A Good Year for Real Estate - Egypt Today

A Good Year for Real Estate

La Vista Development. Photo courtesy company web site

By: Fatma Khaled

Egypt Today

Mon, Jan. 1, 2018

CAIRO - 1 January 2018: Real estate has continued to prosper over the past year, despite the straining challenges the sector has faced in recent months following the currency devaluation in November, 2016 and the shortage in foreign currency. 

A vibrant and strong demand prevailed across several sectors in the Egyptian real estate market, increasing in 2017 compared to previous years, according to a report by Property Finder, an online platform for buying and renting property in Egypt, the UAE, Bahrain, Qatar, Morocco, Lebanon and Saudi Arabia. 

Although gloomy market predictions haunted investors and economic experts at the beginning of the year, several elements have managed to decimate some of these challenges and secure investors’ faith in the market. 

Among these elements are the country’s mega projects that seek to ease the concentration of the population in overcrowded Cairo, including the New Administrative Capital, government-owned affordable housing across other governorates and tourism and industry development in the Suez Canal Economic Zone (SCZone). 

“The market is expected to continue to operate normally being a safe investment haven to many buyers, but some components may differ in 2018, for example there is a growing demand on the Administrative Capital city that will continue to rise in 2018,” Mohamed Banany, senior vice president at Coldwell Banker, an international real estate franchise that works on analyzing the real estate market, tells Business Today Egypt. 

But though real estate experts, including developers, are shying away from determining which products buyers should invest in in 2018; the market is steady as more supply is bound to bring about change in trends, diversity, and smart and affordable solutions and sales. 

“Generally it is not really a matter of what to invest in, the question is rather whether there is another safe investment that will ensure that the value of your money will not depreciate other than real estate,” CEO of leading real estate developing company Tatweer Misr, Ahmed Shalaby, tells Business Today Egypt. 

Challenges and market trends 

In a noticeably short period of time, new opportunities and market trends began to emerge throughout the year despite the challenging atmosphere. Reports have emphasized that the most popular and wanted provinces and areas among investors and tenants are located not only in Cairo, but also in Giza, the Red Sea, Suez and Alexandria. 

Other investment trends have grown clearly in the second-home market where the North Coast is greatly favored, compared to other areas when buyers and tenants consider purchasing a vacation home. North Coast areas have proven to record the highest occupancy level by tenants and buyers, specifically during the summer season. 

A demand or a desire to acquire a certain lifestyle has not only grown common among Egyptians abroad and expat investors—who were the first to benefit from the devaluation, which resulted in affordable luxurious housing prices—but it has also benefitted international tourists who can easily afford long holidays at some of the best hotels in the country, thus boosting the tourism industry. Both buying and renting properties have become leading trends of the year, increasing demand in 2017 compared to 2016. 

Popular trends in purchase have prevailed in certain areas in the capital deemed as prime locations, including Nasr City, Maadi, Sheikh Zayed, Helioplis, Sixth of October and New Cairo (Fifth Settlement), according to data compiled by Global Property, a website dedicating to providing intelligence for residential property investors. 

Although 2017 has witnessed a positive boost in market trends, Egypt’s population of over 90 million requires an additional 175,000 to 200,000 housing units per year to cater to the housing shortage of 3.5 million. Reports have confirmed the existence of 5.6 million vacant units nationwide, but these properties are beyond the purchasing power of low and middle-income classes. 

With affordability being a growing issue for these socioeconomic classes, President Abdel Fatah al-Sisi in 2014 announced a plan to build 1 million affordable units for low-income youth across 13 cities in collaboration with UAE-based company Arabtec. 

A part of the project is expected to be finalized by the end of this year, and the entire project is set to be delivered by 2022. This comes in parallel to the 62,000 homes being developed for the same segment as part of the Central Bank of Egypt’s (CBE) initiative to provide affordable housing. 

The concept of social housing units has been on the rise especially in recent years, however the cheapest units in these projects have increased by 14% per year over the past eight years; most citizens, whose average annual income tends to increase by no more than 1%, can hardly keep up. 

Providing investment benefits to private companies, the Egyptian government has attempted to attract local private developers to construct such projects. However, the private sector’s cheapest housing unit stands at $13,946, which outweighs the actual purchase power of this class of society; therefore developers do not supply homes to this income group and rather target high-end buyers. 

Shalaby expects that market trends in 2018 will continue as is, rendering real estate as a safe haven that safeguards consumers’ confidence from the wavering value of currency and devaluation. He also added that demand for real estate peaks not only when there is a need for housing, but also as a long-term investment. 

“The flotation will be positive for the real estate sector and will create an attractive investment climate that brings stability to the market,” Shalaby says. “While we cannot say definitively how the outlook will be at the current time until things become clearer, we do not expect in the short future that demand on housing will vary as there may be increased demand by those seeking investments to offset demand by those seeking housing. Real Estate developers will have to also play their role in finding creative offers and incentives that will attract customers.” 

When searching for competitive offerings, buyers should consider two primary factors; the location and the credibility of the developer, according to Coldwell’s Banany. Even though considering location is crucial, the current market inventory is experiencing an undersupply, according to Banany, as some locations ran out of supply completely; especially prime locations in Ain Sokhna and the North Coast. He advises home buyers to avoid searching for special locations in Rehab, New Cairo, Sixth of October and Sheikh Zayed because they were all sold out. 

Market demand and 2017 prices 

Demand for housing in these locations grew among Egyptians living abroad as well as resident expat investors where the median price of a one-bedroom apartment amounted to LE 1 million ($56,180) in 2016, based on the global online market place OLX. Over 30,000 residential units are expected to be delivered in New Cairo and Sixth of October City within the next three years. 

New residential projects in Egypt were favored by foreigners and Egyptian expats all year round due to several factors, including currency devaluation, high salaries granted to them abroad, and the ability to formulate a savings plan. 

Other factors were provided by developers contributing to increasing investments in the country, including offering customized residential units based on consumer preference, such as smaller units and flexible payment plans. This approach carried out by developers resulted in a higher purchase rate where expats bought residential units in higher-end districts at sensible prices that they couldn’t afford before. 

Prime locations outside Cairo, such as El Gouna and the North Coast, were recorded in 2017 as having a higher price value than the capital. Average prices for apartments in resorts in El Gouna ranged in 2017 from LE 18,500 ($1,041) to LE 19,500 ($1,097) per square meter, according to data issued by Colliers International; while villa prices had a starting price of LE 26,000 ($1,463) to LE 38,000 ($2,139) per square meter. 

The Red Sea area is mostly demanded by expats, while residents and Egyptians abroad have a higher preference for the North Coast where property prices have become half of those of El Gouna’s. Apartment prices range from LE 9,000 ($507) to LE 21,000 ($1,182) per square meter, while villa prices have a starting price of LE 10,000 ($563) per square meter.

Demand has always been driven in Egypt based on the diversified offerings and buyers’ needs, according to Shalaby; however he confirmed that preference is mostly given to gated communities and second homes. 

Despite eradicating the element of affordability to the majority of local Egyptians who considered rent as an alternative solution, properties in 2017 have recorded a higher rate in sale and rent during the first quarter of 2017 by 179.17% compared to 2016, and have remained steadily strong throughout the first part of the year. 

Assessing demand in 2017 and determining the type of projects that accounted the highest demand in retrospect, Banany confirms that a great majority of Egyptians primarily demand apartments while villas account for the second highest demand in the market. 

The overall demand for leased apartments in Egypt has increased in 2017 by 78.59% compared to 2016, while the supply offered for rent has decreased by 19.57%. Dem