The market of real estate in Egypt in the last quarter of 2019
The real estate sector is rapidly growing in Egypt.
Even after the devaluation of the Egyptian pound and the instability in Egypt’s economy, real estate has been able to get back on track.
- What is happening with real estate in Egypt?
- Is Real Estate in Egypt going through a Bubble?
- The sales price of real estate in Egypt
- Renting in the market of real estate in Egypt
- Governmental Development Projects
- Should you invest in real estate in Egypt
What is happening with real estate in Egypt?
If you pay attention while driving on Cairo’s roads or watching TV ads, you’ll notice the amount of ads for real estate property.
Which only proves that the real estate sector cannot be affected by any statuesque.
Real estate –like any other business- is all about supply and demand.
However, with the Egyptian economy and the upper-middle class being now the middle class, and the middle class being now the lower middle class, it seems that the supply in Egypt has far exceeded the demand.
Although people are still looking to invest in real estate, the insanely high prices seem to make it less possible.
The question has always been:
What to do with my savings? Should you invest in gold? Or should you invest in foreign currency? But now, more people are driven to investing in real estate.
Whether you are looking for a lifetime investment, a house to get married in, a working space for your business, or looking to rent it out for passive income, the market has what you need and with a payment plan that makes it easier.
Is Real Estate in Egypt going through a Bubble?
Everyone must have heard whispers that the real estate sector is going through a bubble. However, no one knows for sure if it is confirmed or denied that there is a real estate bubble.
A real estate bubble basically occurs when the prices of units insanely increase driven by what the developers believe is an increase in demand.
It is referred to as a bubble because it is bound to burst at some point.
According to Engineer Hisham Shokry, Chairman of Rooya Holding for Real Estate Investment; “Supply exceeding demand is one of the features of a real estate bubble.
However, the population growth rate is 2.5 million per year, leading to about one million marriages annually, of which 500 thousand need housing units.”
The huge gap in the market
The problem here is that developers do not care as much about the citizens or clients as much as they care about their income.
The private sector builds around 60 thousand units a year targeting the richest 10 percent of Egypt.
There is total neglect for approximately 90 percent of the Egyptian land, as around only 10 percent of Egypt is inhabited.
Most new projects are still being built in Cairo or Giza.
The need for new housing projects in Upper Egypt -for example- is essential.
The sales price of real estate in Egypt
When it comes to pricing for the Egyptian real estate market developers believe the prices are fair, if not less than should be, since buyers have the luxury of paying in installments that could last for even 10 years’ time.
The flexible payment method, used by developers nowadays and that has proved itself to be successful, allows buyers to pay in installments till 10 years’ time and even sometimes with no down payment.
In comparison to before the devaluation of the Egyptian pound, where buyers -still having had the luxury of paying in installments- could pay in installments till 3 to 5 years’ time and with a 20 to 30% down payment.
Meanwhile, citizens who thought the prices were high before, still think the prices are high if not insane now especially after the devaluation of the Egyptian pound.
A client who wished to buy a villa before is now considering a townhouse and a client who was looking for a flat before is now considering an apartment.
Supply vs. Demand
Egypt today ranks 14 in the most populated countries in the world. Being the most populated country in the Arab countries and the Middle East, Egypt has approximately over one hundred million 100.000.000 population.
As a result, there is a vast demand for housing in Egypt. However, the demand here is affordable demand.
The private sector houses around 10% of the richest classes in Egypt.
This results in an urgent, real demand for housing for even the upper-middle class included with the middle, lower-middle, and lower classes of Egypt that are being neglected or overloaded with debts.
The Egyptian population increases by approximately two and a half million 2.500.000 annually.
Not to mention that there are around one million 1.000.000 marriages taking place in Egypt every year.
A lot of newly wed couples, now after the rise of the Egyptian real estate market prices, even resort to renting apartments, which is not like the Egyptian tradition where every groom has to buy his bride a new house to marry in.
However, according to Global property guide -Jun 2019-: “The nationwide real estate price index fell by 11.7% during the year to Q1 2019, in contrast with the y-o-y growth of 18.2% seen in the same period last year, according to Egypt’s leading real estate portal Aqarmap.
When adjusted for inflation, the decline almost doubled to 22.6%. Egypt’s high inflation rate is the reason for the huge gap between the nominal and the real price changes.”
Renting in the market of real estate in Egypt
However, and despite all, the residential sector in the Egyptian real estate market is showing an increase in sales every day.
A lot of young people nowadays resort to studio apartments and one-bedroom spaces.
However, young people who want to live independently usually go for renting and not buying the property.
That is because of the insanely high prices, especially for youngsters who are still taking their first steps.
Moreover, the demand for one-bedroom and two-bedroom spaces is increasing because of the new office spaces.
New office spaces are basic apartments that are turned into a workspace.
A lot of Millenials now choose to start their own business instead of joining a 5 to 9 job.
They rent an office space, put a few desks in, and just like that they are ready for business.
The emerging of start-ups and small businesses raised the demand for -residential- property.
On the same hand, because of the high prices in the market of real estate in Egypt, even some of the newly married couples are forced to ditch tradition.
They instead rent furnished or unfurnished apartments for a minimum of a yearly contract.
The old law of renting vs. the new law of renting
The old law of renting in the market of real estate in Egypt used to be that of which you can rent an apartment for life and your children will inherit it by default.
You or your children were to pay the same amount agreed on in the contract even after a decade.
However, landlords were losing money and their property was losing value.
In March 1996 the Egyptian government stopped that law.
The only exception was if a contract was already signed, then the law is still efficient.
The new law of renting in the market of real estate in Egypt states that landlords determine the rent for the property with its real value.
Tenants rent the property with its real value for a certain amount of money to a certain amount of time as per contract.
The new law guarantees both sides’ rights.
The downside of renting
Tenants who resorted to renting instead of owning their own property wanted to solve the housing problem.
However, the problem here is that landlords implement a 10% increment on rent yearly.
Even though; the original Egyptian law states that not more than 10% increment yearly should be implemented.
It does not state, however, that an increase has to be implemented.
Because of landlords, tenants have to keep paying more or more every year.
Or, tenants end up having to keep moving places every 12 months.
Being so unsettled makes people feel unsafe and insecure in their houses.
Tenants, especially families or newly married couples to be specific, lack the feeling of home and security, which results in marriage breakups in some cases.
Governmental Development Projects
In 2018 president Abdul Fatah Al Sisi and the government started giving more and more attention to slum development and social housing. Many projects have been developed lately like “Development of slums”
The government has been developing around 130 slum areas since 2016, they also plan on developing 1100 other slum areas by the year 2020.
For example, it has been promised that by the end of 2019 Port Said, as a start, will be slum-free as there is around 80000 unites being built as a part of the governmental project ‘Development of Slums’.
Moreover, when 80 percent of the slum areas in Egypt were demolished as a part of the Development of Slums projects, the social housing project was also being focused on.
The government is building residential house units that are said as promised to be fully furnished flats.
The project is supposed to be done and all families that were affected by the demolition of slums are promised to be housed by the end of this year 2019.
According to Khaled Siddiq, executive director of the Development Fund for Slums; there are around 351 unsafe areas in Egypt.
The government thus has invested more than 5 billion Egyptian pounds working on developing as well more than 120 of what they call unsafe areas to serve 300.000 citizens as part of the 2017 /2018 plan.
Should you invest in real estate in Egypt
As questions were raised about the future of the market of real estate in Egypt market especially with the current economic situation, statuesque, and the devaluation of the Egyptian pound.
The real estate market in Egypt continues, however, to rise and people are putting their trust and investments in the market.
Most people are buying property let it be villas, apartments, or even one-bedroom spaces now for their children, which is still considered as an investment.
Investing in property for the purpose of use by the upcoming generation actually makes up a high percentage of investments in the Egyptian market of real estate.
Another type of investment is solely for passive income, where people buy property, furnish it, and have it ready for rental purposes.
Moreover, there is another type of investment in which people buy property to sell it in the secondary market.
Property is usually paid for in cash or short installments, once the loan is paid off and only then they can sell the property.
Foreign investment in Egypt
According to Egyptian law no. 230 of 1996, foreigners can buy property in Egypt. However, foreigners cannot buy more than two properties in Egypt and with the purpose of family residence.
The Egyptian real estate market, especially in Cairo is an attraction to foreigners.
8 years after the Egyptian revolution and Arab Spring, expats are coming back to Egypt and foreign investments are on the rise when compared to major world cities, including but not limited to Istanbul, Turkey.
The Chinese developers said to be investing with 15 to 20 billion dollars in new projects in Egypt.
There have been other investments by Arab investors in not only residential units but also exceeded to hospitality and other projects such as malls, airport halls, and even the Suez Canal.
According to Ayman Sami, The JLL country head Egypt as mentioned in Daily News Egypt;
“the market is expected to attract foreign direct investment in order to restore the international position of Cairo as a competitive and a leading real estate investment destination.”
“Looking ahead in 2019, there is a clear direction toward a decrease in down-payments, flexible installment plans, and an abundance of offerings in the major cities and coastal locations.
In addition, Cairo is rated as one of the most competitive and stable cities in the world when compared to Paris, London, New York, Madrid, and Istanbul.
This is due to competitive prices, affordable living costs, and a stable political environment.” Sami also declared.
The market in Egypt has seen many ups and downs, but it has proven to outlive any circumstances.
Now, because the prices of land, construction, and overall project requirements are high, the costs of property are going to still be high. Meanwhile, wages, goods, and costs of living are not on the same line.
One more thing to be considered is; the market typically goes through a cycle of recovery, expansion, hyper supply, and recession. This means it is not easy to predict where the market of real estate in Egypt is going or when is the right time to invest in it.