Egypt's real estate developers need to grab opportunities in middle income housing to survive today's market realities, reports Niveen Wahish Looking to capitalise on the current economic conditions to buy a house at a bargain price? You are in for a disappointment: prices are not set to come down, at least by no more than 10 to 15 per cent. "We are in a culture which loves fixed asset acquisitions," Hala Bassiouni, CEO of the Egyptian Housing Finance company (EHFC) told Al-Ahram Weekly. She explained that the owners of these houses had bought them as a long-term investment, not for speculative purposes, so they will not rush to dump them on the market. "Prices will stagnate, they will not drop." She does not see Egypt's real estate market getting caught in a similar situation as the subprime crisis adding that Egypt's mortgage system poses strict conditions which make it difficult for mortgage companies to go wrong. "We do not have a thriving mortgage market," opined a developer who preferred to remain anonymous. He explained that people have not yet had enough time to trust the mortgage system and procedures have not been simple enough to encourage them to become part of it. It is estimated that only LE3.1 billion has been invested into Egypt's mortgage market since it became operational in 2004. The slow mortgage market is not the only problem on Bassiouni's mind. She lamented the fact that developers have been catering mostly for the high-end market, with excess supply the result, and forgoing the middle and income market where demand is not yet met. "There is a mismatch between supply and demand," said Bassiouni explaining that the majority of the population cannot afford the units on offer. She believes developers need to provide more low and middle income housing. But apparently Egypt's real estate sector is full of contradictions as shown by Suha Najjar, managing partner and head of research at Pharos Holding for financial investments. Speaking at a conference organised this week by the American Chamber of Commerce in Cairo (AmCham) on "Real Estate: Where is it Heading?" Najjar presented some striking figures. She showed that informal housing represents 65 per cent of housing supply, 20 per cent of the population live in slums, 10 million households live illegally and three million in shelters," she said. Meanwhile, "the high-end residential market caters for a very small portion of the population which is generally adequately housed." Middle to low income housing is not considered part of the real estate market." And the latter is where opportunities lie for developers in these uncertain times, and their means of surviving the slowdown, according to Najjar. She said that demand for the low and middle income housing "is unlikely to be saturated in the foreseeable future". But that maybe easier said than done. Maher Maksoud, CEO and managing director of SODIC, told attendants at the AmCham conference that the formula for profit for low- income housing is very difficult. But Omar El-Hitami, managing director of Orascom Housing communities, which is currently in the process of marketing a low-income housing compound, advised developers at the conference "to make money you need to build a lot quickly, and sell quickly, otherwise you will not be able to achieve the profit margins developers are used to." In fact, Najjar agrees that the real attraction of low and middle income housing is its sheer size. Moreover, demand is real for both types of housing. Nonetheless, El-Hitami adds that the government needs to be involved in the process to make it possible for the private sector to make money; otherwise, they will not venture into it. But there remains the problem of financing. This is where the mortgage sector is expected to play a bigger role. Bassiouni of EHFC said that although providing proof of your income, a must to obtain a mortgage, was at one point difficult, particularly for many who work in the informal sector, it no longer poses a problem. To her the problem is in the lack of long- term credit at low interest rates. "Under the current terms," according to Najjar, "monthly instalments are beyond the means of potential buyers across the different income groups."
