largely serves government-related businesses – has seen less rate erosion, with premium rates at $27 per sq metre. Across the market as a whole, the vacancy rate has crept up from 25% in the second quarter of 2016 to 27% in the second quarter of 2017. Last year, there was relatively robust investor interest in the commercial market. However, with the interest rate offered by banks climbing to almost 20%, investor enquiries largely went quiet in 2017. Indeed, in such an environment real estate returns cannot compete with those of basic bank deposits.

Currency Impact

Many leases are being renegotiated as a result of the currency depreciation, through either a cap on the exchange rate or a conversion from US dollars to Egyptian pounds. However, a substantial portion of landlords are reluctant to negotiate, given that they have expenses in US dollars. “For Gulf investors, their shareholders are expecting returns in US dollars, so these landlords are holding out,” Ayah Ghanem, manager of strategic consulting at JLL Egypt, told OBG.

While the situation is challenging, much of this is a result of a spike in supply, rather than a significant drop-off in demand. Indeed, while demand has undoubtedly softened, interest in commercial space still exists and is being driven by the industrial base, such as fast-moving consumer goods firms and chemical companies. “With the devaluation, manufacturing is becoming more attractive, so these firms are expanding,” Ghanem told OBG.

COMMERCIAL OFFICE SEGMENT: There is currently 958,000 sq metres of grade-A office space in Cairo, and this is set to increase in the near term. In 2017 there was 70,000 sq metres of additional supply in the pipeline, the vast majority of which (60,000 sq metres) will come to market in Cairo Festival City, according to JLL. The capital is set to see an additional 66,000 sq metres of office space come to market in 2018, though the majority of new supply is in the form of completions from previous projects, as the challenges of the 2016-17 environment have put a damper on new construction projects.

In terms of activity in the commercial office segment, Cairo dominates the market. An overwhelming 95% of enquiries to JLL concern the capital, of which 85% are referred to New Cairo. Furthermore, certain niche areas remain compelling. According to Ghanem, one of the few areas of the market that is retaining strong demand is small, finished offices. In this segment, there is interest from start-ups, health care operators and investors. Al Futtaim Group’s Podium project will bring substantial additional supply to this segment. The Podium initiative, which comprises six buildings, will add 35,000 sq metres of small and medium-sized office space to Cairo Festival City. Units vary in size, ranging from 80 to 300 sq metres. The project is forecast to be delivered in the second quarter of 2018.

Shifting Market

While there has been some rental rate erosion, developers and owners have been working to maintain rates by offering other concessions. However, the defence of the rental market could shift demand. For example, there is little interest in shell and core space. According to Nada Kamel, business development director at domestic real estate firm ERA Commercial Egypt, unless developers reconfigure space as small, finished units, the vacancy rate is liable to remain high.

Furthermore, as rental rate increases have far outstripped sales prices in recent years, it has become more economical to purchase office space. A small, fully finished office in a prime area goes from LE33,000 ($2170) to LE40,000 ($2640) per sq metre, meaning that office rental yields can be very competitive, reaching as high as 20% for a single unit. With upward of 130,000 sq metres of gross leasable space coming to the market in the run-up to 2020, developers may begin to look at how they can reconfigure units or change their business models to ensure that the market absorbs it.

The most significant opportunities may lie in unexplored and unconventional types of projects, according to some industry players. “Building a mall in isolation is no longer a feasible strategy in Egypt,” Mohamed Al Yazid, CEO and managing director of Citystars Properties, a local real estate developer, told OBG. “However, mixed-use developments incorporating retail, residential, hospitality and office elements are highly attractive.”


The macroeconomic environment has significantly influenced the residential segment. “There’s an issue of affordability, and competition is very high, as there’s a lot of supply,” Kamel told OBG. Complications have arisen from currency depreciation and the removal of oil and gas subsidies, which have fed into construction costs. Developers have passed this inflationary pressure onto buyers.

As such, in the first quarter of 2017 the average prices for residential sales in Cairo increased by approximately 30% in local currency terms, according to JLL. “The residential sector will continue to serve as the main catalyst of growth for the real estate sector, with a gradual shift towards the B segment, where most local demand is concentrated,” Waleed Abdel-Fattah, senior vice-president and Africa regional manager at construction management firm Hill International, told OBG.

While this has created a challenging environment, there are potential positive outcomes to be realised from the lower value of the Egyptian pound. “One of the positive effects of the devaluation of the currency is that Egyptian construction companies are now, more than ever, looking to maximise the usage of local components,” Omar El Sayed, vice-president of Engineering Consultants Group, told OBG.

Developers in particular have to perform a delicate balancing act – bringing supply to market and selling off-plan in an inflationary and poor financing environment. Furthermore, with the potential for demand to be subdued as a result of the depreciation of the pound, developers have to look at new ways of attracting buyers. “Devaluation has had an impact on affordability and the ability of potential buyers to spend,” Ghanem told OBG.

While developers are trying to remain proactive in this tough operating environment, there is no clear path. Some are offering longer payment instalment schedules. For many residential properties, payment terms used to be up to seven years. It has since increased to 10 years with no additional interest. Furthermore, developers have reportedly started to offer equal instalment periods throughout the repayment schedule. JLL noted in a quarterly report, “The sales market continues to experience more flexible payment plans and the development of smaller units to help mitigate the effect of price increases following the devaluation.”

However, the extension of payment terms for residential buyers will not be realised without having a significant influence over real estate firms in the market. Developers, for their part, are attempting to manage this situation. For example, the number of units offered in new development launches has decreased, as developers more closely examine their cash flow management strategies.

However, off-plan sales and customer payments are a primary means of financing development in the domestic market, as debt financing is relatively difficult given the interest rate environment. However, this in itself has been somewhat problematic. Developers in Egypt often sell on paper before beginning construction. Consequently, the spike in construction costs, which were not factored into the unit sales prices, has contributed to significant losses in the market. According to JLL, the reduction in fuel subsidies alone has led to an increase in construction costs ranging between 10% and 15% (see Construction analysis).

Declining Supply

Given these cost risks and the funding gap for some firms, there has been a reduction in the number of units brought to market. According to Amlak Finance Egypt, sales transactions by real estate firms in the 6th of October City and Fifth Settlement – both located in the Western Cairo suburbs – declined by 30% and 40% year-on-year, respectively, in the first quarter of 2017.

While lower volumes will inevitably affect cash flow, they also bring a potential advantage: the reduction in units in the market will help maintain the balance of supply and demand, and will allow developers to maintain their margins. Indeed, given that developers are keen to recuperate losses from construction cost escalation, there has been a reluctance to slash margins on new construction, and the majority of developers aim to retain margins around the market average, which is approximately 30%.

Demand Evolution

Developers may be riding out the worst of the situation. Beginning in the third quarter of 2017, the dynamic appeared to be changing, as demand was on the rise again. In September that year the index of Aqarmap, a local property services and listings company, showed that overall residential demand increased by 5%, while demand in New Cairo and the Fifth Settlement rose by almost 29% month-on-month, according to PropertyFinder, another listing service.

According to local analysts, the character of this demand is changing. “Between 2015 and 2017 the residential market has had a lot of flippers and speculators, as well as investors looking to hedge against currency risk and devaluation by putting their money in hard assets,” Ghanem told OBG. “However, once interest rates increased, demand became purely driven by end-users.” Indeed, with an interest rate approaching 20%, there is less investor appetite for real estate. This is particularly true for investors involved in the buy-to-lease market. While residential rental yields can reach as high as 12% in premium areas, it remains a stronger and safer bet to rely on high bank interest rates.

Furthermore, the rental market is comparatively weak. In the second quarter of 2017 rental rates in the suburb of New Cairo decreased by 31% year-on-year for apartments and by 60% for villas, according to JLL. In 6th of October City, rents fell by 24% for apartments and 33% for villas during the same period. In gated communities across the city there are high levels of vacancy, with occupancy rates hovering around 40%. As such, there is currently little appetite for buy-to-lease investments. The main group driving investment in the domestic real estate market is Egyptian expatriates who are paid in a dollar-pegged currency. For this demographic, the market has become extremely attractive and affordable compared to previous periods of time.


The upswing in demand in the market is largely, although not exclusively, driven by end-users. Buyers are beginning to benefit from relaxed and flexible payment terms from developers. Demand is also higher for smaller, more affordable units, according to local analysts. “When New Cairo and 6th of October City were initially established, the market was all about big, standalone villas, but now end-users from the younger generation are looking to buy an affordable house, so demand is mainly centred on apartments, small town houses and duplexes,” Ghanem told OBG. While demand is strong throughout Cairo’s satellite cities, the greatest interest is in the east – New Cairo – because these areas offer the best access to the New Administrative Capital being constructed east of Cairo.

The uptick in demand is occurring at a time when the supply pipeline remains relatively limited. For example, in the gated community segment of the market, there are 33,000 units scheduled to be brought to market by 2020, according to JLL. As this suggests, sales prices should remain firm and perhaps increase throughout 2018 and beyond. As of early 2018 apartments in in-demand neighbourhoods, such as the Fifth Settlement, have starting prices of LE13,000 ($856) to LE15,000 ($988) per sq metre, and can reach as high as LE21,000 ($1380) per sq metre, depending on the development’s stage of completion. Standalone villas start from LE5.5m ($362,000). “There will definitely be a need for housing in the long term, so there is no real estate bubble forming,” Ghanem told OBG. “Once the macroeconomic environment stabilises, things will become even more attractive. We expect a marginal increase in rates on a quarterly basis.”

Affordable Housing

Substantial demand remains among the lower-income segments of the market that are not captured by formal, private developers. Egypt has a housing deficit of up to 3m units, while demand for new homes is estimated to be as high as 500,000 units per annum. This is not a new problem: over the course of more than a decade, various public and private sector interventions have sought to alleviate the housing shortage. The administration of President Abdel Fattah El Sisi has developed a variety of programmes to improve housing delivery, including not only demand-side actions, but also and supply-side interventions, such as concerted efforts to subsidise mortgages and home financing (see analysis).

However, extensive homebuilding programmes have received the most attention. In 2011 the government committed to developing 1m new residential units for lower-income citizens. While more than 6m Egyptians completed reservation forms for these units, delivery has been slow and laborious. By the final quarter of 2017 only 250,000 units had been built. The Ministry of Housing, Utilities and Urban Development had initially committed to delivering a further 400,000 units in 2017, bringing the total number of new affordable dwellings to 650,000 by the end of the year. Units are selling for LE154,000 ($10,100), with a LE9000 ($593) advance.

Middle-Income Market

The government is also working to supply housing for middle-income Egyptians through the Dar Misr initiative. Under this, the government plans to deliver 150,000 residential units in eight cities. Prices are set to range from LE255,000 ($16,800) for a 100-sq-metre apartment in Sadat City to LE637,500 ($42,000) for a 150-sq-metre home in New Cairo. Potential owners are obliged to make a 10% down payment upon application and pay a further 10% upon selection for a unit, which will occur through a lottery system. The project was launched in late 2014, and construction is ongoing. In July 2017 the Ministry of Housing, Utilities and Urban Development announced another 6000 homes would be built in Obour City, and more than 26,000 homes were under construction as part of the Dar Misr programme.


While these projects have begun to mitigate the housing deficit, they have attracted some criticism. For example, according to Yehia Shawkat, a researcher for Urban Studies at 10 Tooba, a local think tank, the new units under the housing scheme for low-income Egyptians will be unaffordable for up to 40% of its target demographic.

Indeed, the issue of affordability persists and has deteriorated somewhat in the last decade. According to data from the Central Agency for Public Mobilisation and Statistics, since 2005 housing prices have increased by 14% per year, whereas average Egyptian income has risen by just 1%.

In the face of these difficulties, the President El Sisi administration has sought to build supply in a different way than its predecessors. In October 2016 Mostafa Madbouly, the minister of housing, utilities and urban development, told local press that the government had invested LE43bn ($2.8bn) in housing since May 2014. This compares to a reported LE30bn ($2bn) worth of public investment in housing in the preceding two decades. The President El Sisi administration is focusing on new planned cities, including the New Administrative Capital, New Ismailia, the East Port Said housing project and New Toshka. The government is working on nine new cities under the stewardship of the New Urban Communities Authority. It hopes these cities will help to eradicate informal settlements and provide formal housing for Egyptians of all income levels. Madbouly told local press that the New Urban Communities Authority would be able to fund these projects without requiring any additional allocations from the general government budget.


The government is taking important steps to improve the housing stock across the country. Whether these new units will be within reach of much of the population remains to be seen, as affordability is a critical and persistent problem, and public and private institutions have thus far been unable to establish a funding and financing mechanism to unlock the vast potential of the market for private sector development.

The formal real estate market remains preoccupied with the top end of the income scale, where developers are feeling the effects of government reform efforts, from the flotation of the currency to fuel subsidy reductions. Although the knock-on effects have dampened both demand and supply, the medium- to longer-term outlook is more encouraging, especially as the currency stabilises and investment increases. Residential prices have held relatively firm and should begin to tick upward as demand revives. As such, a sector that has long been viewed as a safe financial bet in the country is likely to maintain this reputation in the coming years.