Plans for Egypt’s Real Es­tate Sec­tor

Business monthly (Egypt) - - BOARDROOM BRIBES -

REAL

We are very bullish when it comes the real es­tate sec­tor in Egypt and are putting it on the top of our pri­or­ity list in the in­vest­ment guide­line that we are pub­lish­ing,” said In­vest­ment Min­is­ter Ashraf Sal­man dur­ing a day-long AmCham con­fer- ence on “The Real Es­tate Sec­tor In­dus­try in Egypt: Chal­lenges and Op­por­tu­ni­ties,” held Dec. 6 at the Four Sea­sons Ho­tel at Nile Plaza. Also speak­ing were Sherif Samy, chair­man of the Egyp­tian Fi­nan­cial Su­per­vi­sory Author­ity, and Hous­ing Min­is­ter Mostafa Mad­bouli, who each high- lighted how they are pro­mot­ing a bet­ter in­vest­ment en­v­i­ron- ment for real es­tate de­vel­op­ers.

For Sal­man, real es­tate de­vel­op­ment is of par­tic­u­lar inter- est, be­cause it is linked to at least 90 other feeder in­dus­tries. “Real es­tate de­vel­op­ment plays a vi­tal role in ac­ti­vat­ing eco- nomic growth for the en­tire coun­try,” he said.

In­deed, Egypt’s di­verse econ­omy, strate­gic ge­o­graphic lo­ca­tion and grow­ing pop­u­la­tion mean the lo­cal real es­tate mar­ket has great growth po­ten­tial, making it at­trac­tive to res- iden­tial and non-res­i­den­tial real es­tate de­vel­op­ers.

The sec­tor is worth LE 100 bil­lion, ac­cord­ing to Sal­man, and rep­re­sents 4.8 per­cent of Egypt’s GDP. It grew by 11.6 per­cent in fis­cal 2014/2015 com­pared to the pre­vi­ous year, and in 2015 ac­counted for 13.8 per­cent of to­tal in­vest­ments com­ing to Egypt. It is also la­bor in­ten­sive, em­ploy­ing 11.5 per­cent of the work­force making it the sec­ond big­gest em­ployer af­ter man­u­fac­tur­ing.

De­spite the promis­ing fig­ures, the sec­tor is laden with prob­lems. The first is land avail­abil­ity, which has di­rectly lim­ited in­vest­ments. The sec­ond is red tape when ac­quir­ing li­censes and other doc­u­men­ta­tion. This third is lim­ited mort­gage fi­nance ac­tiv­ity. “If we can solve th­ese prob­lems, it’s not hard to see growth of around 15 per­cent,” Sal­man said, not­ing that the 2015 in­vest­ment law at­tempts to re­solve the first two is­sues.

From the gov­ern­ment’s per­spec­tive, the prob­lem has been that de­vel­op­ers are rais­ing land prices to in­crease their prof­its. The new law changed the al­lo­ca­tion pro­ce­dure from an open ten­der sys­tem where de­vel­op­ers bid for the land price and the project it­self, which Sal­man said caused land prices to sky- rocket, to a sys­tem where the gov­ern­ment sets the price. ”We have to have lim­its,” said Sal­man. Hous­ing Min­is­ter Mad­bouli added, “We will be making th­ese prices known to the pub­lic and will not ac­cept bids where we see the de­velop- er un­able to meet th­ese lim­its.”

The new in­vest­ment law also puts the Gen­eral Author­ity of In­vest­ment and Free Zones in charge of land al­lo­ca­tion. “GAFI is work­ing with the New Ur­ban Com­mu­ni­ties Author­ity in terms of cre­at­ing a na­tional data­base of land plots as well as pric­ing them,” said Sal­man. “The first tranche of the land bank will be avail­able in Jan­uary.”

Samy of the EFSA ad­dressed the prob­lem of lim­ited mort- gage fi­nanc­ing in Egypt and talked about changes in the mort- gage law meant to ex­pand the op­tions. Among them, the new law al­lows rent­ing with the op­tion to buy as well as the Is­lamic version of that same model, called mosharka. The author­ity can legally in­tro­duce new mort­gage-re­lated tools in the fu­ture. “Hav­ing sev­eral tools will at­tract new types of in­vestors and buy­ers who would have looked away in the past,” said Samy. The new law also creates a fund to sub­si­dize rents or mort­gages for low-in­come cit­i­zens. Uni­fied real es­tate ap­praisal stan­dards have been is­sued, which help in price in­di­vid­ual units and land plots for fu­ture projects.

The EFSA wants to pro­tect buy­ers who pay a down pay- ment based on a mockup of the project. “In the past, the buyer was forced to wait un­til the de­vel­oper fin­ished build­ing and hope that the unit is sim­i­lar to what they saw on the map,” said Samy. “The new law will hold the de­vel­oper legally ac­count- able in such sit­u­a­tions.” The EFSA has also cre­ated a buyer guar­an­tee fund to pro­tect buy­ers who paid into projects that were not com­pleted be­cause of bank­ruptcy or other is­sues. In the works within EFSA are laws that al­low pri­vate pen­sion funds to in­vest in real es­tate de­vel­op­ment funds, which can then be used to de­velop plots owned by state-owned en­ter- prises on a profit-shar­ing ba­sis.

The gov­ern­ment-led real es­tate de­vel­op­ment projects are am­bi­tious. Ac­cord­ing to Mad­bouli, his min­istry is build­ing four cities from scratch, uti­liz­ing the lat­est tech­nolo­gies to make them smart and sus­tain­able cities. The first is the new ad­min­is­tra­tive cap­i­tal be­tween Cairo, Suez and Ain Sokhna, which ac­cord­ing to Mad­bouli, will be of­fi­cially launched in

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