For many years, one of the greatest challenges Egypt has faced has been providing housing for its growing, youthful population. Indeed, the lack of decent housing for those in the lower- to middle-income bracket is thought to have been one of the triggers of last year’s revolution. The newly installed government, headed by Mohammad Morsy, is likely to make the housing shortfall a priority.
Estimates of Egypt’s housing shortage vary but all agree that it is large, with most assessments putting the figure between 1m and 1.5m units. According to Mohamed El Mikawi, the managing director of Al Futtaim Group Real Estate in Egypt, demand is growing by around 300,000 units per year.
Egypt’s population is not only the largest in the Arab world, it is also growing quickly, at a rate topping 1.5%, according to the World Bank. Almost 40% of the population is under the age of 18, so long-term demand for new units is assured. Marriages, which also provide a useful indicator for gauging demand, paint an encouraging forecast for the coming years, with more than 860,000 new marriages in 2011 alone. This helps provide a rosy long-term outlook but equally increases pressure on providing short-term and immediate solutions to stem a rise in illegal construction.
According to an August report by US-headquartered Jones Lang LaSalle (JLL), a real estate services firm, “the need to provide more affordable housing is ensuring that significant levels of new supply remain under construction”. In recent years, developers have been shifting their attention from the top end of the market, where demand has slowed and supply has noticeably outstripped sales, to the low- to middle-income segment, where margins are tighter but where sales are virtually guaranteed. This shift from luxury villas to modest apartments has long been anticipated but the challenge has been encouraging private developers to take on affordable housing projects.
“The low-cost housing of the real estate market has been neglected and that contributed to the frustrations that sparked the revolution,” El Mikawi told OBG. “The demand in this segment rises by 300,000 every year, and hence the government will need to initiate programmes along with the private sector to bridge this gap. Admittedly, demand for high-end property has remained a lucrative business but it serves probably 3% of the population. If profits are to be made in the low-end segment, projects have to be initiated on a large scale.”
The housing shortfall is now as pressing as ever, as many construction projects were put on hold during the revolution and its politically uncertain aftermath. With the new government installed and the economic outlook brightening, developers expect pent-up demand to drive growth in the medium term.
“The revolution put some restrictions on the construction sector,” Bassam Daher, the area manager of the Consolidated Contractors Company, told OBG. “Many projects and even future prospects were frozen until the new government and legislation was approved. This will be a year of transition and in 2013 we will experience a rebound.” Daher says the industry would benefit from proposed new legislation to ease the tax burden on businesses.
Developers would also like to see much greater mortgage penetration. Mortgage growth has been held back by a number of factors, including low incomes, a lack of secure title deeds, a lack of awareness among buyers and the large proportion of units that are informally built, which cannot be used as collateral.
Much of the construction of low-cost housing thus far has been undertaken by the state, which is likely to continue for the foreseeable future. The Ministry of Housing has a plan to build 1m units in 22 cities in five years, while the interim government of the Supreme Council of the Armed Forces (SCAF) has put LE2bn ($326.99m) towards social housing, as well as donating a plot of land in Helwan, south of Cairo, for the purpose.
The government provided incentives for private developers to build low-cost housing. One such example is Haram City, built on land the government sold to Orascom Housing Industries (OHI) at below-market prices, on the condition OHI would build low-cost housing.
In the first phases of development, OHI is selling units that cost around LE100,000 ($16,350). However, this is still at the high end of the price spectrum in this sector. JLL estimates that a typical low-cost home measures around 60 sq metres and is priced at LE60,000 ($9810).
With so many units needed, tackling the housing gap will take time. But with a new government installed, and the private sector showing increasing interest, it appears that the next few years could see real progress in providing new homes for Egypt’s growing population.
Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.
Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.
Register Here×La production marocaine de phosphates et de produits dérivés, comme les engrais, devrait connaître une hausse considérable. En effet, l’Office Chérifien des Phosphates (OCP), qui détient le...
Emerging markets are increasingly harnessing data and software to disrupt and streamline their real estate markets and meet the needs of young people and businesses.
The Turkish Prime Minister Bulent Ecevit has spent the last week in the US hoping to garner support for economic reforms at home and trade concessions for Turkish exports to the US.
