CAIRO: Developers in the Egyptian real estate sector that were focused solely on the high profit margins of luxury developments are adjusting their strategies to cater for the middle-classes, a large and relatively untapped segment of the market. Meanwhile, the government is nurturing the growth of the fledgling mortgage industry. "There is more demand than supply in the lower and middle income groups," Ayman Ismail, chairman and CEO of Dar Al Mimar Group, said in June at a real estate conference. He added that high marriage rates and an average annual population growth rate of 2 percent, or 1.6 million people, both augur well for future growth. While demand for luxury housing in Egypt contracted by 50 percent as a result of the economic slowdown, according to a report by Kuwait Financial Center (Markaz), an investment bank, for middle-class housing it shrank by just 20 percent. Other studies have noted similar trends — a 2008 report by USAID noted that 95 percent of Egyptian homebuyers are looking for homes that are smaller than 125 square meters. Recognizing this shifting landscape, several developers have changed tack. IGI Real Estate has launched Kenanah, a massive 16,000-unit residential complex sprawling across 210 ha in the Cairo suburbs. Unlike most other suburban developments, Kenanah features modest 80-to-150-square-meter apartments targeted at middle-class families and young professionals making less than LE 10,000 (€1,366) per month. While IGI's project is the first of its kind in the country, several other developers, such as Talaat Moustafa Group (TMG) — Egypt's largest listed real estate company — have similar projects in the works. Al-Futtaim has resized some of the residential properties it is developing to make them more affordable to middle-class Egyptians. Going forward, smaller-sized properties will form an essential part of developers' long-term strategies, Tarek Aboualy, head of Jones Lang LaSalle Misr, a financial and professional services firm specializing in real estate, told local media in May. Overall, Egypt's residential real estate sector weathered the global economic downturn better than most, thanks to a young population and a cash economy that isolated it from troubled international credit markets. However, while the lack of a robust mortgage industry shielded the country from the international crisis, it has been a hindrance to the development of mid-range real estate market. The government recently announced plans to promote the mortgage sector, with the cabinet approving a new mortgage finance law that will establish more thorough guidelines to encouraging growth of the industry. Parliament expects to pass the bill during its next session. If all goes according to plan, mortgage lending may increase to LE 8 billion (€1.1 billion) by June of next year, according to Mostafa El Hayawan, chairman of the state-run Mortgage Finance Fund. Mortgage financing has grown in recent years, with an overall level of about LE 200 million (€27.3 million) in 2005, shortly after mortgage finance companies first began to operate in the country, rising to LE4.43 billion (€605.2 million) this year. Despite the new emphasis on mid-range housing, high-end gated communities and mixed-use developments continue to be built in the major satellite cities of the capital, New Cairo and Sixth of October City. Sixth of October Development and Investment Company (SODIC) recently submitted a bid to develop 172 ha of land in Sheikh Zayed City on the outskirts of Cairo to expand its flagship Allegria property, a 2.4 million square meter luxury development that is expected to have sales of LE 4 billion (€546 million). Meanwhile, Dubai's Al-Futtaim Group is planning Festival City, a 3 million square meter gated community, as part of its massive mixed-use development in New Cairo, and the Egyptian and Libyan governments have just announced a $100 million joint venture to develop Al-Fatih city, a 2266-ha real estate development on the capital's outskirts. Still, in light of the changing demand at the upper end of the spectrum, some real estate companies are taking an increasingly cautious approach to major new projects, proceeding in a prudent fashion to avoid overbuilding and ensure that the market remains sustainable. "A developer has to properly develop every stage. That is the key to sustainable development," Amr Sheta, vice chairman and CEO of Orascom Hotels and Developments, told OBG. "The way to maximize the effectiveness of land development in Egypt is by giving the developers land phase by phase at the same price." While the dynamics of the market may be changing, the real estate sector still plays a key role in Egypt's economy, contributing around 8.6 percent of GDP in 2009 and employing about 10 percent of the workforce. Indeed, by the first quarter of the 2009/10 financial year (which in Egypt begins in July), real estate investment had climbed to 9 percent. Luxury demand may be dropping but demographic pressures continue to help drive demand for new constructions, which in turn have knock-on effects for the rest of the economy. "Egypt needs to encourage growth in the new housing market not just because of the obvious need for more housing but also because it has massive job creation potential," said Hussein Sabbour, chairman of Al Ahly Real Estate Development. –This article was first published by Oxford Business Group on September 29, 2010.
