Saturation of real estate market unlikely in coming years: Colliers International

Egypt's mortgage finance remains so insignificantly small at the moment, it does not have any real impact on the market, says Colliers regional director

Demand for residential units are expected to increase by approximately 115,000 units every year, according to regional director at Colliers International Middle East and North Africa Ian Albert, who further explained that saturation of the real estate market is unlikely due to an undersupply of units.
Colliers International is a global commercial real estate company, which earlier this year announced that it had opened up a new corporate office in Cairo.
In an interview with Daily News Egypt, Albert said that the most promising areas for development in Egypt are in Ain Sokhna and the North Coast, where there is a demand for high quality residential projects.
Do you expect a recession in the real estate market in the coming period?
No. The supply of residential real estate across all sectors is still behind demand when you look at the demographic landscape of Egypt. Considering population growth, Greater Cairo is expected to be undersupplied by approximately 400,000 units by 2020. The majority of the undersupply is expected within the middle-income market (those earning between $10,000 and $25,000 per annum). While there is capacity in offices, industrial, hospitality, and retail complexes, these sectors require a greater level of understanding as the landscape changes for these facilities and greater care is needed when looking at investment.
In your opinion, when might market saturation occur?
Taking just Cairo into consideration, we do not expect saturation for many years. Demand for residential units is expected to increase by approximately 115,000 units every year, with supply expected to increase by 40,000 to 50,000 units per annum. In an already undersupplied market, it is unlikely the residential market in particular will face saturation in the short to medium-term.
Why has Egypt's real estate sector remained so strong?
The real estate sector has always provided a solid refuge during economic uncertainty, such as currency fluctuations.
How can Egypt revitalise its public land bank?
Through the release of suitable development land. We define development as land that is serviced by infrastructure in terms of roads, utilities, and mass transit systems. Greater access to cheaper land reduces the cost of the end product.
What is your opinion regarding mortgage finance initiatives? Additionally, how can the government develop those?
Mortgage finance remains so insignificantly small at the moment, it does not have any real impact on the market, especially where it is needed the most—for example, for middle income and millennial segments. There are some key impediments that need addressing. These include the lack of long-term funding sources for 20-30 years. This in turn allows mortgage lenders to offer the same terms to borrowers. This is a critical point as the most important point is the affordability of the monthly payments and these are often dictated by the length of the loan period rather than the interest rate. The current laws and the Central Bank of Egypt's (CBE) guidelines restrict banks from lending against undelivered and constructed units, and this creates issues in the retail lending and the developer financing stages.
Egypt has taken serious steps in providing affordable housing for low-income and middle-income citizens. How can these projects be developed and overcome funding challenges?
Institutional investment through funds and PPP projects can inject further capital to support the initiatives.
Do you think it is the suitable or right time to launch mega projects in the real estate sector?
Mega projects can stimulate the economy beyond their initial objectives, and therefore require a higher level of planning to achieve the widest maximum benefit.
Does the boom in the real estate sector have an affect on other economic and development sectors in Egypt?
The provision of high-quality, price appropriate real estate supports every aspect of the economy.
What are the most promising areas that will change the real estate map in Egypt?
Retail remains underserved, but we are seeing increased investment in this area and there are significant opportunities in urban regeneration. Other promising areas are Ain Sokhna and the North Coast where there is demand for high quality residential projects targeting the high- and middle-income classes.
How do you evaluate Egypt's real estate prices, and do you expect price increases in the coming period?
This depends on the currency position. A further devaluation may result in increased prices.
How do you see Egypt's tourism real estate sector and expected growth in the sector in the coming period?
I would like to point out the relocation of Egypt's Grand Museum to the Giza Pyramids area. This will strategically place Cairo's leisure demand generators within this specific area, which would trigger refurbishment plans to existing outdated properties. New corporate hotels will continue to appear within key submarkets in Cairo (eastern and western) and Alexandria (Corniche).
How do you explain the increased demand to own a second home, despite the economic downturn?
Currency export restrictions and real estate as a safe haven investment still attracts demand. The main areas of attraction for second homes at the moment are Ain Sokhna and the North Coast.
Do you think that the current economic circumstances in Egypt may affect investment in the real estate sector?
A stable economy is always preferred by external investors.
How do evaluate the high demand for high-quality commercial real estate in Egypt?
Well-planned office spaces with the correct amount of parking provisions will and do attract tenants in the market.