Two-tiered real estate demand in Egypt

Affordable demands

Despite growth in supply in recent years, developers see significant untapped demand in the market.

“Residential demand is driven by very strong underlying demographics across all income 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 demand is particularly significant in the middle-income segment. Egypt’s population of around 90m, half of which are under the age of 25, is driving demand for mid-tier housing, with around 800,000 marriages taking place each year.

There has also traditionally been a large supply gap of affordable units, which many 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 more 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 effectively.
Prime numbers

Demand for luxury housing – both in terms of mixed-used residential developments and compounds – also 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 report.

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 more than 10% next year alone, up from 108,000 units at present, with a further 21,000 units expected to come on-line in the last quarter of 2015.