Egypt: Two-tiered real estate demand in Egypt

With economic increase steadily picking up, real estate developers in Egypt are looking to opportunities at opposite ends of the real estate spectrum, with a range of both affordable and luxury housing projects in the pipeline.

Affordable demands

Despite increase in supply in recent years, developers see significant untapped request in the market.

“Residential request is driven by very strong underlying demographics across all gain segments,” Magued Sherif, managing director of developer SODIC, told OBG. “The accumulated housing gap is reported to be 3m units, with an additional 300,000-500,000 units carried over each year, compared to the less than 20,000 units delivered per annum by private developers.”

According to Sherif, pent-up request is particularly significant in the middle-gain segment. Egypt’s people of around 90m, half of which are under the age of 25, is driving request for mid-tier housing, with around 800,000 marriages taking place each year.

There has as well traditionally been a large supply gap of affordable units, which a lot of stakeholders attribute to a lack of investment incentives for private developers. In addition to offering lower margins for developers, one of the biggest challenges facing the segment is a lack of affordable land in desirable locations. However, there is a growing consensus that public-private partnerships could be leveraged to deliver additional affordable housing.

With this goal in mind, a new policy is being implemented that aims to tighten regulations on land purchases, classifying developers by track record and capacity for development, and awarding land plots to companies that are able to develop them most entirely.

Prime numbers

Demand for luxury housing – both in terms of mixed-used residential developments and compounds – as well remains steady.

According to HC Securities & Investment , most listed developers are catering to the upper-middle segment of the market, with unit prices ranging from LE800,000 ($102,000) to LE2.5m ($320,000) and average customer incomes of around LE50,000 ($6400). Monthly payments for a 220-sq-metre unit average around LE19,500 ($2500), according to the statement.

At this end of the market, real estate is largely seen as a safe haven against inflation and the depreciation of the Egyptian pound, which has fallen by nearly 25% against the US dollar since 2011 and almost 7.7% year-to-date.

There are 15,000 and 3000 prime residential units currently in the pipeline in Cairo for delivery in 2016 and 2017, respectively, according to a third quarter review of the city’s real estate sector by real estate consultancy JLL. Supply is expected to rise by additional than 10% next year alone, up from 108,000 units at present, with a further 21,000 units expected approaching on-line in the last quarter of 2015.

Despite the weakening of the Egyptian pound, which has led to year-on-time(y-o-y) declines in rent and sale prices in some areas of the capital, rents and property values are up from the third quarter of 2014 in New Cairo and 6th of October City, with the exception of a 10% y-o-y drop in rents for apartments in 6th October.

Sales prices for apartments rose by 5% y-o-y in New Cairo and 7% in 6th October, while rents were up 10% in New Cairo. Sales prices for villas in New Cairo and 6th October rose by 3% and 2% y-o-y, respectively, while rents increased by 4% and 2%.

Upscale build-out

The high-end and upper-middle-gain niche has been an extra bright spot in the market, particularly with new-build and greenfield projects in the compound segment.

Real estate developer IWAN Group has a range of compound developments in Cairo, inclunding Jeera in 6th October, which opened in 2013 and has by presently delivered 80% of its units. The company’s Jedar compound, located in west Cairo, is due to hit the market in 2017 and its Atrio development in Sheikh Zayed City is set approaching on-line by 2018.

Developments of this nature have become increasingly popular in recent years given security concerns – a growing preoccupation for wealthy Egyptians and expatriates.

With economic increase steadily picking up, real estate developers in Egypt are looking to opportunities at opposite ends of the real estate spectrum, with a range of both affordable and luxury housing projects in the pipeline.

Affordable demands

Despite increase in supply in recent years, developers see significant untapped request in the market.

“Residential request is driven by very strong underlying demographics across all gain segments,” Magued Sherif, managing director of developer SODIC, told OBG. “The accumulated housing gap is reported to be 3m units, with an additional 300,000-500,000 units carried over each year, compared to the less than 20,000 units delivered per annum by private developers.”

According to Sherif, pent-up request is particularly significant in the middle-gain segment. Egypt’s people of around 90m, half of which are under the age of 25, is driving request for mid-tier housing, with around 800,000 marriages taking place each year.

There has as well traditionally been a large supply gap of affordable units, which a lot of stakeholders attribute to a lack of investment incentives for private developers. In addition to offering lower margins for developers, one of the biggest challenges facing the segment is a lack of affordable land in desirable locations. However, there is a growing consensus that public-private partnerships could be leveraged to deliver additional affordable housing.

With this goal in mind, a new policy is being implemented that aims to tighten regulations on land purchases, classifying developers by track record and capacity for development, and awarding land plots to companies that are able to develop them most entirely.

Prime numbers

Demand for luxury housing – both in terms of mixed-used residential developments and compounds – as well remains steady.

According to HC Securities & Investment , most listed developers are catering to the upper-middle segment of the market, with unit prices ranging from LE800,000 ($102,000) to LE2.5m ($320,000) and average customer incomes of around LE50,000 ($6400). Monthly payments for a 220-sq-metre unit average around LE19,500 ($2500), according to the statement.

At this end of the market, real estate is largely seen as a safe haven against inflation and the depreciation of the Egyptian pound, which has fallen by nearly 25% against the US dollar since 2011 and almost 7.7% year-to-date.

There are 15,000 and 3000 prime residential units currently in the pipeline in Cairo for delivery in 2016 and 2017, respectively, according to a third quarter review of the city’s real estate sector by real estate consultancy JLL. Supply is expected to rise by additional than 10% next year alone, up from 108,000 units at present, with a further 21,000 units expected approaching on-line in the last quarter of 2015.

Despite the weakening of the Egyptian pound, which has led to year-on-time(y-o-y) declines in rent and sale prices in some areas of the capital, rents and property values are up from the third quarter of 2014 in New Cairo and 6th of October City, with the exception of a 10% y-o-y drop in rents for apartments in 6th October.

Sales prices for apartments rose by 5% y-o-y in New Cairo and 7% in 6th October, while rents were up 10% in New Cairo. Sales prices for villas in New Cairo and 6th October rose by 3% and 2% y-o-y, respectively, while rents increased by 4% and 2%.

Upscale build-out

The high-end and upper-middle-gain niche has been an extra bright spot in the market, particularly with new-build and greenfield projects in the compound segment.

Real estate developer IWAN Group has a range of compound developments in Cairo, inclunding Jeera in 6th October, which opened in 2013 and has by presently delivered 80% of its units. The company’s Jedar compound, located in west Cairo, is due to hit the market in 2017 and its Atrio development in Sheikh Zayed City is set approaching on-line by 2018.

Developments of this nature have become increasingly popular in recent years given security concerns – a growing preoccupation for wealthy Egyptians and expatriates.