Last year witnessed numerous events and decisions related to Egypt’s real estate market, as well as a number of challenges that some companies faced in the market, and despite that, the Egyptian real estate market was the most prominent sector that contributed to GDP.
However, the most noticeable challenges that are still facing developers during 2020, is the failure to complete the inauguration of Federation of Real Estate Developers Law, especially that it will contribute significantly to the organisation of the real estate market to preserve the rights of the state and its clients, as well as real estate developers.
Moreover, the most prominent issues the market faced last year was liquidity and low purchasing power. Real estate stakeholders expect that it will be one of the challenges that will face the market in the new year due to high prices of services with fixed wages.
In this report, Daily News Egypt will present the key events that took place in real estate market over last year, which delineate the features of the market in the new year.
One of the most important events in the real estate market was the issuance of the Central Bank of Egypt’s (CBE) instructions to banks on the mortgage finance initiative for middle-income, which allocated about EGP 50bn.
The CBE stated that mortgage refinancing companies are allowed to participate in the initiative by refinancing the portfolios of mortgage companies that the initiative terms apply to.
The CBE indicated that, to enjoy the initiative, the family’s maximum monthly income must not exceed EGP 50,000, and for an individual his/her monthly income does not exceed EGP 40,000, and that the maximum that the customer gets for mortgage financing within this initiative is EGP 2.25m, and that the customer gets on financing for only one unit.
It pointed out that the customer must be Egyptian and that the financing is directed to a fixed and permanent residence which is ready for delivery and housing. He also said that the down payment the customer pays should be no less than 20%, apartments should be fully finished, and the apartment dimensions should not exceed 150 square-meters (sqm).
CBE revitalises real estate market with EGP 50bn
The CBE allowed banks to grant the real estate sector credit facilities in the form of factoring commercial papers amounting to about EGP 50bn to encourage the sector in April 2019.
Grant citizenship to foreigners in exchange for buying property
In early December 2019, Egypt’s Prime Minister Mostafa Madbouly’s cabinet approved a draft decision related to Parliament’s Law 190 which would grant foreigners citizenship, in special cases where they meet certain investment conditions.
There are four main conditions for this eligibility: buying state-owned property for a minimum of $500,000. the second condition is to join an investment project worth $400,000 at least and with a partnership rate of not less than 40% of the project’s capital.
The third condition is depositing an amount of $750,000 from abroad, to be paid back in EGP after the deposit in five years according to the CBE’s rate, and without interest. Lastly, the fourth condition, which would facilitate the acquisition of getting the Egyptian nationality, would be upon depositing $ 250,000 as foreign funds to the state’s budget.
The CBE’s Monetary Policy Committee (MPC) cut the overnight deposit and lending rates, as well as the rate of main operation by 1% on 26 September. It was the third interest rate cut this year, bringing deposit and lending rates to 13.25% and 14.25%, respectively. Previously, the interest rates hiked by 7% after the liberalisation of the Egyptian pound in November 2016.
Real estate sectors are expected to benefit from some of the money that may come out of banks as interest rates are cut, in search for greater return through other saving vessels.
Real Estate developers and stakeholders believe that this move may provide an opportunity to revitalise the real estate sector, which witnessed a slowdown in sales during the year due to price hikes, oversupply, and decrease in demand.
They expect a revival in real estate sales driven by the interest rate cut, which is expected to continue slashing in the coming period due to decreased rates of inflation.
They see that customers began to trust property investiments which goes hand in hand with recent monetary policies encouraging them to identify investment opportunities in real estate and commercial projects.
Federation of real estate developers
Likewise, one of the events that received a large portion of discussions during the past year is the draft law of federation of real estate developers.
The government, represented by the Ministry of Housing, and developers met several times this past year to agree on the law that states the formation of a federation of real estate developers in order to be an entity responsible for regulating the real estate market, and categorising developers according to their financial and technical abilities in order to provide land for each developer according to his/her financial and technical feasibility.
Formation of Real Estate Export Council
In early 2019, the Minister of Trade and Industry Amr Nassar decided to activate the Real Estate Export Council, chaired by Rooya Group’s CEO Hisham Shoukri, along with some council board members, including Mena Group Founder Fathallah Fawzy, Tatweer Misr Managing Director and Board Member Ahmed Shalaby, City Edge Developments’ CEO Amr El Kady, and CEO of IWAN Developments Waleed Mokhtar.
Low prices for building materials
Steel prices witnessed a noticeable decline in the market last period. The average price of a tonne of steel in September was about EGP 11,500, while the average price in October was EGP10,000. However, by the end of 2019, prices per tonne decreased by a value ranging between EGP 100 and EGP 200 per tonne.
Cement prices have also witnessed a marked difference in the market, in light of the fluctuating demand movement, which is due to several reasons, among them the quietness of the building and construction movement. The prices of cement ranged recently, between EGP 700 to EGP 750 per tonen, while the price of white cement ranges from EGP 2,400 to EGP 2,450, and the mixed cement recorded EGP 720 per tonne.
Developers’ eyes are heading towards Upper Egypt
Developers in Upper Egypt was also among the most prominent surprises of 2019, as four companies announced their development plans in Upper Egypt in Nasser City, west of Assiut, which opens the door for other companies during the new year to move investments to Upper Egyptian cities similar.
Several real estate developers pointed out the prospects that Upper Egypt full of real investments that developers and customers will benefit from.
Talaat Moustafa Group obtained a 200-feddan plot of land in West Assiut to develop a mixed-use project, which was preceded by Madinet Nasr for Housing and Development (MNHD), Porto Group, Saudi Egyptian Construction Company (SECON), and ARDIC for Real Estate Development and Investments, as well as, Wadi Degla Sporting Club.
Minister of Housing, Utilities and Urban Communities Assem El Gazzar said that the Ministry of Housing, represented by the New Urban Communities Authority (NUCA), is currently implementing 9 new cities in Upper Egypt, within the fourth generation cities.
El Gazzar explained that the establishment of the new cities aims to accommodate about 4.5 million people, estimated at 900,000 families, in addition to providing 1.4m jobs, as about 10% of those areas are devoted to industries and craft industries, in addition to providing tourism projects on the Nile on 1,050 feddan.
The minister pointed out that the total investment projects in the areas of housing, water, and sanitation in these nine cities are worth EGP 11bn so far.
There are some crises faced the market namely, what was raised around the Administrative Capital for Urban Development (ACUD) company that it would withdraw lands from 17 developers who delayed in their project start.
Several real estate developers denied reports that the ACUD has notified them of withdrawing their allocated lands in the New Administrative Capital (NAC).
Developers are stressing that their companies got ministerial approval for developing their projects and are completing required building licences to begin construction works, while some of them are waiting for the ministerial approval to start implementation.
The ACUD also denied land withdrawal. In this context, it should be noted that in no case may the land be withdrawn from any of the developers contracting with the ACUD on various activities without obtaining a final judicial ruling.
The dispute between Emaar Misr Developments and El Nasr Housing and Development company escalated until the Prime Minister announced on 3 October 2019 the signing of a friendly settlement agreement between El Nasr Housing and Development company affiliated to the Ministry of Public Business Sector and Emaar Misr company, ending the dispute over the Uptown Cairo project in the Mokattam plateau.
The dispute arose between Emaar and El Nasr Housing, due to the failure of Emaar to complete the Uptown Cairo project, within the specified time of six years, according to the contract signed between them in 2005, in addition to 216,000 sqm included by Emaar for the project. El Nasr company requested compensation for it, which prompted El Nasr to resort to international arbitration.
However, the two parties entered into an amicable negotiation to reach a settlement of the dispute, as former Minister of Public Business Sector Khaled Badawy announced in May 2018 that he had reached a settlement agreement with Emaar, upon which El Nasr Housing company will withdraw the international arbitration case against Emaar.
Government’s partnership with private sector
The government announced the signing of a partnership with 3 real estate development companies and Ministry of Housing represented in New Urban Communities Authority (NUCA), the first between Al Ahly Sabbour Development for an integrated urban project on an area of 144 feddan in October City. The second agreement also includes the signing of a partnership contract between the NUCA and Arkan Group Real Estate Investment for an integrated urban project on an area of 205 feddan in Sheikh Zayed City, west Cairo. The third agreement also includes the signing of a partnership contract with SODIC for an integrated urban project on an area of 500 feddan in Sheikh Zayed.
Moreover, in late November the NUCA and Emaar Misr Developments on Wednesday signed an agreement to establish two integrated urban projects in Sheikh Zayed Extension City. The NUCA and Emaar Misr have reached a final agreement stipulating that the company will purchase 52.4-feddan in-kind share in Sheikh Zayed City from the NUCA, in addition to the areas ceded by the company to create external roads, bringing the total land area to about 120.9 feddan.
The authority is committed to delivering utilities and services to the land, as well as changing its activity in order to enable the company to establish a full-service Cairo Gate project, located on the Alexandria-Egypt road with investments amounting to EGP 11.5bn, providing more than 15,000 direct and indirect job opportunities. The NUCA handed over a 500-feddan plot of land to Emaar in Sheikh Zayed Extension City for another full-service residential project with investments worth approximately EGP 37.8bn and will create more than 70,000 direct and indirect jobs.
Initiating market-oriented mechanism for land allocation
The Ministry of Housing, Utilities, and Urban Communities has expanded the offering of land under a new mechanism, which depends on the direct-order allocation.
Real estate market stakeholders said this mechanism will play an important role in reviving the market as well as encouraging local and FDIs in the real estate sector.
The market-oriented mechanism for land allocation is usually conducted at predetermined prices by special committees based on the fair market value of land plots.
In July, the NUCA board of directors, chaired by the Minister of Housing, Utilities, and Urban Communities, Assem El-Gazzar, approved the initiation of a mechanism to deal with investors’ applications for acquiring plots of land in various new cities. This is in accordance with the powers of the NUCA board of directors, established by Law 59 of 1979, in order to ease the land allocation and boost investments in new cities.
Government-private sector partnership in providing social housing units
In June, the Minister of Housing, Utilities, and Urban Communities held a meeting with a group of real estate developers, in the presence of the leaders of the Social Housing Fund, and Ministry officials, to discuss mechanisms of developers participation in implementing social housing projects, which contribute to expanding the base of participation, and maximising positive role of developers, to meet the needs of citizens in the housing sector.
Over and above, the World Bank met with the Ministry of Housing and representatives of the sector to revive the initiative in the development of middle-income housing projects, where the Real Estate Investment Division at the Federation of the Egyptian Chambers of Commerce presented an initiative that was not completed for reasons related to the conditions set by the Ministry of Housing at the time and not appropriate for companies.