| James Exelby considers the exciting enigma of the burgeoning Egyptian real estate market  “The land is gold, the women bold, and the men, they do what they’re told,” wrote Amr Ibn al-’As, Egypt’s Islamic conqueror, to his boss. At the beginning of the 20th century, forecasters were predicting that within a 100 years Egypt would have the most valuable real estate in the world. They were completely wrong, of course, but something of the promise of that startling assessment has flickered to life in the past four years following 50 years of depressed prices in Egypt’s property market.
As genuine economic reforms authored by the Nazif government have begun to bite, foreign direct investment in Egypt has risen sharply. Real estate prices have been rising sharply on the back of an expanding wealthy class, foreign investment and good old-fashioned speculation. Real estate investment for foreigners can be conveniently split into three geographical areas: greater Cairo, the north coast and Red Sea/Sinai. In Cairo, the main focus on new upscale development has been Sixth of October City in the west and New Cairo in the south-east, conveniently located near Cairo International Airport and halfway between the established residential areas of Heliopolis and Maadi. Katameya Heights was the first of the New Cairo developments, and resale values have increased five-fold since 1997. Small villas now command prices of €1m. Katameya Heights was also the first community in Egypt to be built around a golf club – pretty much par for the course nowadays. Around two thirds of the properties are rented out and more than 85% of tenants are expat executives, according to the resort’s general manager, Rick Blackie. Katameya’s success has been the catalyst for other communities in the area, among them Madinaty, where prices per m2 for (built) apartments are around 3,000 EGP (roughly €400). The area is also the location for several planned mega-projects by Dubai developers Damac, Emaar and Majid Al Futtaim, both with and without local partners. Egypt’s Sixth of October Development and Investment Company (Sodic) has signed a partnership deal with Solidere, the company that rebuilt downtown Beirut, to develop two “town centre” golf communities.  Compared with New Cairo, the great push to the west along the Cairo Alexandria Desert Road has foundered somewhat. There are signs that this market is now picking up; Sodic says prime land overlooking its Sixth of October golf course that was selling for 2,000 EGP per m2 in April is now changing hands for 5,000 EGP.
Media pundits have been predicting another crash since 2005, but it hasn’t happened yet. Arab investors still see Cairo as a safer bet than Beirut. Salaries for Egyptian middle and senior management have been rising steeply in sectors such as finance, oil and gas and ICT in response to increasing private sector demand and a shortage of skilled people. That said, barely one in 20 households in greater Cairo has an income of more than €3,000 a month, according to the best estimates. The north coast and Alexandria in particular have always been popular with Egyptians as vacation destinations. New resorts being developed further west along the Mediterranean by companies such as Travco, 51% owned by German tour operator TUI, include villas and apartments for sale and are targeting foreigners (see Egypt opens up, left). Along Egypt’s other coast, options include the overdeveloped but cheaper resort of Hurghada, the nearby “model” resort of El Gouna, and Sharm el-Sheikh at the tip of the Sinai Peninsular (see The City of Peace, right). One location that has been attracting pages of international press attention is the Norman Foster-designed Serrenia, the self-styled “Billionaires’ Resort”. It’s near Hurghada, although the promotional material skips mention of its downmarket neighbour, billing itself as “The World’s Most Exclusive Waterfront Address”. So far, however, it’s artist’s impressions only. A serious concern for the Egyptian property market as a whole is the almost complete lack of statistics, reliable or otherwise. Other major problems are the absence of a mature, competitive mortgage market and an oversupply of top-end units, especially in greater Cairo. New legislation and the setting up of mortgage finance institutions are in progress, and developers are betting on a “long-frustrated demand” to fuel the middle-income sector. With its history of nationalisations, creaky justice system and what many would consider unacceptable levels of political and economic risk, Egypt is not the safest place to invest in immovable property. For those with strong nerves and a fondness for sunshine, however, it’s worth considering. Owing to its controlling German partner TUI and 27 years’ experience in Egyptian tourism, Travco is set to lead Egypt’s rush towards real estate development aimed at Europeans following the change in Egyptian laws permitting freehold ownership by non-nationals. Employing German architect Tom Klause, Travco is preparing 3,500 residential units within the Almaza Bay Resort, part of a 5.5 million m2 development that will take an estimated six years to complete. Europeans will be able to place a 25% deposit on an apartment later this year, with 24 months’ interest-free credit to pay the balance or financing options that are still being developed. Immediately attracting charter flights from Germany and Britain, the Almaza Beach Resort demonstrates the potential of the northern Mediterranean coast, parts of which remain completely unspoilt. www.travcoproperties.com Sharm el-Sheikh is President Mubarak’s showcase resort. Venue of numerous regional and international peace summits (which have led to it also being known as “The City of Peace”) and more recently host to presidential offspring and putative heir Gamal Mubarak’s wedding reception, the Sinai resort has grown from little more than a fishing village in 1982 into a city of 40,000, hosting up to 20,000 tourists a week in the peak winter season. Since 2003, an increasing number of Europeans have decided to buy property here. Initially it was Italians. After the suicide bombs in July 2005 it has been overwhelmingly Britons, and prices are now usually quoted in British pounds. Lee Ward of Pioneer Property says Russian buyers are also present in the upper and lower price categories. Although there are no reliable figures, foreign buyers may have bought around 3,000 units worth up to €180m, making Sharm elSheikh the country’s top destination for European property investment. Sharm’s attractions include year-round sunshine, spectacular diving, low prices and only four to five hours’ flight time from northern Europe. Prices for studio apartments start at around €30,000, villas at €130,000. Prices per m2 are €750–€1,000. Capital gains in the past two years have been averaging 15%–30%, according to agents. Much of the property is being sold off-plan in resort complexes, although a resale market is beginning to develop. Nader Al Sharkawy, owner of Magic Well Real Estate & Investments, advises caution, however. “Egypt is still a third-world country,” he says. “Buyers can’t expect to double and triple on resale, especially with the amount of new property coming onto the market.” The legal basis of ownership in Sharm also presents an anomaly. A Prime Minister’s Decree in 2005 stipulated that foreigners can only own property in the form of 99-year leases. This has created a good deal of confusion, and the minister of tourism, who is committed to an ambitious target of 10,000 residential tourist unit sales a year, has recently said the government is working to clarify the situation.  The second half of the twentieth century saw the Egyptian real estate sector greatly undermined by a stagnant economy and unstable political situation. This changed when the current government took power, led by Prime Minister Ahmed Nazif, in 2004. Since then private sector led growth, a liberal economy and fast-track privatisation have assembled the necessary components of a real estate boom in a short space of time, explaining why the sector is entering its fourth year of dramatic increase.
These components include vastly improved banking liquidity, a burgeoning mortgage sector encouraged by a proactive Mortgage Finance Authority, and changes to the property law allowing foreigners to possess freehold deeds. Underlying these changes, however, is enormous and long suppressed demand for new housing from a rapidly growing population. Cairo is bursting at the seams and there is an enormous push towards rapid suburban development. Noting that Egypt has a population of 78 million growing at 2.1% a year, SODIC chief executive Maher Maksoud adds: “we have gone from a thin elite crust of just 1% to an aspiring professional class of 4-5% in the past five years. This will become 20% in ten years, or fourteen million people wanting a decent quality of life outside the run down and congested down town of Cairo.” SODIC (the acronym stands for 6th October for Development and Investment Company) is addressing Egypt’s needs one segment at a time, beginning with highly rated land banks to the east and west of Cairo totalling over 5 million m2 and strategically located in two “giant re-development areas which will house populations of 2.5 million each within ten years,” notes Maksoud. They are Sheikh Zayed City situated on the main Cairo-Alexandria highway west of old Cairo, and adjacent to 6th of October City; and New Cairo to the east, very close to the brand new campus of the American University in Cairo and Cairo International Airport. Chief among the new developments planned by SODIC is Allegria, an integrated residential community in the Sheikh Zayed suburb masterplaned by EDAW - who are also the landscape designers - Michael Graves, Marck Mack, Arquitectonica and Dr. Basil Kamel – the prominent Egyptian Architect – and centered around a signature Greg Norman golf course. SODIC was able to bring together the best talents with the purpose of creating a world class resort in which home owners would have the opportunity to choose from multiple design styles and layouts.  In addition to two other major projects being developed with Solidere, the Lebanese real estate development giant, SODIC is also exploring a number of other exciting growth opportunities.
These include building up a managed portfolio of leased property to generate sustainable revenues, exploring new locations for development such as Egypt’s north coast and secondary cities such as Alexandria, plus sites in regional centres such as Libya or Algeria. Maksoud wants SODIC to have a regional presence by the end of 2008, but not before addressing the compelling needs of ordinary Egyptians. Publicly listed on the Cairo and Alexandria stock exchange, SODIC is one of very few companies in Egypt that can offer a complete package of engineering, construction, sales and marketing. This series of in-depth competences is sorely needed when considering that Cairo was designed for three million inhabitants but today accommodates over 17 million. “We are planning to create a different model of integrated communities,” says Maksoud, “by this I mean developments which will include not only the typical Egyptian model with a golf course and some villas around it, but also town centres, services, apartments, town houses and office buildings.” Asked if such high returns are sustainable, Maksoud notes that the real estate boom in Egypt is still young given the sheer scale of demand, adding however that SODIC’s impressive stock market performance has rested partly on dramatic increases in land values since the company’s current land bank was acquired. Appointed managing director of SODIC in March 2006, Maksoud immediately over saw a successful auction of SODIC’s Beverly Hills project in Sixth of October City, generating LE 46 million over a period of two days. He currently aims to double SODIC’s land bank within six months and has attracted the support and encouragement of some of the world’s leading banks. |