Plans for Egypt’s Real Estate Sector
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