Rethinking and reshaping: New developments outside Cairo’s core are evolving in several ways

The long-term determinants of the real estate market in Cairo are governed by two main factors – the housing needs of the young and growing population, and the clogged, chaotic core of the city with its aging building stock. It has long been the case that Cairo cannot take the pressure of the millions who live and work there, and these factors mandate a spreading out into satellite developments. However, in the wake of the revolution, developers are tweaking their plans to adjust to some new realities.

Taking some of the load off Cairo has long been a goal for Egypt’s government. Given the country’s geography, however, and the capital city’s significance both for the country and for the region, gravitation towards it has been difficult to stop. In the modern era, this need was expressed by former President Anwar Sadat as part of his move to reduce economic reliance on the government. In 1983, urban planners envisioned large-scale developments that would expand the city’s footprint.

FROM CONCEPT TO CONSTRUCTION: The idea was to do more than simply create bedroom communities, but instead to develop mixed-use areas into stand-alone cities to reduce the number of people in central Cairo. Ten sites were envisioned, each at a size of 1400 feddan (5.88m sq metres) and 250,000 inhabitants, according to a study by Cairo University. The focus and current development so far has instead come in two of those sites: New Cairo and Sixth of October City, both of which are likely to end up being much bigger, with populations exceeding 1m – New Cairo is expected to be home to 3m by 2029. Geographically, New Cairo now encompasses three of the original 10 new cities envisioned.

The pace of resettlement has been below target at times, however – 15% of what was projected by 2006, according to data from the Central Agency for Public Mobilisation and Statistics. Moreover, though these areas were envisioned as a way to decongest Cairo’s core and improve conditions in slum areas through lower density, as well as to create diverse communities with people of mixed economic backgrounds, the new cities instead are taking shape as more affluent places. “What we’re seeing is that people want villas in the suburbs,’’ Sameh Habib, the head of business development at developer Al Ahly for Real Estate, told OBG. “They will take a small villa that costs a little more over a big apartment that costs less.’’ Indeed, luxury units are largely still driving growth. “Demand for luxury units is slowly coming back and prices of real estate have not dropped – a testament to the segment’s strength,” Alaa Ayoub, CEO and managing director of Hyde Park, said.

PLANNING FOR THE LONG TERM: Housing the professional and middle classes in these new suburbs makes sense given the non-residential aspects of the long-term plan. These areas were designed to in part replace a number of downtown Cairo’s major functions, such as the location of government buildings and key economic institutions, including the stock market. Those moves have not yet happened but the new suburbs are host to almost all of Cairo’s existing and planned Grade-A office space – the one exception is the Nile City Towers office development under way downtown. That has prompted those looking for a place to house their operations to get more creative. Companies often aim to purchase several villas near each other, which is the strategy of most oil companies located in the southern suburb Maadi. “There is huge demand in terms of Grade-A office space,” Hisham Shoukri, the executive president and CEO of Rooya Group, told OBG. “There is no more than 5% vacancy of Grade-A office space in central Cairo.”

The satellite cities, however, offer the chance to house all workers in one building, with sufficient parking, modern HVAC systems and other benefits derived from a purpose-designed space. Purpose-built office space located in a light-traffic area close to neighbourhoods where workers live is proving an alluring proposition for workers and management.

FURTHER CAUSES: Another explanation for why the new suburbs have so far developed without the low-cost housing element intended is that the government sought to serve multiple goals in building them, elements of which are conflicting. The new suburbs have been built by a number of private companies, such as Egypt’s biggest developer, Talaat Mustafa Group (TMG), as well as Sixth of October Development and Investment, and Palm Hills Developments.

That has furthered the goal of private sector development, but constrained low-cost housing stock. Indeed, private sector developers typically look to maximise profits through higher-margin projects, and those are almost entirely found in catering to higher-income segments of the market. As of early 2012 the high end of the housing market was generally considered at saturation point, while the middle- and lower-income segments face a shortage.

A COMMON TALE: That puts Egypt in a familiar spot – developing countries worldwide are under some pressure to engage the private sector in building for the poor. In Egypt’s case, the problem is more pronounced because it is one of the world’s most populous countries and many citizens are impoverished.

The government has had some success providing incentives for developers to build low-cost units. Haram City, for example, is a suburb built on land the state sold to Orascom Housing Communities (OHC), part of the Orascom Holdings conglomerate, at below-market rates. In the first phases of the development, OHC is selling units that cost about LE100,000 ($16,737), the high end of what is which is considered low-cost in Egypt. A typical low-cost unit is about 60 sq metres in size and sells for LE60,000 ($10,042), according to Jones Lang LaSalle, the Chicago-based global real estate consultancy.

GOVERNMENT HELP: Low-cost housing is more often built by the government – in early 2012 the Ministry of Housing announced a five-year plan to build 1m low-cost units, for example. The Supreme Council of the Armed Forces also announced that it would construct homes on land it would donate. In part, increasing housing for the poor is seen as a measure the state can use to win popular approval.

If Egypt is headed into a truly democratic era, in which votes count for more than they once did, low-cost housing could be a political cause hard to give up or share with private developers. However, the shortage is so profound, estimated at about 1m units and rising from there, that the government’s builders lack the capacity to meet demand fast enough, and the future is one in which low-cost housing will likely be built by both public and private contractors.

Developers have responded by building more gated communities, which they feel will preserve the trend of migration out from the core. In these communities, a one-time lump sum payment of 6-9% of property value takes care of maintenance fees, Habib said. Acknowledging the new trend does imply, however, that existing stock in these satellite areas outside gated compounds is already somewhat out of date.