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Sun 16 Aug 2020 11:59 AM

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Egypt's real estate market to remain robust, driven by steady economy, local buyers

In order to attract new developers and investors, the Central Bank of Egypt has reduced interest rates by 3%, the lowest rate since 2016

Egypt's real estate market to remain robust, driven by steady economy, local buyers

With an increase in population of about 2.5 million people annually, it is unlikely that demand for real estate in Egypt will diminish any time soon.

Despite earlier fluctuations and the effects of Covid-19 pandemic, Egypt’s real estate sector is making a comeback and will remain robust for the foreseeable future, analysts and developers told Arabian Business.

The confidence is mainly due to recent steps taken by the government and the Central Bank to bolster the sector, Egyptians’ steady appetite for investing in real estate, and the overall outlook of the economy, seen as one of the most stable in an otherwise volatile Middle East region.

With an increase in population of about 2.5 million people annually, it is unlikely that demand for real estate in Egypt will diminish any time soon.

Streets in Cairo swarm with massive billboards showing sleek apartment buildings and villas in new compounds dotting the ever expanding urban scene in the megacity of about 24 million people.

The housing units promise peace away from the city noise and huge green areas while office spaces offer business opportunities in the newly developed areas.

“It is a robust and resilient market in offices, retail and residential albeit this one was a little bit flat,” Ayman Sami, head of JLL’s Egypt office told Arabian Business.

“The hospitality sector was slow and that is because of the travel restrictions due to the pandemic,” he added.

The report by JLL on Q2 for Cairo’s retail, tourism, office and residential markets shows an overall increase.

Interest rates

On the residential front, one project in Q2 2020 was completed bringing the total stock to 159,000 units. Around 35,000 units are currently under construction and are expected to be completed in the second half of the year.

“In order to attract new developers and investors in the long term, the Central Bank of Egypt (CBE) has reduced interest rates by 3%, the lowest rate since 2016, with the aim to support and finance projects through bank loans rather than relying on off-plan sales,” the report said.

For retail, primary and secondary rents in that market have increased by 5% to 10% annually and these are expected to remain stable with mall operations gradually getting back to normal. E-commerce is still on the rise as consumer preferences lean towards online shopping, allowing for a prominent number of home-grown businesses to emerge, the report said.

The office market in Cairo will continue to be a two-tiered market and while the demand is high for smaller fitted-out primary office space, according to the report, the requirement for flexible office space is expected to witness a slowdown in the short-to-medium term. This is due to small-to-medium enterprises (SME’s) and start-ups now realising they can work from home.

Encourage buyers

Sami reiterated that steps like dropping interest rates and supporting mortgage schemes will encourage buyers.

According to published reports, Egypt’s mortgage market, which dates back to 2001, has been rather sluggish but it is now expected to grow rapidly due to government initiatives to support the housing sector and CBE’s decision to lower interest rates.

In 2014, the CBE allocated LE 20bn (%1.16bn) to banks in the forms of deposit, to finance low income housing projects. Qualified borrowers can borrow money at an interest rate of 7% for low-income citizens and 8% for the middle-income segment, according to reports monitoring the real estate sector.

In February 2016, the programme was expanded to increase the number of beneficiaries and to add a new segment of low-income citizens at a lower interest rate of 5%. In addition, above middle-income citizens were also included at an interest rate of 10.5%.

Another sign for the changing scene in Egypt is the increase in number of mortgage finance companies from only 2 in 2005 to 13 in 2019, according to the reports.

These include Sakan, Al-Qula, EHFC, Egyptian Housing Finance Co., EMRC, Amlak, Al-Tayasor, Tamweel, Tamweel Emirates, Naeem, Al-Ahly, Arab African International, Al-Ahly United, and El Masreyin, according to the Egyptian Financial Supervisory Authority (EFSA).

“In the coming period, real estate will be a main alternative [for saving) because of the dollar stabilisation and the drop in interest rates… not to mention that the demand in the Egyptian market is local whereas some other markets rely on international sales,” said Sami.

“Now there are very attractive payment terms such as loans for 5-8 years and this is good for the buyers,” he added.

Hotel occupancy

One market witnessing a significant drop however, was the hotel market as it saw a sharp decline following travel restrictions, according to JLL’s report. Occupancy levels registered 42% in the YT May 2020, the lowest rate registered since 2013. 

The government tried to reverse the impact on the hospitality sector by boosting domestic tourism thus allowing hotels to reopen to local tourists in May and operate at 25% capacity - provided the properties comply with strict precautionary guidelines.

“The government has also committed part of the $2.7 billion emergency support loan granted by the International Monetary Fund (IMF) to the hospitality sector, in an effort to support the sector further,” JLL’s report said.

On his part, Owner and CEO of Future Homes Development, Mohamed Mounir, said he was “very optimistic” citing several reasons why the real estate market’s growth will remain steady.

“It is only a matter of time and actually starting this year, we were already in the uptrend till March. There will be a strong comeback towards the end of year and we will return by 75%,” Mounir said.

Steady economic growth in the country was a key drive, he said.

According to the World Bank, “real Gross Domestic Product (GDP) growth increased in Egypt to 5.6% in fiscal year 2019 (ending June 30, 2019), compared to 4.6% in the previous three years.”

This performance was sustained throughout the first half of fiscal year 2020, driven mainly by investments and the improving balance of net exports.

Safe investments

Egyptians have a major appetite for buying property as investment and homes for their children, Mounir said. It is considered a safe way of saving because no matter what, property will never depreciate according to most Egyptians.

In order to sell more, developers keep up with the trends which now show that the majority of buyers prefer smaller units such as apartments or duplexes as opposed to villas and twin houses.

“This is mainly due to the floating of the pound,” Mounir said because those who could buy the bigger units can no longer afford them.

In March 2019, the average exchange rate stood at EGP 17.37 per $1, or about 49% decline from its value of EGP 8.88 per $1 before the decision to float the currency.

Mounir’s company is currently building three residential apartment buildings in two neighborhoods in Cairo and he expects to match the profits he had made since the launch of the company in 2012 till 2015, or the lucrative years.

He reported losses in 2017/18, like many other developers including market giants like Palm Hills and Emaar, due to the floating of the pound but he declined to give any figures.

Another reason why developers like Mounir are confident of a strong market is that Egypt is considered a safe country in which to own property.

In 2015, Law 17/2015 was ratified by President Abdel-Fattah el-Sisi, relaxing restrictions on foreign ownership of land and property. It also allowed the government, Egypt’s biggest landowner, to contribute land to the private sector as part of public-private partnership schemes against a share of the revenue, according to published reports.

“There are many buyers from neighboring countries like Libya, Syria, Yemen and Iraq who buy homes in Egypt,” due to the political instability in their countries, Mounir said.

“And let us not forget that many from the Gulf countries own second homes in Egypt and they always go for the highend villas and twin houses inside compounds,” he added.

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