 The Egyptian Real Estate sector flourished on the back of the positive economic conditions, reflected in the real GDP growth of 7% in 2006/07, as well as the structural economic reform that is adopted by the current cabinet. Demand is currently surpassing supply for all segments of the market, from residential properties to administrative centers to commercial and tourism facilities.
The surge in demand has resulted in an unprecedented interest from both local and regional developers to enter the Egyptian real estate market. Besides, Egypt owns a number of criteria that makes it a good destination for real estate developers to penetrate the market. The high population, the economic growth, the declining real estate taxes and the developing mortgage system are major catalysts for any developer to step in the market.
Though the Real Estate sector declined as percentage of GDP between 2005/06 and 2006/07, from 3.3% to 3.1%, it grew by 9.9% during the same period. Between 2001/02 and 2006/07, the real estate sector grew at a CAGR of 8.5%. Another sector that is directly related to the real estate sector, the Construction and Building sector hiked by 27% and its contribution to the GDP moved upward to reach 4.4% in 2006/ 07, as opposed to 4.1% the year before.
The growth in Construction and Building sector is a promising indicator for a further growth in the real estate sector over the coming years. Also, the share of the real estate sector of the FDI inflows reached US$39mn, compared to US$16.5mn in 2004/05, a surge of 136%. This in turn reflects the foreign interests in the sector for its attractiveness and relatively low valuation compared to surging prices in neighboring countries, especially the GCC countries.
Parallel to the economic reform and the ameliorating business atmosphere in Egypt, the need for office and administrative buildings surged. Now, many international as well as regional companies are opening branches or rep offices in Egypt. The supply of office space is very limited; however, the emergence of real estate developers from the Gulf has introduced the idea in several of their projects.
At present, the need for office space is no longer dependant on multinationals and large companies only, but the medium and small businesses as well. As for the commercial and retail space, the demand is significantly high as a result of the increasing purchasing power parity (PPP) and the decline in tariffs and taxes on imported goods. The concentration of shopping malls, hypermarkets and commercial centers in Egypt are low in comparison to the population. The City Stars mall and office spaces project has proved success and raised the appetite of local, regional and international developers to engage in similar projects.
Though the mortgage finance law was issued since 2001, the real enforcement was not effected to date. The government is trying to overcome the hurdles against the application of the mortgage finance, which once implemented will result in surge in the demand of real estate development projects. As per the Chairman of the Mortgage Finance Authority (MFA), the value of the mortgage finance reached LE2bn in 2007, compared to LE1bn in 2006 and it is expected to reach LE 5bn by the end of 2008, reflecting the government's continuous efforts to facilitate all the obstacles that hinder the full application of the mortgage finance.
Currently, there are five mortgage finance companies, which contribute together to 25% of the total mortgage finance value, leaving the remaining 75% to the banks. The five companies are the Egyptian Housing Finance CompanyEgyptian Housing Finance CompanyLoading..., Al Taamir, Al Tamweel, Amlak and Al Tayseer. In addition, a new mortgage company is under incorporation to securitize long-term receivables of the public stake of the Holding Company for Building and Construction's subsidiaries.
One main obstacle was the property registration (an obligation to provide loans), which was overcome by cutting the registration fees from 12% to 3% of the property value, with a maximum of LE2,000.
However, the property registration is still optional. The government is currently trying to increase the awareness about the benefits of being registered and it wishes to register all the country's properties over the next five years.
Apparently, the government continuous efforts to put into effect the mortgage finance coupled with the growing demand are expected to encourage housing developers to build and to manage selling the middle and low cost housing units. The mortgage finance system will facilitate the process of selling the housing units, where demand will find a mean of finance and the supply will be more confident of getting his investment back.
The Egyptian Real Estate sector's current boom is expected to move further on the back of the positive outlook on the Egyptian economy, with an expecting growth rate of 8% in 2007/08. The economic reforms implemented by the government have created more confidence and strength in the country's business environment. Nevertheless, there are some concerns that might slow down the sector development. The apparent one lies in the tremendous increase witnessed in the land prices, subsequent to the government's land auction held on May 2007.
These price increases would definitely raise the housing units' costs.
Furthermore, the increase in the building materials' prices, as well as the liberalization of the energy prices would push prices upward. According to the market developers, the housing units' prices increased significantly by more than twice since 2005. We believe that the Egyptian real estate sector will still grow, maybe at a slower pace, on the back of the demand for office and commercial facilities, as well as the growth in tourism facilities. The housing demand, though is still high, have to be met by the appropriate supply.
Source: http://www.zawya.com/ |
