Public and private developers in Egypt aim to make the real estate accessible

One of Egypt’s biggest challenges is the lack of adequate housing for its rapidly growing population. Two key issues are perpetuating this: the insufficient volume of affordable housing units for lower-income residents; and the increased presence of informal or self-built units in most major cities. Paradoxically, real estate continues to be a top destination for investment, especially under the current conditions. Following the depreciation of the Egyptian pound, which began in late 2016, Egyptians have increasingly turned to real estate investment to protect themselves against inflation.

The building and construction sector employs roughly 4% of the population and accounts for approximately 12% of employment, according to figures by the Centre for Affordable Housing Financing in Africa (CAHF). Yet the majority of the sector’s output continues to go to the middle- and high-end developments, which carry better margins for developers. This segment has become even more desirable now that developers are facing higher costs for suitable land plots and construction materials.

While there is a significant deficit of affordable housing, many newly constructed properties remain unoccupied. The Central Agency for Public Mobilisation and Statistics (CAPMAS) estimated that Egypt had as many as 13m vacant homes as of late 2017. The CAHF stated in its 2017 report that “these properties remain beyond the purchasing power of low and middle income groups”. Addressing these gaps will be a priority for the years to come.

Challenges

World Bank figures put the country’s population at 97.5m in 2017, growing at an annual 2.4%, and it is projected to reach 100m in 2019. Simultaneously, there is the rising number of new households that are created each year. The magnitude of the housing challenge is often hard to grasp. In 2015 the Ministry of Housing estimated that Egypt needs an additional 500,000-600,000 homes each year to meet the demand for housing. Ministry of Housing, Utilities and Urban Communities (MHUUC) came to a similar conclusion; the country would have to build around 500,000 homes per year for newly formed households.

Creating a sustainable balance between supply and demand is the most significant challenge. The average monthly salary in Egypt in 2017 was roughly $140. However, the least expensive available apartment unit to purchase outside the capital costs, on average, $6740, according to the CAHF report, which states that “most new housing is well out of the reach of the bulk of the population”.

Housing Programmes

In 2015 the government announced a five-year programme to build 1m homes for lower-income citizens. The programme was budgeted at $20m and, by early 2018, the authorities announced that as many as 150,000 units of the programme had been successfully completed and that an additional 260,000 units were under construction. A portion of the programme is financed via the Social Housing Fund, which is itself managed by the MHUUC.

Multilateral finance institutions are also helping to implement housing programmes. In 2015 the World Bank signed a $500m loan deal with Egypt to help low- and middle-income home buyers through the allocation of subsidies ranging from LE5000 ($281) to LE25,000 ($1400). The goal is to help home buyers access commercial mortgages. The loan programme was initiated in the wake of an injection of $1.5bn to target the development of the housing sector and rural sanitation infrastructure.

Addressing the housing deficit depends on the sector’s ability to produce new homes at appropriate prices. However, annual production figures have varied greatly from year to year. For example, in September 2016 a report issued by CAPMAS stated that 1.2m housing units had been built over the previous five years. However, annual output varied considerably. While only 135,600 homes were constructed in FY 2012/13, less than the half of the 352,000 homes that were built during FY 2014/15 were funded by the public sector. Of the 1.2m homes built in Egypt between 2011 and 2016, as many as 58.3% of them were built by the private sector, while the government was responsible for building the remainder, for a total of 497,000 homes. However, this is expected to change, as private sector involvement in real estate development has surged recently. Lebanon-based Bank Audi reported in February 2019 that 90.4% of funding for construction projects came from the private sector in 2018, up from 60% in 2016, suggesting that investor confidence is steadily improving.

Low-Cost Homes

A number of projects on the public agenda are designed to provide housing for lower-income members of the population. In 2016 the government opened the Asmarat low-cost housing area, in the Muqattam district of Cairo. The project, comprising of several rows of six-storey buildings, was established to house residents of other neighbourhoods around the city. The building replaced structures that had been self-built by residents and deemed unsafe by the government. The Maspero area of downtown Cairo is the current location of a contentious large-scale renovation process, which the government has spearheaded.

Asmarat was built with a $87.9bn investment provided by the Ministry of Local Development, the MHUUC’s Informal Settlement Development Fund and the Long Live Egypt Fund. Its first two phases, inaugurated in 2016, delivered roughly 11,000 furnished apartment units. A third phase of the project, which will increase the number of units to 20,000, was finalised in September 2018. The units are 62 sq metres in size, and contract structures between the government and new tenants can vary. While some were granted title deeds for LE300 ($16.86) monthly payments, other citizens that moved to the area were only allowed to have usufruct contracts, which end when the head of the household passes away.

Other government-run projects are focused on home construction for middle-income Egyptians. The Dar Misr project, which the MHUUC launched in 2014, aims to provide 150,000 new middle-income homes across several areas of the country. As of mid-2018 the project had built and sold 56,000 homes across two construction phases, according to local media. However, in what seems like a redirection of its initial intent, the ministry stated in 2018 that a third phase of the project would alter project specification in order to establish 16,000 new homes geared toward the higher end of the market.

Regional Focus

Although Greater Cairo and Alexandria remain priority areas for affordable housing development, with roughly 25m and 5m residents, respectively, the authorities are also aiming to expand housing programmes elsewhere. In Upper Egypt, 4000 affordable housing units are scheduled for construction as part of the broader New Aswan City project. The development is located on the west bank of the Nile, roughly 12 km from Aswan. The authorities expect New Aswan City to house up to 850,000 people by 2023. The project comprises three phases and encompasses an area of 9240 ha with an expected medical complex and tram service. In a wider plan to develop the region, the Sinai Development Authority pledged a LE9bn ($505.8m) investment to build 5000 new homes in the region. In April 2018 international media reported that the project would be completed by 2022.

Financing

Government measures to support allocations of housing credit could add further dynamism to the sector. In February 2014 the Central Bank of Egypt launched the Mortgage Finance Initiative to enable the government to subsidise mortgage schemes for lower- and middle-income citizens. A 2017 amendment to the programme raised the maximum income level for the lower-income bracket, from LE1400 ($78.68) to LE2100 ($118). Under the scheme, beneficiaries can access a 5% mortgage rate after government subsidies. The maximum individual income for the middle-income bracket was expanded from LE8000 ($450) to LE10,000 ($562).

While efforts to make the real estate market accessible for a larger number of people will require time and both private and public investment, improving access to affordable housing will have a long-term impact on economic and social development as the population continues to grow.