Egypt looking to meet housing deficit

Egypt has been living with the azmit al iskan (housing crisis) for more than 30 years. Inadequate stock, overcrowding and a lack of affordability have become the norm, and while successive administrations have paid lip service to reform and solutions, the housing deficit has continued to grow and the existing housing stock has degraded further. The top end of the real estate market may be thriving, with the title to properties yet to be built changing hands every few months, but in the middle- and low-income segments of the market, there is a chronic mismatch between supply and demand which the government is seeking to solve.

Deficit

The trends leading up to the 2011 revolution and immediately beyond have not been encouraging. A 2011 report by Jones Lang LaSalle found that Egypt has a housing deficit of 1.5m homes, the largest shortfall in the MENA region, representing over 40% of the total regional shortage, and in 2015, press reports indicate that this deficit has risen to over 3.5m.

At the same time, demand is affected by a lack of affordability (see analysis). In the eight years leading up to 2013, the price of the cheapest social housing units offered by the Ministry of Housing increased at an annual rate of 14%, according to data from the Middle East Institute. In the latter half of that same period, average incomes in the country increased at a minimal rate of 1% per year, while those living below the poverty line increased to 26% of the total population. Consequently, the World Bank estimates that between 12m and 20m Egyptians live in informal housing.

Supply

The current government has laid out a number of policies to address the housing crisis, with the hope that this time things will be different. The headline announcement came in 2014, when the government said that Arabtec, a construction firm from the UAE, would build 1m homes across the country over the next decade. However, the project could be downsized as, in September 2015, the local press reported that the first phase of the project to be rolled out over the next five years would constitute the building of 100,000 units. ‘“There is no place for talks about assigning the million-unit project that was announced 18 months ago,”’ Moustafa Madbouly, the Egyptian Minister of Housing, told the press.

Alternatives

The government, however, is looking at several new and innovative measures to improve the country’s housing stock. This includes a number of plans to make lower-income customers more accessible to the formal market, through schemes to improve the financing environment (see analysis) and plans to reduce the cost of development for real estate firms (see analysis).

The government is also supported by international donor programmes. In May 2015 the World Bank announced a $500m Egypt Inclusive Housing Finance Programme to support 3.6m residents, 1.6m of whom live below the poverty line. Amongst other ambitions, the programme will support the Social Housing Fund, which disburses financial support to low-income families, and create incentives for private owners to rent out their properties to low-income tenants.

Rentals

The latter goal is particularly important given the underdevelopment of the rental market in the country. According to a 2006 study by the Central Agency for Public Mobilisation and Statistics, 25% of residential units in Cairo and 35% in Alexandria stand vacant, and these numbers have increased since the 2011 revolution, according to the Tadamun Initiative. Indeed, despite rental yields over 9%, the buy-to-let market is underdeveloped in Egypt, with most investors looking only to capital gains. With so many vacant units, incentives for potential landlords could provide a crucial component of future housing policy. Indeed, strategies to improve the regulatory and financing environment will perhaps be as pivotal in meeting future supply requirements as government-sponsored building programmes.

Egypt’s formal housing market has always faced problems keeping up with the sizeable demand in a country where the 90m person population is growing by 2.5% a year. The shortage is such that informal construction now comprises a large proportion of residential build, although the government is hoping to address that through large-scale public housing projects.

Addressing Demand

Over 1m affordable homes will be built across 10 governorates on 13 plots of land which currently belong to the Egyptian armed forces. Financing sources have yet to be made public, although Arabtec said last March that a mix of local and foreign banks would fund the project, while Egypt’s Prime Minister Ibrahim Mehleb had announced in October 2014 the government had reached an agreement that all of the funding would come from abroad.

The project is one of many in which the UAE – who along with Saudi Arabia and Kuwait has provided billions in grants and concessionary loans to Egypt in recent years – has a sizable stake. In addition to direct aid, the Emirati government has agreed to extend support for Egyptian building projects including health centres, schools and houses. In addition to these developments, The New Urban Communities Authority (NUCA) issued seven tenders for development projects in different cities across Egypt in February.

Private Partnerships

The Minister of Investment, Ashraf Salman, said in February 2015 that there are currently over 40 private sector housing projects in the works, 30 of which were presented at the Economic Summit in March 2015 and offered to investors. Speaking in February, he estimated the projects had attracted between $15bn-$20bn.

Madbouly also announced that the Ministry of Housing had proposed a LE150bn ($20.4bn) project during March’s Economic Summit, named “October Oasis”, to be built in the 6th of October City.

This will also come as a welcome boost to foreign direct investment (FDI) levels, which have started to stabilise after a largely downward trajectory over recent years. FDI levels stood at $1.8bn in the first quarter of the fiscal year 2014/15 after reaching $6bn for the 2013/14 financial year. Salman said in November that the government is hoping to nudge this figure upwards towards the $10bn mark for 2014/2015. But this remains an ambitious target. The political unrest which followed the departure of President Mubarak eroded the confidence of foreign investors. In 2010/11 and 2011/12 FDI suffered a precipitous drop, registering $2.2bn and $2.1bn, respectively. Reversing this decline has become a central priority for the government.