The Egyptian army has contracted Arabtec, Dubai's largest listed construction firm, to build one million affordable housing units nationwide in a LE280 billion ($40.23 billion) deal. The deal covers 160 million square metres across 13 sites nationwide, including Cairo, Alexandria, Menoufia, Fayoum and some of the Upper Egyptian governorates. The company said it expected that work on the project would start in the third quarter of this year and be completed before 2020. The project, said to be the largest of its kind in the region, is expected to create one million job opportunities, according to Taher Abdallah, head of the army's engineering agency which is responsible for development projects. Abdallah represented the Egyptian side in the signing of the memorandum of understanding with Arabtec officials. The project should also help push the ailing economy, which has been struggling to attract investments and tourism to support deteriorating foreign exchange reserves since the toppling of former president Hosni Mubarak in 2011. While the exact terms of the project have not been revealed, in phone calls with talk shows on Sunday Abdallah said that the units would range from 70 to 90 square metres and would have low advance payments of LE10,000. Hassan Ismaik, Arabtec's chief executive, told Reuters after signing the deal that there would be an agreement with around 40 banks in Egypt to provide financial facilities for limited-income individuals. The deal comes hand-in-hand with an initiative launched earlier this month by the Central Bank of Egypt (CBE) that will see it providing banks with LE20 billion in two tranches to finance low-income housing at an interest rate of six to seven per cent. The value of outstanding mortgages in Egypt is currently equivalent to less than one per cent of GDP, compared to the between 30 and 90 per cent in most OECD countries. The high interest rate on mortgages, ranging from 12 to 15 per cent, is one of the main obstacles to the sector's growth. While there have been no details of the sources of finance for the project, the military said it would provide the land for free, which is expected to lower the cost of the units by 25 per cent. The fact that such a huge parcel of land has been given to a foreign company by direct allocation has stirred many reservations in the country, however, where many plots of a few million square metres in total were withdrawn from real estate developers soon after the 25 January Revolution because they had not been sold by auction and in accordance with the tenders law. “The land dedicated to this project belongs to the Egyptian public. No one can allocate this asset without the authorisation and approval of the Egyptian people through the standard procedures and without monitoring from their elected representatives,” Samer Atallah, an assistant professor of economics at the American University in Cairo, said. “The fact that this land ‘belongs' to the armed forces does not mean that it is the original owner. The real owner of the land is the general public,” he added. The army has the right to own areas of land nationwide for security reasons, like the land in some governorates overlooking the Suez Canal and in Sinai. While there is no exact figure for the area of this land, some experts put it at 25 per cent of Egypt's total area. “Allocating the land in this fashion raises lots of red flags about the independence of the armed forces and the lack of scrutiny of its economic activities,” Atallah concluded. Omar Al-Sheneety, Managing Director of Multiples Group, a regional private equity firm, pointed out that it was strange that in such a huge deal aiming at offering affordable housing to those on low incomes neither the housing ministry, the new urban communities authority, nor the privately-owned Egyptian contracting companies had been involved. A meeting with Minister of Defence Abdel-Fattah Al-Sisi after the signing of the deal made it part of Al-Sisi's pre-election campaign and stark evidence of UAE support for Al-Sisi's candidacy, Al-Sheneety and Atallah agreed. Arabtec is a well-known company, but contracting it to this project while overlooking local construction firms may be a way of paying the UAE back for its support for Egypt since Morsi's departure from power last year, Al-Sheneety added. The UAE has already extended almost $7 billion in aid to Egypt since the ousting of Morsi, who hails from the Muslim Brotherhood group which the UAE also accuses of trying to topple its own western-backed ruling system. Many heavy weight UAE companies have been grabbing investment opportunities in Egypt. Retail developer Majid Al-Futtaim said earlier this week that it would expand its investments in Egypt by $2.3 billion over the next five years. It plans to build four shopping malls and 32 hypermarkets in the country. Meanwhile Emaar signed a deal with the ministry of defence in mid-February to invest a further LE6 billion in its uptown Cairo project. The vagueness of some of the details of the deal have also stirred reservations. “No one knows what this LE280 billion represents and what will be the roles played by the army's engineering agency and Arabtec. They don't know if there will be other sub-contracting companies or if the land will be provided with utilities,” Al-Sheneety said. “If the LE280 billion is the cost of the one million units, this means that the price per unit will start at LE280,000. This is impossible as due to the economics of building large compounds the cost per unit should decrease,” he added.
