Egypt’s construction pipeline is stocked with a wide variety of projects, from highway expansion to hospitals and schools. However, a primary source of future contracts is likely to be the housing segment, as the government has committed to alleviating the country’s chronic and long-standing housing deficit. Furthermore, despite recent economic uncertainty, the residential real estate industry shows no signs of slowing down in Cairo and beyond. As such, construction firms can expect plenty of opportunities in the homebuilding segment in the foreseeable future.
Supply Stress
The country has long struggled with formal housing supply and has a deficit of up to 3m units. Given strong population growth, this is likely to continue increasing. Egypt is the most-populous country in the Middle East and the third-most populous in Africa, with annual growth of 2.45%. Meanwhile, the number of urban inhabitants is growing by 1.8% each year and will soon account for more than 50% of the population. Given this demographic pressure, it is perhaps unsurprising that the country needs as many as 500,000 new residential units each year to keep up with existing demand.
The housing stock is under stress in some areas, and that is anticipated to support construction activity. An estimated 3.2% of domestic inhabitants live in non-durable housing, which is prone to collapse and failure. For more than a decade, policy attempts to address this have fallen short. As of early 2018 the annual supply of apartments for low-income Egyptians does not exceed 30,000 units. However, the administration under President Abdel Fattah El Sisi has made housing and formal development a key priority. Cairo has created a number of initiatives to address the challenge, including funding to support home financing, and a number of tenders for new housing and urban developments.
While developers and construction firms could be forgiven for scepticism about this push, given previous failures, there is a marked difference in the most recent attempts. In the 30 months leading up to October 2016, the government invested LE43bn ($2.83bn) in the housing sector, according to Mostafa Madbouly, the minister of housing, utilities and urban development. Comparatively, in the 20 years to 2016, public investment in housing did not exceed a total of LE30bn ($1.98bn). Moreover, President El Sisi’s administration’s commitment to housing shows little sign of slowing down. In FY 2016/17 budgetary expenditure on housing increased by 276%.
New Projects
As such, the government has brought various projects to market, including revived efforts to develop 1m new residential units for lower-income Egyptians. The project, first announced in 2014, has gone through several iterations and the loss of its first lead developer, Arabtec of the UAE. By the fourth quarter of 2016, only one-quarter of the 1m units had been delivered. However, the Ministry of Housing, Utilities and Urban Development (MHUUD) has expressed intent to bring an additional 400,000 units to market in 2017, bringing the total to 650,000 new affordable units.
Cairo is also working on a number of other projects that should bring contracts to market for construction firms. For example, the Dar Misr project for middle-income Egyptians will add 150,000 residential units across eight cities. This project was also launched in 2014 and accounts for 26,000 homes under construction across the country. The New Administrative Capital project, which, after being on and off for some time now appears to be moving ahead, will add an estimated 240,000 units.
It is not only direct government projects that will provide opportunities for the construction industry. Government policies around mortgage development and land availability will also provide a boost to residential development (see Real Estate chapter). In terms of the latter, the New Urban Communities Authority (NUCA) – a development body attached to the MHUUD charged with overseeing the development of new cities in the country – has been releasing land to the market for development. In 2016 NUCA offered more than 80,000 plots of land.
Given that land availability and pricing has been a consistent impediment to residential development for many years, this should also stimulate building and support the construction industry. Indeed, given the depth and range of government-backed housing initiatives, there should be ample opportunities in this segment for construction firms.
Mixed-Use Plans
In early 2018 a new development company, City Edge Real Estate Development, was formed to build residential and multi-use structures. The venture is capitalised at LE1.6bn ($105m) and is 60% owned by NUCA, 38% owned by the Housing and Development Bank, and 2% owned by the Holding Company for Development and Investment. Two projects are already in planning: a LE2bn ($132m), 493-unit residential compound at Etapa and a LE3.5bn ($231m) mixed-use development in 6th of October City. City Edge focuses on premium offerings and the use of new technologies and designs.
The higher end of the market is significant, as Egypt builds its housing stock. Yasseen Mansour, chairperson of Palm Hills Development, estimates that demand for upper-middle to upper-end properties is 90,000 units per year. He notes that the country has 1m marriages annually and estimates that 2.5m people are coming into the market per year. In addition to demographics, economic forces are fuelling the growth of the private housing market. Capital controls and high inflation – running at 17.1% in early 2018 – are leading some to use property as a store of wealth. “Thanks to the improved situation in the country, demand for housing and general construction projects has resumed and will remain strong – in line with population growth – for the foreseeable future,” Yasser Assem, chairperson and CEO of Pavillion Architects, told OBG.
Mismatched Market
Private investor enthusiasm has led to a glut of empty properties in a country with a housing shortage. According to a Reuters article published in early 2018, Egypt has millions of units under construction or vacant, with the Central Agency for Public Mobilisation and Statistics estimating this at 12.8m. The vacancy rate is approximately 27.5%, with some places above 90%. Discounts are already offered in the secondary market, along with easy payment terms (see Real Estate analysis).
These complex market dynamics are driving a search for innovative solutions outside of traditional paradigms and conventional methods. For example, Hand Over is an organisation working to promote the building of rammed-earth structures made of local materials. The goal is to meet demand in an ecologically friendly, low-cost and highly efficient way.
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