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Towards cleaner, safer housing
Published in Daily News Egypt on 29 - 03 - 2011

CAIRO: For the past year, Egypt's real estate sector has faced numerous challenges, including land disputes and corruption charges, that's beside a longstanding bureaucratic investment climate.
Not too long ago, the sector was the pride and joy of Egypt's economy as development boomed along with property prices. Investors remained optimistic and the sector proved resilient amid the global economic crisis, but faltered last year when major players faced lawsuits questioning the validity of land acquisitions — the core of developers' business.
And then the January 25 Revolution came, ousting president Hosni Mubarak and spurring a flurry of reform plans, both political and economic. For real estate, the tide is beginning to turn allowing for a new vision for the future, even as some of the largest real estate firms are mired in court cases.
Experts say the first hurdle in the path ahead involves a period of drastic change to shake up a sector which, after the information and communication technology sector, has led Egypt's growth in recent years.
Hussein Sabbour, chairman and director of Al-Ahly Real Estate Development Company and chairman of the Egyptian Businessmen Association, spoke to Daily News Egypt about present realties and future challenges.
Sabbour has 40 years of experience in the field of engineering and real estate, was the chairman of Sabbour Associates and participated in founding the Federation of Consultants from Islamic Countries as well as being a former chairman of the Egypt-US Business Council.
Discussing the recent controversy regarding land disputes, he said that more than 10 years ago, there was not enough investor interest in Egyptian land to justify selling land through public auctions.
“The government used to give the land to serious investors, with no utilities and at competitive prices so they would make investments that would created jobs and add value to the national economy,” he said.
As Egypt started becoming more appealing investment destination, a law was devised requiring land to be sold through public auctions.
“The problem is that this law was not implemented in some cases, with ministers sometimes assigning land through illegal or corrupt means for personal gain, but there are also cases where land was sold at low prices also illegally but where significant investment was made adding real value and creating employment.”
Sabbour said that the two examples should not be judged equally and that land disputes should be judged on a case by case basis.
However, he called for all land to be auctioned from now on, suggesting even greater restrictions be placed on who would be allowed to bid on the land, devising a screening process for investors to determine their sincerity, and developing mechanisms for monitoring and ensuring the land is used correctly and as per the specified terms within a certain time frame.
Jennifer Bremer, chair of the public policy department at the American University in Cairo, agreed.
“In future, all land sales should be widely advertised, with bid openings conducted in public and the results published on an easily accessible website,” she said.
As for the bureaucratic nature of investing on the land, Sabbour pointed out that a building permit in Egypt takes 10 months and that “this is a disaster.”
He said that the whole process of applying for licenses, building permits, operation permits and utility connections should all be streamlined and perfected such that acquiring a building permit, for example takes only a month.
He added that the current complicated investment structure allows for more bureaucracy and hence corruption in the sector and was a nightmare for investors.
“The laws in this area are so complex and opaque that the legislators really should start over. A review of land sales procedures in other global markets should enable them to identify better models for these processes, which should then form the basis for a new law to govern sales going forward,” Bremer said.
“There is probably no way to completely eliminate special interests and corruption from land deals —they are in the nature of the beast. It can be reduced, however.”
“The only way to address this issue is if the government allows for more private sector involvement developing these mechanisms,” Sabbour said.
Shifting from the problems to the short term outlook on the industry, Sabbour believes that real estate prices are low in Egypt compared to other countries.
He cited a study by world renowned real estate expert Sam Zel saying that real estate prices in Egypt are more competitive than most places around the world.
Like many other companies in the sector, Al-Ahly is currently experiencing a lull in demand.
“People are not buying, taking their money out of real estate and into banks, foreign investors are reluctant to invest and will wait until things stabilize.”
He believes that in the next period, the buying will decrease but prices will stay stable or decrease only marginally, but after stabilization the prices will rise and investments will increase significantly.
“The direction of property prices will depend on whether investors feel confident that the new government will welcome continued private investment in upscale housing,” said Bremer, adding that solutions will need to be found to permit projects that have already begun to go ahead in an orderly and predictable manner so that future investors are not scared off and current investments not tied up in years of litigation
“This would be a lose-lose proposition,” she said.
For Bremer, even if major investors back away from new projects, demand for housing as an investment is likely to continue, as this seems to be driven by an absence of alternative investments that are perceived as fairly safe but also profitable for upper-middle-class savers.
Bremer gave a more pessimistic view than Sabbour.
“To date, people seem to believe that property is their best bet, which is very unfortunate, because it ties up their money for years in unproductive semi-finished buildings, many of which will never be finished,” she said.
“It is also unfortunate because prices are being driven up by these mini-speculators, which is ultimately not sustainable, and they may well come to grief, as their fellows have in the US, Spain, Ireland, Iceland, and, it seems, China.”
Many in the sector have said that the direction of the real estate market has been too focused on the large demand in middle and upper income housing.
Sabbour said that this should change but called on the government to facilitate that change.
“In the present, investment is dominated by up-scale development simply because people can afford it, but there is a massive demand for middle and lower income housing. We have 300,000-400,000 marriages a year and millions living in urban slums requiring new housing but no financial support for these people to buy homes,” he said.
“The way to address this issue is to develop suitable mortgage and loan rates at reasonable interest. It is now impossible for those with low income to buy houses at very high 13 percent interest. This should be at around 3-4 percent,” he said.
The first priority in urban planning should be improving the quality of life where people already live, whether it's in Imbaba, Bulaq, Shoubra Al-Kheima, Old Cairo, Haram or the many informal areas, said Bremer.
“The places where real people live right now have been shamelessly neglected for decades. Attention to better public transport, basic clean-up, and creating public amenities like parks should all get priority to make Cairo and other cities nicer, cleaner, and safer places to live.”


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