CAIRO — Despite political and economic headwinds, Egypt's real estate sector remains strong, according to latest Cityscape report, with last year's announcement of the Cairo Capital City mega project and the completion of the new Suez Canal expansion. Ian Albert, regional director at Colliers International MENA, who put out the report, said: "sentiment in the Egyptian real estate market has remained cautiously optimistic and we are starting to see an improvement in the performance across all asset classes." Country head for JLL Egypt Ayman Sami agreed, and said: "The current sentiment is not as positive as it was before, however, when it comes to real estate it is still holding good value and is still considered as a hedge against any economic instabilities." JLL Egypt have observed mixed real estate sector performance, with some sectors being positively impacted and others less so. Albert said the key to Egypt's real estate potential and reason for positive outlook lay in the fundamentals the country offers. "The underlying demographics driving [the real estate] industry are substantial and there is untapped potential in almost all market segments," he said. Egypt's residential sector, driven by strong demand from a young and continuously growing population, has traditionally been the most promising sector in Egypt and offers significant room for development and investment. But while residential is still the strongest performer with strong local demand, there is a persistent issue regarding affordability. According to Albert, the affordable or mid-market segment in Cairo is a key area to consider, owing to the current gap in the market. "While the low end of the market is addressed by the government in terms of social housing facilities, and key developers launch projects targeting high-income residents, the market gap for affordable housing targeting the majority of middle income residents (77% of the population) remains unmet," he said. For Sami, the main issue with affordability is land prices. "Land prices have witnessed a huge increase, leading to developers shying away from purchasing land to develop in areas that are closer to the city. We are currently seeing new developments to the east starting as far as 40 kilometers east of Cairo," Sami said. According to Colliers, overall market performance across Cairo's residential sales and rental markets have improved significantly since 2013. Sales prices across apartments and villas increased by 27 percent and 64 percent respectively during the period. Average rental rates, on the other hand, increased by 21 percent for apartments, while villas witness a marginal drop of 4 percent during the same period. "Based on current trends, we estimate that the residential market requires an additional 500,000 units by 2020. This constitutes to approximately 90,000 – 100,000 units every year. Based on historic trends however, average new supply released into the market annually is approximately 45,000 units, meeting only 50% of the required housing units," Albert said. Foreign investment remains crucial to the growth of Egypt's economy; before the 2011 political crisis, Egypt was a very attractive Middle Eastern destination for FDI, but decreased as a result of the global economic crisis and later revolution in 2011. "The recent move by the central bank devaluing the currency will help position Egypt as a value driven proposition for foreign investors as well as enhancing the central bank's credibility," Albert said. Furthermore, the government has recently re-shuffled ten ministers "with the objective of improving the investment environment, and reviving tourism," Sami said. "Foreign investment is an important source for foreign funds and the reduction of processes which [the government is] working on is an improvement. This coupled with the devaluation of the Egyptian Pound makes Egypt a more attractive place to invest now." Sami also said that currency risk is a challenge that needs to be managed well, as this has a strong impact on importers such as international retailers and manufacturers that rely on imported goods and components. "The devaluation could lead to higher inflation too," he said. In terms of real estate specifically, Albert said there is a risk of developing products that have limited or no demand in the market. "This can be related to the price positioning, as well as the product offering itself. The best way to overcome this risk is to clearly understand what the market needs while also keeping in mind the volume and positioning of forthcoming products," Albert said.
