The third Euromoney Housing Finance Conference this week found Egypt's housing sector alive and kicking despite the economic slowdown, Niveen Wahish reports Egypt's construction sector seems to have a mind of its own. During the third quarter of fiscal year 2008/09, the sector grew by 16.1 per cent, a staggering upsurge from the 9.5 per cent growth rate of the first two quarters of the year. At this rate the sector has even surpassed the 15 per cent average growth rate of 2007/08. These are some of the figures cited by Minister of Investment Mahmoud Mohieldin to the third Euromoney Housing Finance Conference this Monday. In comparison, the real growth rate was on a downward trend since the beginning of the fiscal year, settling at 4.3 per cent in the third quarter. Mohieldin attributed the boom in the construction sector to various factors, among them cheaper building materials, especially steel and stable cement prices. This has encouraged many to speed up their construction plans after having hesitated. Growth in the construction sector is testimony to the potential it holds, not only in the area of infrastructure, but more so in the housing sector. According to Mohieldin, there is a backlog of between 2.3 to three million units needed by the market. In fact, it is that demand that has Richard Banks, director for the Middle East of Euromoney conferences, bullish on the Egyptian market. "Demographics are key to success [in the post-crisis economic order]," he said, referring to the fact that the sheer size of the population makes Egypt a demand-based market. "No more is this apparent than in the housing market." As Osama Saleh, chairman of the Mortgage Finance Authority, points out, only 200,000 units are produced annually whereas actual demand is for around 300,000 units. Soha Naggar, managing partner and director of research at Pharos Holding, agrees that demand is still going strong. She estimates that the need is even larger than figures put out by the government. She puts the annual need at 500,000 units, mostly in middle to low-income housing. She is concerned that the units made available remain expensive for ordinary homebuyers. Despite the fact that mortgage finance has grown immensely in recent years, it remains underutilised. At LE3.5 billion in housing finance to date, said Naggar, it barely represents one per cent of GDP compared to 120 per cent of GDP in the United Kingdom. "There is a need for longer-term, cheaper credit to enable individuals to possess units," Naggar added. Indeed, high interest rates are often a deterrent to potential buyers. Hisham Shoukri, CEO of Rooya Group, a real estate developer, acknowledges the fact that borrowers are often hesitant to take out a mortgage because they believe they are paying double the actual amount of the unit. However, he pointed out, they have to bear in mind that the value of their property by the time they finish paying their mortgage will be much more than what they paid for it. On a similar note, Iman Ismail, managing director of the Egyptian Mortgage Refinance Company, said that neither interest rates nor the value of units would fall if inflation does not drop. Not only are those in need of the units unable to afford them, but also despite the greater demand in the market for middle to low-income housing, developers are not readily investing in this area. Naggar said that the private sector is more inclined to invest in the higher end segment of the market in search of higher profit margins, which is not the case for affordable housing construction. Ahmed Demerdash, business development director of SODIC, a high-end real estate developer, believes "affordable housing is a difficult game to get into," even if developers were to receive subsidised land from the government. But Sahar Tohami, economic advisor to the Minister of Housing and Utilities, believes there is money to be made from investing in affordable housing. Testament to that, she said, are the companies that with government support have begun to offer affordable housing. Omar El Hitami, managing director of Orascom Housing Communities, agrees. To make profit, he said, developers have to adopt a volumetric business model, whereby they need to produce quickly and in large volume to compensate for smaller profit margins.
