CAIRO: Egypt's real estate sector will experience a gradual recovery due to "slower economic growth and oversaturation at the high end of the market, according to a recent report. Local investment bank EFG Hermes outlined its outlook for the local real estate sector in a report released Monday. Covering five local real estate companies, the report suggested a cautiously optimistic outlook for the sector for the rest of the 2009 calendar year, but cautioned that widespread recovery remains elusive. "Sentiment on Egyptian real estate is improving, based on our conversations with companies and investors, but we do not yet see a sustained recovery, report authors Patrick Gaffney and Jan Pawel Hasman wrote. The report suggests the possibility of a palpable pickup in real estate following Ramadan, based on underlying demand in the market and better-than-expected economic feedback, especially in the areas of tourism and remittances. Remittances, though hit hard during the first months of the crisis, were solid in the first half of 2009 at $1.7 billion for each quarter. These figures indicate a drop from 2008 levels but a rise from 2006 and 2007, the report noted. Meanwhile, tourism revenues dropped a mere 9.5 percent year on year for the past fiscal year, which ended in June. The health of these two sectors could bolster sales in real estate, as could increased government spending on infrastructure projects, which should make developments in New Cairo more attractive for prospective buyers. Government infrastructure spending reached LE 10.5 million during the first half of the calendar year. "Government infrastructure spending on projects should boost demand for housing outside of the traditional city center, the authors wrote. "We believe the government fast-tracked projects such as the new metro line among others. These projects should improve access to more distant new communities at around the same time that units recently sold will be delivered, the report continued. Oversaturation in the high-end real estate market, and the immaturity of the local mortgage market remain obstacles to a vibrant housing market in Cairo. According to the report, real estate developers have begun to offer smaller and more affordable options due to slowing unit sales. "Previously there was little supply of small units in the high-end segment, and we believe they have been received well, the authors wrote. Developers have also begun to provide financing options to buyers and to facilitate private mortgages to help stimulate demand, though awareness of financing options remains weak. "Mortgages are not well understood by consumers and that they are unwilling to take on high levels of debt to purchase a home. When we talk to Egyptians, they are not willing to take on a loan that could require a third of their monthly income, the authors wrote. Mortgages remain at less than 1 percent of GDP and though the authors are bullish on mortgage growth, rates that hover around 14 percent are an obstacle to expansion. What the coming quarter will bring will be largely dependent on how quickly Egypt's economy recovers, and the real estate appetite that will come along with market recovery.
