Realestatejan2018.Pdf

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Industry Insight

Riding Out New Cities on the Float the Horizon 14 20

EXPANDING OPPORTUNITIES

State of the The Future of Suburbs Commercial 30 property 38

ising prices and interest rates since the free float of the Egyptian pound have pushed the KHALED SEWELAM real estate industry to be creative in funding Director, Research and Publications and marketing projects, yet investors and developers R AMIRA SHEHA are still optimistic about the sector’s prospects. This Research Manager edition of AmCham Egypt’s annual Real Estate Indus FADILA NOURELDIN try Insight tracks how the sector’s players are respond Author and Economic Researcher ing to the economic challenges. First, we look at how KATE DURHAM the stock market and real estate investment funds can Editor and Head of Corporate Publications help the sector stay on track amid high inflation and NESSIM N. HANNA interest rates. The second section offers an overview Senior Art Director of the state’s housing initiatives for low and middle in EMY EMILE come buyers, the national plan for new cities, and the Graphic Designer mortgage market’s potential for growth. Section three AMANY KASSEM revisits the highend real estate market, with insight Advertising & Business Development Director about how developers are coping with higher costs and DINA KARARA changing consumer trends. Finally, we explore new op Circulation Coordinator portunities in the commercial real estate, including re LAMIA SELEIT tail, office and healthcare properties. Advertising and Adtraffic Coordinator HANI ELIAS Production Supervisor

©2018 AmCham Egypt’s Business Studies & Analysis Center. All rights reserved. Unauthorized reproduction, copying, re-mailing, storage or website posting is prohibited. All information in this publication is verified to the best of the author’s and the publisher’s ability.

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RIDING OUT THE FLOAT

Real estate is often labeled a ‘safe haven,’ offering investors profitable benefits even during slow market conditions. Property is usually a hedge against inflation, appreciating in value over time, and can potentially provide its investors with additional income through leasing. And relative to other investments, real estate is easier to get into. “When purchasing a property, you have the ability to do so with leverage,” explains Mohamed Abdalla, chairman and CEO of Coldwell Banker Affiliates of Middle East & Greater Africa. It is entirely possible to purchase an EGP 1 million property with only EGP 200,000 cash on hand. “You don’t even have to use your own money. Stocks, on the other hand, require 100 of the investment up front,” he adds. In other words, real estate allows investors to leverage their funds in a way that does not tie them up in one project only. Property investments are also more robust in volatile market condi tions and do not depreciate in value. Stock prices, on the other hand, may depreciate, and returns on time deposits are contingent on economic conditions and maturities. The real estate sector has remained true to type in Egypt, where it has been contributing roughly 815 of Egypt's GDP over nearly two decades, compared to the global av erage of 1520. “The real estate sector accounted for 15 of total investments in the Egyptian economy in 2017 and 10 of GDP. These figures rank Egypt second in the MENA region in terms of real estate investment returns,” former minister of investment and Al Arabia Real Estate Company ARCO Developments chairman Ashraf Salman told the media in December 2017. But the economy has seen a host of changes and challenges since the Egyptian pound was freefloated in November 2016. Since the float, the pound’s value has settled at an average EGP 18 to the dollar, compared to EGP 8.88 before the float. The steep depreciation caused annual inflation to spike, hitting a decade high of 33 in July 2017. The surge in prices took a toll on residential property prices. In early 2017, developers raised prices after construction costs doubled in EGP terms. According to Aqarmap, an online portal for real es tate services, nominal prices of many residential units across Greater Cairo’s districts have increased by more than 40 since the float.

14• Industry Insight - REAL ESTATE A TRADITION OF TRUST

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RIDING OUT THE FLOAT

AVERAGE PRICE INCREASES IN CAIRO’S SUBURBS (EGP PER M2)

REHAB & MADINATY NEW CAIRO SHEIKH ZAYED 14,150 39% 44% 12,200 42% 10,625 10,150 8,500 7,475

EL SHOROUK MOKATTAM SIXTH OF OCTOBER & NEW HELIOPOLIS & HADABA WOSTA

37% 10% 36% 7,900 7,000 6,800 6,200 5,825 5,125

Nov. 2016 Nov. 2017 Year-on-year change

Source: Aqarmap

To curb the growing inflation, the potential for growth not only for local Egyptian property market from Central Bank of Egypt’s Monetary investors but also for Egyptians who Egyptian expats living in the GCC a Policy Committee hiked interest rates live outside of Egypt and are inter strong factor playing here is that their in November, May and July by a total ested in investing. The EGP flotation income is not in the EGP,” Moussa ex of 700 basis points. As of 2017’s end, has contributed to an increase in res plains. “The highest traffic came the overnight deposit and lending idential real estate investments,” says from Egyptian expats living in Saudi rates were 18.75 and 19.75, respec Momtaz Moussa, the former general Arabia followed by Kuwait, the UAE, tively, compared to 11.75 and 12.75, manager of OLX Egypt. In a July 2017 Qatar and Oman.” According to the before the float. report, the global online marketplace Saudi Gazette, the EGP’s float en These challenging changes have af noted that real estate searches by Gulf couraged more Saudi nationals to buy fected Egypt’s property market in Cooperation Council GCC users in properties in Egypt, with the national more positive than negative ways. De particular increased by more than newspaper noting apartments are spite the increase in construction 90 post float. The report compared priced as low as SAR 300,000 USD costs for developers and unit prices foreign traffic on its platforms for 80,000. GCC income levels are the for end consumers, the decreased pur Egyptian real estate during the period highest in the MENA region, which chasing power of the EGP has driven of September 3November 3, 2016, to makes property in Egypt a more an influx of foreign and expat interest the period of November 4, 2016Jan promising investment opportunity in Egyptian properties. “Egypt is a uary 4, 2017. “The results showed a among regional investors and an even massive market with substantial clear increase in demand for the cheaper vacation venue.

THE FLOAT: A FRIEND OR FOE? Some experts believe that rising inter each year, and when inflation held Estate Investment Division told local est rates are challenging the tradi steady around 9 11, properties gen news in August 2017, “The real estate tional notion of real estate as a safe erated higher return on investments industry is slowing down after July’s investment, noting that they have im than banking instruments. That has interest rates hike. Real estate pur pacted overall activity in the sector. changed. Mahmoud Badr El Din, chases have also been declining as cus Before the pound’s float, property val chairman of the Federation of Egypt tomers are now parking funds in ues appreciated by an average 25 ian Chambers of Commerce’s Real banks to benefit from the rate hike

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ARAB SEARCHES FOR EGYPTIAN REAL ESTATE ON OLX

129,563 91%

68,011

109% 66,667

31,949

90% 90,509

47,742

79% 246,846 116% 23,745

137,828 10,986

Trafﬁc (# of web visits):

3 Sept, 2016 to 3 Nov, 2016 4 Nov, 2016 to 4 Jan, 2017

Percentage Change

Source: OLX

rather than purchasing assets.” In Sep thinks this trend has given investors information provider, the float proved tember, Ali Rabie, chairman of Abraj confidence to list more properties on to be a boon for listed real estate com Misr, told the Financial Times, “High line, which is giving buyers more di panies as more investors parked their interest deposit accounts that offer verse options. The high interest rates devalued savings in real estate stocks. annual returns of 20 are competing may be indirectly spurring activity in In early 2017, Magued Sherif, CEO of with property as a haven for wealth the real estate market: Moussa points Six of October Development & In and savings.” out that despite the recordhigh infla vestment Company ¡SODIC¢, told Nonetheless, others argue that tion rate in July, the number of listings local media that tough economic Egypt’s real estate sector is still being on OLX grew by 12 monthon conditions throughout 2016 and buoyed by the robust investment re month from June, suggesting that 2017 resulted in consumers acceler turns and an overall housing demand “property owners liquidated their as ating their buying decisions, driving that significantly exceeds annual hous sets to secure capital revenues in the real estate’s growth further. “We are ing supply. “While high interest rates form of interest from bank deposits a homebuying culture, and the les are a disincentive for investment in and certificates.” son many have learned in the past any sector, including real estate, Egypt Investment in real estate is still couple of years is that with prices is a unique case,” says Coldwell dominated by the private sector, appreciating very rapidly, it’s always Banker’s Abdalla. “Our aggressive which injected EGP 52.4 billion in the better to buy now,” he said. Key population growth, coupled with market in FY 2016/17, accounting for players recorded significantly strong demand for properties and 82 of the sector’s total investments higher earnings postfloat including suburban shifts, override disincentives and posting a 53 yearonyear in SODIC, Talaat Moustafa Group to invest in real estate created by hik crease. Real estate received the largest Holding, Emaar Misr, Mena for ing interest rates.” share of private investment in FY Touristic and Real Estate Develop “There is evidence to suggest that 2016/17. Similarly, real estate is one of ment, and Al Shams Housing and Egypt’s property market is holding the most active sectors on the Egypt Urbanization SAE. Many property strong despite the currency flotation ian Exchange ¡EGX¢. In 2016, it ac developers have realized the bene and rising interest rates,” adds counted for 12 of market fits to be reaped from going public Moussa, noting that “32 of the total capitalization and ranked first in as some 14 real estate and tourism listings on OLX across all categories terms of volume traded at 18 billion companies are preparing to offer were in the property section, high securities with a total value of EGP 47 shares on the bourse in 2018, EGX lighting the increasing interest in buy billion. According to Mubasher Chairman Mohamed Farid told the ing and selling property recently.” He Egypt, a financial and stock market press in December 2017.

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RIDING OUT THE FLOAT

REAL ESTATE STOCK MARKET INDEX PERFORMANCE

Source: Central Bank of Egypt

The real estate sector index came out average 16 and 25 of the market’s investors looking to repatriate prof of 2016 with a 41 gain on the EGX value and volume traded, respectively, its in foreign currency. May and after soaring 39 in response to the in the first half of 2017. Real estate July’s interest rate hikes also trig float. Its performance remained companies’ stock prices have also re gered minor retractions in stock steadily positive in 2017, growing by mained fairly strong over the past prices. Overall, however, experts 17 over 2016 and accounting for 11 year, reacting moderately to eco consider the sector’s stocks as “de of market capitalization. The sector nomic changes. Stock prices saw a fensive stocks.” Known for their was ranked second in terms of volume minor slump after the EGP strong comebacks, real estate stock traded at 20 billion securities with a strengthened to an average 15.8 to prices have proven resilient to mar total value traded of EGP 52 billion. the dollar by the end of February ket contractions and show strong Real estate stocks accounted for an 2017, causing concerns for foreign growth prospects going forward.

STOCK PRICES FOR THE TOP FOUR LISTED REAL ESTATE COMPANIES (OCTOBER 2016-OCTOBER 2017)

Source: Mubasher Info Egypt

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MAKING ROOM FOR MUTUAL FUNDS New investment in real estate will also on attracting further liquidity through REIFs in Egypt have not picked be triggered by the introduction of listing on the EGX. But after the in up for a number of reasons, includ real estate investment funds REIFs terest rate hikes in May and July, the ing lack of awareness and restrictive in Egypt. These are mutual funds that fund shut down due to lack of demand regulations. “Usually, REIFs are tax invest in land and commercial, resi and has yet to reopen. Prior to the rate exempt across the globe, but this is dential or industrial properties as well hikes, Naeem had announced that the not the case here in Egypt yet. In as real estate firms’ capital market fund was covered 1.3 times and that the U.S., for example, if an invest portfolios such as stocks, bonds or the 20 private placement was 1.5 ment trust distributes 90 of its in any financial instruments tied to real times oversubscribed by institutional come, the trust is automatically tax estate. While the Financial Regula investors such as insurance provider exempt,” says Abdel Rahman. tory Authority FRA, formerly the Allianz and chemical producer Sidpec. While taxexempt status is not cur Egyptian Financial Supervisory Au In October 2016, the Egyptians rently on the table, there are other thority signed off on the introduction Abroad Investment & Development changes in the works that could en of REIFs in the market in 2014, they Company was granted a license to courage more investment in REIFs. only started to officially launch in late launch its Egyptians Real Estate Fund, In November 2017, the FRA ratified 2016. an EGP 2.5 billion fund in partnership amendments to the executive regu REIFs are a more sophisticated with Pioneers Holding for Financial lations of the Capital Markets Law tool for real estate developers to fi Investments, the Cairo Housing and which governs investment funds. nance their projects, compared to off Development Company and the Funds will now be allowed to settle plan payment plans and equity Egyptians for Housing Development up to 15 of their daily transactions financing. These funds enable devel and Reconstruction Company. The on the EGX under the intraday opers to proceed with construction 10year fund has a paidup capital of trading system. Also, real estate on multiple projects regardless of EGP 50 billion distributed over funds with a capital of EGP 500 their cash on hand. For investors, 500,000 shares and invests in land, million will be allowed to invest up REIFs provide “exposure to an asset residential and commercial projects. to 50 of the fund in a single real class called real estate without holding Other funds in the pipeline include estate project. Prior to the the physical asset,” explains Tarek the Housing and Development Bank’s amendments, the ceiling had been Abdel Rahman, Palm Hills Develop EGP 1 billion fund managed by asset set at 30 and funds’ shares in a ments’ coCEO. “Real estate funds are manager AcumenBPE and expected nonlisted real estate company more liquid than investing in the to launch in early 2018. were limited to around 67. physical property. If I buy a property today, selling it tomorrow is not guar anteed. However, I can enter and exit a fund flexibly.” More broadly, such funds con tribute to a positive investment envi ronment, particularly for Egypt, where the government is pushing to attract more local, regional and for eign investment. Should international investors find them lucrative enough, REIFs can also be an important source of foreign currency for the economy. Among the first in the REIF mar ket, Naeem Holding, one of the re gion’s largest investment banks, launched an EGP 1 billion fund for in stitutional and individual investors in April 2017. The fund announced it would be investing in a diverse port folio of real estate assets and planned

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NEW CITIES ON THE HORIZON

Lack of housing is one of the leading causes of Egypt’s economic and social woes. Estimated at 3 million units, the housing gap continues to widen as the population rapidly grows and only 20,000 new units hit the market each year. When Egypt’s Sustainable Development Strat egy SDS 2030 was unveiled in 2015, shrinking the hous ing deficit was acknowledged as key to sustainable economic growth. To achieve this, the state has taken a multipronged approach that includes expanding the housing market for low and middleincome buyers and easing the pressure on Egypt’s existing urban centers. At a November 2017 economic conference, Minister of Housing, Utilities and Urban Communities Mostafa Madbouli announced that more than 600,000 new homes are needed per year to meet overall demand, 70 of which should be affordable for low and middlein come citizens. The private sector, which is mainly con centrated on the highend residential market, cannot fill that order alone, so the state has stepped in.

20• Industry Insight - REAL ESTATE

TOGETHER WE ARE STRONG.

OFFICIAL PARTNER OF LIVERPOOL FC TOGETHER WE ARE STRONG.

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NEW CITIES ON THE HORIZON

CONCENTRATION IN THE CAPITAL Unchecked population growth is in 67 of the country’s total land began distributing land to develop Egypt’s biggest challenge, with the area, and more than 25 of all Egyp ers at cutrate prices to spur out state statistics agency CAPMAS es tians reside in Cairo. According to the ward migration into Cairo’s timating that the population grows Ministry of Housing, Utilities and suburbs. While this worked for a by 2 million people each year. As Urban Communities, more than 40 while, prices in the suburbs have Ayman Ismail, the former chairman of the capital’s residents live in infor grown exponentially, putting prop and CEO of the New Administra mal settlements. “Cairo was originally erty out of reach for the majority tive Capital NAC Company, put it designed to house a total of 5 to 6 mil of potential homebuyers. Now the at the 2017 Euromoney Egypt Con lion residents. Today it is home to government is looking well beyond ference, “The rate of Egypt’s popu about 20 million people,” said Ismail. Greater Cairo with plans for sev lation growth is disproportional to In March 2017, the global market re eral new cities, the biggest of urban development’s growth rate.” search firm Euromonitor Interna which is the NAC. Ground has Egypt’s ongoing baby boom has led tional estimated that Cairo’s also been broken for New Alamein to a youthful population, with a me population would grow by half a mil City on the North Coast, El Galala dian age of 23.8 years, compared to lion by 2017’s endfaster than any City along the Red Sea coast near 37.9 in the United States and 46.8 in other city in the world. According to Ain Sokhna, New Ismailia City on Germany. This is a demographic CAPMAS, Greater Cairo’s popula the Suez Canal, and New Man with high rates of marriage and di tion grew by 1.3 million in 2017 to 18.5 soura City in the Delta. Once com vorce, which further swells demand million residents compared to 17.2 plete, the new cities are expected for affordable housing each year. million at the end of 2016. to double inhabited land area to Egypt’s population is concentrated In the early 2000s, the government 14 by 2030.

THE STATE STEPS UP While work on new cities contin housing have also witnessed major families with monthly incomes of ues, the government is accelerating expansion, growing by 144 in FY EGP 2,5005,000. Launched in July projects that bring more affordable 2016/17 to EGP 11.5 billion, com 2017, Sakan Masr’s first phase will housing units to the market. In the pared to EGP 4.7 billion in FY deliver 40,000 units ranging from FY 2016/17 state budget, housing 2015/16. 100 to 115 square meters each in had one of the highest levels of pub These funds have been directed New Cairo, Sixth of October, Badr lic spending, EGP 72.8 billion, ac towards developing new land areas City, Al Obour City as well as New counting for 8 of the total budget as well as launching housing initia Minya and New Damietta by 2019. and a substantial 276 yearonyear tives in Greater Cairo’s suburbs. Potential buyers apply for units via increase. The growth in housing’s Nearly 90 of the government’s lottery with a down payment rang public spending far exceeded the housing budget in FY 2016/17 went ing from EGP 25,000 to EGP growth in spending on transporta to subsidized housing, mostly for 30,000. Once the buyer gets a unit, tion, electricity, water projects, san projects under the realm of the So financing options for the remaining itation and urban development, cial Housing Project SHP. This in sum include mortgage facilities, off which all increased by an average cludes the ministry’s Sakan Masr plan payments and mediumterm 30. Public investment levels for project, which targets lowincome installment plans.

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SAKAN MASR’S PHASE 1: LOCATION AND PRICES

Average price Average unit Number of units per m2 (EGP) price (EGP)

New Cairo 18,000 5,000 575,000

Sixth of October 15,000 4,200 483,999

Badr City 1,000 4,000 460,000

Obour City 3,000 4,000 460,000

New Minya 1,000 3,700 425,500

New Damietta 2,000 4,400 506,000

Source: Ministry of Housing

The SHP is part of the government’s housing in the NAC’s first phase, Cairo, Sadat City, Tenth of Ra National Housing Project, which aims rural housing, cooperative housing madan, Badr City, New Damietta, to rehabilitate informal settlements and repair projects as well as the El Shorouk, Sixth of October, Al and develop infrastructure and new Dar Masr project. Similar to Sakan Obour City, Borg El Arab, Fifteenth cities across Egypt. In August 2017, Masr, Dar Masr is a lotterybased of May and New Minya. In Septem the government began construction housing project launched in 2014 ber 2017, the housing minister told on New Mansoura City’s first phase, for middleincome families. The local media that nearly 60,000 which will house 650,000 residents in project is in its third phase, after de units were ready for delivery and an two years’ time. Located in the livering more than 80,000 units in additional 100,000 units are Daqahlia governorate, New Mansoura the first and second phases in New preparing for construction. will cover a 4,000feddan 16.6 squarekilometer area and support 1.5 million citizens. In August 2017, the government also allocated EGP 170 million from the Tahya Misr Fund for infrastructure and housing projects in Aswan, which are set for completion before the end of FY 2017/18. In Sep tember 2017, the housing minister told local media that the government has delivered 230,000 social housing units worth EGP 31 billion since the SHP’s inception, and are now working on 270,000 units that will cost EGP 42 billion. The remaining 10 of FY 2016/17’s public spending on hous ing was allocated to forprofit

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NEW CITIES ON THE HORIZON

GOVERNMENT HOUSING BUDGET FY 2016/17

EGP 72.8 billion FY 2016/17 Total Spending

EGP 2.2 billion (3%) EGP 65.1 billion (90%) New Administrative Capital Social Housing Project Construction of the new capital’s Subsidized housing including infrastructure and transportation the Sakan Misr project for networks and housing in phase 1. lowincome families.

EGP 5.2 billion (7%) Dar Masr Project Forprofit housing project launched in 2013 for middleincome families.

Source: 10Tooba

THE NAC: A BEACON OF HOPE Of the new urban centers in the technology parks. Upon completion, In November 2017, the New Urban pipeline, the New Administrative the new capital will become home to Communities Authority NUCA an Capital is the government’s largest 6.5 million residents. In October 2017, nounced it would increase its planned and most ambitious. Planned over a President Abdel Fattah El Sisi investments in the NAC from EGP 8 170,000feddan 714squarekilome launched its first phase on a 40,000 billion to EGP 10 billion in FY 2017/18 ter area between Ain Sokhna and feddan 168squarekilometer area, to accelerate construction on phase New Cairo, the NAC is the same size being developed at a total cost of EGP one’s residential district, which will in as Singapore and will host the state’s 17 billion. Featuring residential units, clude 25,000 units and infrastructure ministries, parliament and the diplo a luxury resort, government buildings work. NUCA invested EGP 6 billion matic missions to Egypt. At Eu and a new international airport, the in the new capital in FY 2016/17. romoney, Ismail described the NAC first phase is expected to be fully ready The NAC project is also a poten as “a fully integrated city with an ex for residents by the end of 2018. Gov tial investment magnet. In early Sep tensive transportation network, infra ernment officials also told the press tember 2017, the government signed structure, housing and government that ministries and governmental of agreements worth USD 11.2 billion facilities,” as well as medical com fices were to move to the capital by with Chinese investors to develop plexes, schools, universities and mid2019, at a cost of EGP 35 billion. the new capital’s infrastructure and

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transportation networks. China State launched a sister Midtown project in Real Estate Development Company Construction Engineering Corpora the new capital for luxury homes and and Misr Real Estate Management for tion CSCEC has contracted with the commercial facilities. In October residential projects, commercial com Housing Ministry to develop one of 2017, Misr Italia started promoting its plexes and office blocks in the first the new capital’s 20 districts, joining Il Bosco project, an upscale mixed use phase. China Fortune Land Development community that will begin delivering While high prices are a positive Company and the Metallurgical Cor in 2020. Both projects have seen signal for demand, it has raised ques poration of China among the top de strong demand: all 390 of Midtown’s tions of how the future capital will velopers of the NAC’s first phase. The villas sold out within three months, be able to meet the housing needs of government is also offering a number while Misr Italia sold out the first 70 of the population with limited of opportunities to regional and local phase of Il Bosco within five days of incomes. “The only people who can investors for residential, commercial its launch. Prices started from EGP afford these new homes are those 3.5 and social infrastructure. 12,000 and EGP 9,000 per square million Egyptians working in the Several private developers have meter for Midtown and Il Bosco, re Gulf,” David Sims, a Cairo based sought plots to develop mixed use spectively. Over November and De urban planner told the Financial communities in the city, including cember 2017, the government sold Times in September 2017. The gov UAE based Emaar Properties, which nearly 5,000 feddans 21 square kilo ernment has allocated investments is applying to develop 1,500 feddans meters of land at EGP 3,500 per to construct affordable housing units 6.3 square kilometers . In August square meter to developers including in the new city, several of which will 2017, local developer Better Home Talaat Moustafa Group Holding, Arab start selling by Q1 2018.

URBAN SPRAWL UP NORTH: NEW ALAMEIN CITY Another SDS 2030 goal in the state’s due to the lack of social infrastruc and integrate touristic, residential, push for new cities is to better uti ture such as medical and educational agricultural, commercial and indus lize the coastal areas, normally re facilities. New Alamein City, in the trial activities. Construction on the garded as seasonal destinations. A Marsa Matrouh governorate, looks USD 337 million project started in case in point is the North Coast, to change that. Billed as an eco city, 2014. The city’s first phase is ex one of the country’s most popular New Alamein is a 48,000 feddan pected to house up to 400,000 res summer vacation venues, yet one of 202 square kilometer city that idents and include commercial the most sparsely populated areas will house 3 to 4 million residents complexes and a yacht harbor.

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NEW CITIES ON THE HORIZON

NEW ALAMEIN CITY MASTER PLAN

Antiquities Expo city zone Yacht includes museum port Hotel & Opera Tourism & convention house hospitality area center

International medical center for physical therapy

Al Alamein lake 350 feddans, total cost = EGP 100 million

Central library Medical center University

Source: General Authority for Investment and Free Zones

Construction is also under way on the these new cities will in the long term principal, this encourages people to new Red Sea coast city El Galala, avoid the traffic and pollution that use transit or walk as an alternative which will include industrial, touristic have come to be the hallmark of to cars, buses and other vehicles. It and residential facilities. Located near Cairo and to a lesser extent Alexan also plays a role in improving a city’s the Suez Canal Zone, the 19,000 fed dria. A paper presented at the Uni environmental and economic quality dan 80 square kilometer city will versity of Alexandria’s 2014 of life. All relevant to Egypt’s prob hold the world’s largest desalination International Conference on the lems, TOD can lower energy use, im plant, able to purify 164,000 cubic "Role of Engineering Towards a Bet prove air quality, lessen the need to meters of seawater per day. The plan ter Environment” advocated the in expand infrastructure, and reduce for El Galala also includes a 1,000 fed tegration of transitoriented land consumption. According to the dan 4 square kilometer tourist resort, development TOD in the new conference presenters, applying the malls, a cable car, a water park and a cities. TOD refers to the planning TOD concept could create a “new yacht marina to lure more tourists to and design of urban centers to create Egyptian urban DNA” that differs the area. In 2015, local developer walkable communities with easy ac “from the current chaotic urbanism Tatweer Misr launched its El Monte cess to public transportation. For ex and push urban policy ahead towards Galala project in the city on an area of ample, across the United Kingdom, sustainable communities and a 2.2 square kilometers. homes are located within a maxi smart growth concept that has not One issue that has gone largely mum distance of 200 meters from yet been¡ applied in any previous undiscussed in public forums is how public transportation stations. In Egyptian urban policies.”

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Making Mortgages Mainstream

A critical piece in solving Egypt’s housing puzzle is the mort against defaults as Egypt’s banks have always had very low gage market, which while growing remains greatly untapped. non performing loan NPL ratios,” explains Noaman According to CAPMAS, the state statistics agency, the av Khalid, economist at CI Capital. The Central Bank of erage annual household income in 2015 was EGP 44,194. Egypt’s CBE ongoing Financial Sector Reform Program has Even with government housing units offered at EGP helped reduce NPLs from 10.5 of total loans in 2011 to 300,000, many Egyptians need financing to be able to afford 5.5 in 2017. Mortgage companies also have strong portfo them. The mortgage market remains miniscule for multiple lios: Aloula is the largest in the market with a 40 market reasons, one of them being restrictive regulations. “As it share and a default rate as low as 5. stands, there is little incentive for buyers to take on mort Expanding mortgage finance will improve the prospects gages,” says Hassan Hussein, chairman and managing direc for Egypt’s real estate industry, grow the economy and tor of El Taamir Mortgage Finance Aloula. By law, banks deepen the financial sector. In addition to correcting the im and mortgage companies can issue mortgages only for legally balance between supply and demand for Egyptian properties, registered properties and only after 40 of the unit is fin mortgages can also scale up banking performance and pro ished. Accordingly, those who can afford it automatically re vide better standards of living. Under its EGP 10 billion sort to the developers’ off plan financing, which continues mortgage finance initiative, the CBE is working to improve to dominate the market. “Off plan sales transfer the credit access to mortgages for low and middle income buyers. The and construction risk from banks and mortgage providers to initiative sets below market rates, ranging from 5 to 10.5, home buyers who are able and willing to take on this risk,” for the lower income brackets and allows banks to finance explains Tarek Abdel Rahman, Palm Hills Development’s co up to 85 of properties. “The lower income housing seg CEO. However, this leaves mortgage providers unable to tap ment is well covered by the CBE’s fund, which Aloula has into the middle to upper income segments. been a part of for a few months now. The fund has grown its Hussein feels there is “information asymmetry” that af base from EGP 950 million to almost EGP 1.2 billion now, fects how buyers choose a home financing plan. “Developers which is good news for the mortgage market’s growth operate under the market forces of supply and demand, prospect for lower income housing,” says Hussein. Most re whereas mortgage companies are highly regulated by the cently, the fund announced plans to dole out an additional Financial Regulatory Authority, FRA,” explains Hussein. EGP 10 billion in 2018 to boost lending to middle and low Under off plan financing, which offer extended payment income homeowners over the coming years. The FRA for schedules up to 12 years, consumers are essentially borrow merly the Egyptian Financial Supervisory Authority is also ing from developers, who add the cost of financing to the drafting amendments to the Mortgage Finance Act, includ unit’s total cost. “Because developers factor interest rates ing one that will allow homebuyers to obtain a mortgage be into the cost of the house to consumers, buyers don’t know fore construction begins¡a move that could attract middle that they are paying as much as 15 20 interest to buy the and upper income consumers away from off plan financing. house over the installment period,” Hussein notes. “The Should the home financing market begin to pick up, reg cost of construction is the same across the market, and in ulators must account for a number of factors. Khalid says terest rates are reflected by the interest rates in banks, so “credit assessments and assets’ hyperinflation” are the biggest there are minor differences.” He advocates for equal trans issues to address going forward. While it falls on the banks parency in off plan and mortgage financing so that all to diligently assess an applicant’s credit riskiness of defaulting lenders are competing on equal footing. on a loan, he points out that “the hyperinflation of assets is The sluggish growth in mortgages means there has been always a function of the price of money, inflation, interest limited space for a housing bubble to emerge. “Most of the rates and monetary policy.” When the Central Bank success bubbles that happened in different areas across the world fully manages inflation and interest rates, then real estate were initiated by consumers defaulting on their payments prices will reflect a fair valuation of the property, and more due to weak credit assessments. I believe we are hedged consumers can afford to take on mortgages.

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STATE OF THE SUBURBS

From luxurious apartments and gated communities to stand alone villas, the residential property market in Egypt is largely buoyed by private developers injecting substantial capital to cater to the high end and upper middle income segmentsthose households with average monthly incomes above EGP 50,000, according to the regional investment bank HC Securities and Investment. While many have crit icized private developers for neglecting lower to middle in come housing, the high end segment remains vital to the economy. Since 2005, private investment has accounted for an average 93 of total investments in the real estate sector. Despite the economic shocks in the wake of the pound’s float in late 2016, elevated interest from major investors and developers has kept the market healthy, as existing projects expand and new projects enter the pipeline. According to global real estate services firm Jones Lang LaSalle JLL, Cairo’s total stock of gated community housing stood at 126,000 units as of Q3 2017, showing a minor 7 year on year increase due to a short period of uncertainty that fol lowed the float. As the local currency lost half of its value against the dollar, construction costs doubled and nominal unit prices soared by 30 to 40 instantly. However, JLL estimated that 11,000 units hit the market in Q4 2017 and forecasts an additional 22,000 units by the end of 2019. The Q3 2017 report indicated that in the long term, growth will be focused east of Cairo as “the majority of the 33,000 units scheduled for delivery over the next three years are located in New Cairo.” JLL attributes the “easterly shift” to project launches expected near the future New Administrative Cap ital over the next few years. According to data from real es tate website Aqarmap, 52 of users viewed properties in east Cairo with an average price per meter of EGP 9,700, while 47 viewed properties in west Cairo despite a lower average price per meter of EGP 7,500.

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AVERAGE UNIT PRICES IN CAIRO’S SUBURBS

Apartment Villa 1 To East Cairo price price To 2 2 Cairo-Suez per m per m Heliopolis 2 3 10 Highway 1 Mirage 7,500 6,950 4 9

2 East Academy 7,250 15,400 To Nasr 11 7 8 City 5 3 Al Yasmeen 7,650 12,750 6 4 South Academy 8,900 13,100 5 Al Choueifat 10,350 17,100 6 Kattameya 6,350 17,000 7 Al Narges 8,350 16,600 To 8 South Investors 7,450 14,350 Cairo-Hurghada Highway 9 Lotus 7,600 9,150 10 North Investors 7,150 15,100 11 Street 90 9,750 16,400

To Alexandria

2 1

3 Apartment Villa 6 West Cairo price price To 2 2 Remaya Square per m per m 4

1 Al Thawra Al Khadra 11,850 8,050 5 2 16th Settlement 5,200 17,350 3 9th Settlement 5,750 8,950 7 4 7th Settlement 7,000 8,600 8 5 4th Settlement 10,750 12,750 6 1st Settlement 6,450 14,800 To Cairo-Fayoum Road 7 El Motamayez 5,950 12,900 8 West Somid 5,500 9,450 9 October Gardens 3,550 4,800 9

Source: Aqarmap

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STATE OF THE SUBURBS

PRIME RESIDENTIAL HOUSING STOCK

Current Supply ('000 units) Future Supply ('000 units)

11 11 11

148 126 137 105 113 126 85 67 74

2011 2012 2013 2014 2015 2016 2017e 2018f 2019f

Source: JLL

FAST-TRACKED PROJECTS Beating the odds, launches for gated ing construction work on the second Plaza, which launched its first phase community projects boomed during phase of Oriana Villas, which was ini in February, and Sky Condos, which 2017 despite inflation. “The real estate tially scheduled for delivery by the launched its first phase in August. On sector performed quite well in 2017 as end of 2017, and plans to complete the west side, Fawaz Al Hokair’s a whole with many new projects being the first phase of its Festival Living Marakez is expected to complete its launched. It is all about staying close project by Q3 2018. Hyde Park Prop luxury gated community Aeon in to the market and adjusting quickly,” erties for Development launched two 2020. Numerous other developments notes Magued Sherif, CEO of Sixth of residential projects in New Cairo and moved forward in view of an im October Development & Investment on the North Coast in April, at a total proved climate. In August, Memaar Company SODIC. investment cost of EGP 15 billion. Al Morshedy announced the con In January 2017, Al Futtaim Real That same month, the company struction of its Katameya Gate and Estate Development allocated EGP began off plan sales for the second Lakefront projects in the east and 4 billion for Cairo Festival City’s Ori phase of Park Corner, a residential west of Cairo, respectively, for EGP 1 ana Villas project and began construc zone in the EGP 35 billion Hyde Park billion. Barons Court Sports & tion on one of two hotels planned for project in New Cairo. Other launches Leisure Company broke ground on the project. The company is complet in 2017 included SODIC’s October the third phase of its EGP 50 billion

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Alex West project in September at a include Wadi Degla Development’s kilometers¡. Expected to officially cost of EGP 12 billion. Neopolis, PHD’s Capital Gardens, launch in Q2 2018, the first agree In June 2017, Palm Hills Develop ARDIC Development’s Zizinia El ment is for an EGP 28 billion ment PHD¡ sealed an EGP 150 bil Mostakbal, Al Ahly for Real Estate mixed use community that will be lion public private partnership deal Development’s L’Avenir, Landmark completed in several phases by with the New Urban Communities Sabbour’s Aria, Mountain View’s 2028. Tatweer Misr also signed an Authority NUCA¡ to co develop iCity and Madinet Nasr for Hous EGP 5 billion agreement for a 90 the 3,000 feddan 12.6 square kilo ing & Development MNHD¡’s feddan 37,000 square meter¡ edu meter¡ October Oasis residential Sarai New Cairo. A number of devel cational complex that will be and commercial project in Sixth of opers have also expressed interest in completed by 2026. Hassan Allam October, which gives NUCA a rev Future City in 2018. Tatweer Misr Properties will also be co develop enue share of 26. Construction signed two agreements with MUD ing an EGP 18 billion mixed use began in September 2017. El worth EGP 33 billion for projects project with MUD over 250 fed Mostakbal for Urban Development spanning 325 feddans 1.4 square dans 1.1 square kilometers¡. MUD¡ and Al Ahly for Real Estate Development also partnered to de velop a 2.4 square kilometer mixed use community in Mostakbal City near the new capital. The project will be developed over four phases, with the first launching by the first half of 2018. The privately devel oped Mostakbal City, also known as Future City, is a new 11,400 feddan 48 square kilometer¡ district on the east side that has already at tracted a number of projects. These

A DRIVE FOR DEVELOPERS Strong sales through 2016 and 2017 also announced that its sales volume says Sherif. “The most prominent have kept the sector on track, with has grown 70 in 2017 over 2016 trend we are witnessing is ex the most prominent developers levels. tended payment terms.” Before recording solid increases in sales, Experts attribute the excep the float, the regular payment revenues and net profits. SODIC’s tional performance to a number of plans ranged from four to seven sales revenues grew 40 year on factors. “Highly leveraged devel years. However, developers have year in 2016, and consolidated net opers successfully managed to adopted more flexible payment profits also grew 130 year on year pass on all costs to consumers,” schemes, extended up to 12 years, in H1 2017 to EGP 340 million. notes Noaman Khalid, economist to offset price increases and ac Emaar Misr’s net profit for 2016 at CI Capital. Tarek Abdel Rah commodate reduced consumer grew 97 over 2015, and in 2017 its man, PHD’s co CEO, adds, “It’s all purchasing power. “This is ex revenues and profits posted an av about supply and demand: devel pected to prevail in the medium erage growth of 20 and 6 opers with brand names that res term but is expected to go back to quarter on quarter, respectively. onate and a solid record were able regular four to five year terms Similarly, Talaat Moustafa Group to transfer the increase in their ex once incomes catch up,” Sherif Holding’s net profits and revenues penses to consumers.” predicts. To make sure consumers grew by an annual 8 and 6 in Another factor is a slight change can still afford their products, “de 2016, respectively, and its revenues in sales tactics. “Price increases velopers are also expected to offer have grown by an average 17 quar have been in the normal ranges after smaller sized units in the ter on quarter in 2017. Rooya Group the one off hike post devaluation,” medium term,” he adds.

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STATE OF THE SUBURBS

SELECTED DEVELOPERS’ FINANCIAL PERFORMANCE (IN EGP MILLION)

2015 2016 Q1 2017 Q2 2017 Q3 2017

Six of October Development & Investment Company SODIC Revenues 1,472 2,067 703 470 584 Net Profits 321 441 212 130 507 Total Assets 16,758 20,776 21,360 21,972

Emaar Misr Revenues 3,237 4,009 669 1,090 841 Net Profits 855 1,684 438 539 479 Total Assets 17,514 22,311 23,686 24,614 26,582

Palm Hills Development PHD Revenues 3,642 5,631 1,589 1,639 1,530 Net Profits 916 640 212 137 118 Total Assets 18,787 22,249 25,802 26,740 27,997

Talaat Moustafa Group TMG Revenues 6,180 6,550 1,286 1,977 2,353 Net Profits 771 829 305 391 411 Total Assets 60,443 63,817 65,775 71,008 71,917

Madinet Nasr for Housing & Development MNHD Revenues 785 2,002 752 410 560 Net Profits 245 769 407 104 246 Total Assets 2,434 6,425 8,096 8,563

Source: Company websites, Mubasher Info

On the other hand, real estate compa their profit margins based on much developers with a large capital base nies with not enough leverage to in lower construction costs. After the were able to shield themselves from fluence market dynamics have float, a lot of small developers decided the effects of steep inflation relative struggled post float. “Players in the to delay plans, halt construction or to smaller developers. “PHD’s capital market who took a big hit were renegotiated with their clients,” says base is EGP 6.5 billion, which en smaller developers, who had budgeted PHD’s Abdel Rahman, noting that ables the company to bear difficult

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conditions more than a developer November 2016,” says CI Capital’s with a capital base of EGP 1 billion,” Khalid. “Any slowdown in the sector he illustrates. Another factor is devel categorized as a ‘housing bubble’ opers’ access to finance, whether might arise accordingly. Historically, through debt, equity or selffinancing. investors used to realize profits from “A developer listed on the stock mar the resale of their units to reenter the ket with a large equity base will per primary market. This link is currently form much better in tough times,” starting to weaken.” Abdel Rahman adds. “The primary market has a great “By virtue of experience, financial advantage over the resale market position, execution capability, land because of flexible payment and in bank and track record, established stallment plans and zero down pay developers will always be preferred ments, as opposed to a homeowner clients and suppliers,” SODIC’s reselling their property requiring Sherif remarks. 100 cash up front,” explains Mo Analysts note that the resale market hamed Abdalla, chairman and CEO dipped in 2017, which had some effect of Coldwell Banker Affiliates of on local demand in the primary mar Middle East & Greater Africa. On ket. “From a consumer perspective, the bright side, this may open doors the float had a positive impact on for foreign buyers, who are already the primary market as it accelerated making their way into the resale buying decisions. However, based market, as unit prices have dropped on fieldwork from real estate bro in USD terms by almost 40. kers, the resale market is becoming “Local buyers might be replaced a bit dry and executions of transac by other foreign buyers such as Gulf tions are lengthier compared to before investors,” notes Khalid.

A HUNT FOR HOLIDAY HOMES Dominated by Cairo residents and Hashish and Sharm El Sheikh. Ac second homes postfloat has in nonresident Egyptians, the sec cording to a recent white paper by creased unit prices, but noted that ondhome market continued to Colliers, the number of holiday holiday homes in Egypt remain af thrive in 2017 as property hunters homes in Egypt has grown 90 fordable relative to international turned to the country’s popular va since 2006, with the North Coast destinations such as Seychelles, cation destinations to park their remaining the most popular desti Morocco, Malta, France and Spain. savings in. “Both the rental and nation for Egyptians to purchase a Vacation compounds continue to resale markets seemed quite second home. Colliers’ report notes march along the North Coast as de healthy this summer with Ramadan that hotels are the most popular velopers expand mixeduse commu moving backwards making for option for visitors in El Gouna, nities west towards Marsa Matrouh. longer summers. While SODIC Sahl Hashish, Hurghada and Sharm In August, SODIC announced plans had very limited offerings in 2017, El Sheikh. By contrast, Egyptians to deliver its EGP 900 million Cae we are aware that the industry has staying in Ain Sokhna, Ras Sedr and sar development by August 2018 fared well and believe demand for the North Coast are more likely to with forecasted sales of EGP 1.6 bil second homes, especially the North rent or own properties. Second lion. The company is also scouting Coast, is very healthy,” says Sherif. home buyers in these areas prefer for an additional 300 feddans ¢1.3 According to global real estate purchasing homes through ex square kilometers£ in the area for a services firm Colliers International, tended yearly installment schemes EGP 750 million codevelopment the popular hotspots for second offered by developers compared to project. Jumeirah Real Estate In homes in Egypt are the North upfront cash payments. vestment Company is investing Coast and Red Sea coastal cities The report also indicated that EGP 10 billion in the Jumeirah Bay such as Ain Sokhna, El Gouna, Sahl higher demand for purchases of Ras El Hikma project, which will

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STATE OF THE SUBURBS

include 5,000 homes and three ho 250 feddans with more than 1,000 Al Sahel, an EGP 2 billion project tels. In November, Inertia Proper units already completed; Maxim in the Fouka Bay area with an esti ties announced sales of EGP 2 Real Estate Investment’s Bo Is mated delivery in 2019. billion in phase 1 of its EGP 20 bil lands Sidi Abdelrahman, a 1,700 Egypt’s holidayhome market still lion Jefaira project. feddan 7squarekilometer, EGP remains undersupplied with abun Other projects in the pipeline in 14 billion project consisting of two dant opportunities for developers clude Tatweer Misr’s Fouka Bay in Ras mixeduse communities; and Al to introduce new real estate prod El Hikma, an EGP 3 billion invest Arabia Real Estate Company ucts that can improve occupancy ment over 1 million square meters ARCO Developments’ CityStars levels and price premiums.

EGYPT’S HOLIDAY HOME DESTINATIONS

North Coast

Ras Sedr Ain Sokhna Property Prices:

Villas Apartments (EGP/m2) (EGP/m2)

7,000 6,000 Ain Sokhna 15,000 10,500 3,200 3,500 El Ras Sedr 7,500 7,000 Gouna Sharm Sharm El 7,500 5,000 El Sheikh Sheikh 14,900 10,500 26,000 18,500 Sahl El Gouna 38,000 19,500 Hashish 8,500 14,500 Sahl Hashish 14,500 18,500 10,000 9,000 North Coast 17,000 21,000 Preferred Type of Accommodation:

Hotel Stay at relative/friend’s property Own the property Rent the property

Source: Colliers International

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PROPERTY GOES DIGITAL Technology continues to be a cat former general manager of the on Moussa adds. Coldwell Banker’s alyst for change in all industries, line marketplace OLX Egypt. Abdalla also notes that, “The on and Egypt’s real estate market is Like many other real estate web line real estate market is very no exception. The internet has re sites such as Aqarmap, Proper successful in gathering data that a structured how properties are de tyfinder.eg, and Cooing Estate, developer needs to conduct prod signed and marketed to consumers OLX allows users to list proper uct assessments.” and how consumers buy real es ties for rent or sale across Egypt, Global research suggests that tate. On the supply side, develop and interested buyers can contact the internet will eventually elimi ers are diversifying their project the sellers directly. On the global nate the need for real estate portfolios with properties incor level, this has significantly agents as consumers directly buy porating integrated technology. changed how consumers buy from property owners, but ana Among these are Mountain View’s properties. A recent survey in lysts believe that won’t be the iCity and Abraj Misr’s The Gate in Australia, for example, indicated case for Egypt. “Brokers have cap Heliopolis. Most recently, SODIC that 86 of potential homebuyers italized on the existence of online partnered with Vodafone Egypt to use the internet as their main tool property portals by listing their offer all SODIC developments’ to search for properties. In Egypt, clients’ properties on their be owners access to highspeed inter online platforms track website ac half,” notes Abdalla. “I do not be net, surveillance and smarthome tivity to identify market trends lieve the online real estate market services. “Developers are offering and consumer behaviors. Moussa is a competitor or replacement to lifestyle solutions that are smart explains that during the first half traditional real estate brokerages, and current. It is an everevolving of 2017, 5 million users were look but rather a complement. In fact, industry and technology has be ing for apartments to buy on it can now strengthen the way real come an essential part of it,” Sherif OLX Egypt. On the other hand, estate business is conducted. A explains. only 391,000 users were looking transaction can never be fully car On the demand side, technol for villas, indicating higher de ried out online. But the online ogy has also changed the way mand for smaller sized units as real estate market has been very homebuyers buy and sell their opposed to villas. “Technology successful in getting what we call properties. “Technology has con made monitoring users’ behavior ‘transaction leads,’ meaning di tributed to making the process of easier, which acts as a guideline recting the developer or the prop buying and renting homes much for developers and brokers to erty owner to sale and rental easier,” explains Momtaz Moussa, reach their target audience,” prospects.”

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THE FUTURE OF COMMERCIAL PROPERTY

Generally known as the ‘dark horse’ of real estate, commercial real estate continues to be one of the most promising subsectors in Egypt’s property mar ket. Consumer spending is a key contributor to eco nomic growth and remains strong across all income levels, which explains the raft of retail developments under construction across Greater Cairo. While the rate at which these complexes are being developed slightly slowed down in 2017 as investors adjusted to the post float economy, experts predict a bright future ahead for the retail sector. Office space is also key as the government concen trates its efforts on attracting foreign and regional in vestments. Given its importance to big multinational corporations, classA office space will likely receive more focus by developers in the coming years. Mean while, the growing demand for new medical facilities promises to fuel new growth in the commercial real estate subsector.

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RETAIL REALITIES While Egypt’s retail market is highly prices driven by the new Value Added Consumers responded to the “ex fragmented, it is equally competitive Tax VAT and rising fuel prices “ex treme pressure” on their wallets by due to the nature of consumer spend erted extreme pressure on consumer switching to cheaper products, buy ing. The formal retail sector features wallets” by the end of 2016. However, ing in smaller quantities or shop a wide range of shopping malls, super the global market research firm pre ping less frequently. However, markets, hypermarkets, smaller fran dicts a strong comeback for consumer analysts and retailers believe this chised competitors and registered confidence in 2018 on the back of a was a temporary response to the small and medium enterprises. On the steadied economic environment in economic shock. “Egyptians are a informal front are the souqs street 2017. “The proportion of consumers spending populationthey don’t marketplaces, street vendors, neigh expressing financial difficulty in believe much in savings, which is borhood kiosks and many other inde creased by nearly 20 percentage why retail is very promising in this pendently owned shops. Both points to 45 in Q1 2017, but has country,” says Adosh Sharma, man segments see sufficient demand across since eased somewhat with 36 of ager of Swedish furniture retailer varying income levels. consumers still facing severe financial IKEA’s flagship store in Egypt. According to Trading Economics strain in Q2 2017. More consumers “When we launched our new cata TE’s global macro models, consumer 57 now feel they are able to ‘make logue in September 2017, prices of spending in Egypt was estimated at ends meet’ in Q3 2017, as they have more than 2,000 articles were re EGP 751 billion in Q1 2017, a 30 modified their spending behavior,” duced in response to steadying mar yearonyear increase due to mounting the Nielsen report noted. TE also ket conditions, which consumers inflation resulting from the Egyptian forecasts an improvement, estimating responded to very positively and currency’s float. In its September 2017 consumer spending will break the sales volumes began to signifi report, Nielsen noted that soaring EGP 1 trillion mark by 2020. cantly resurge.”

STOCK OF CAIRO’S RETAIL SUPPLY

Current Supply ('000 square meters) Future Supply ('000 square meters)

273

104

270

1,245 1,303 1,573 1,677 1,054 1,303 1,303

2013 2014 2015 2016 2017e 2018f 2019f

Source: JLL

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THE FUTURE OF COMMERCIAL PROPERTY

EGYPT’S RETAIL METRICS Consumer Spending and Inﬂation 34.5%

32.1% 31.5% Consumer spending 31.1%

Inﬂation

19.5%

15.3%

12.9%

9.8%

EGP EGP EGP EGP EGP EGP EGP EGP 577bn 541bn 515bn 722bn 751bn 770bn 660bn 738bn

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017e Q4 2017e

Source: CAPMAS, Trading Economics (TE)

Inﬂation by Subsector, November 2017

Entertainment

Food & Non-Alcoholic Beverages

Alcoholic Beverages & Tobacco ? Miscellaneous Furniture, Equipment & Maintenance

Clothing & Footwear

Hotels & Restaurants

Education

Transportation

Health Housing, Water, Electricity, & Fuel

Communication

39.7% 32.4% 29.9% 29.9% 26.6% 25.0% 19.9% 19.8% 18.4% 17.4% 11.5% 11.0%

Source: CAPMAS

Egyptian Consumer Spending Conﬁdence Levels

Average Q1-Q3 2016 6% 57% 36% Q1 2017 10% 42% 45%

Q4 2016 18% 48% 30% Q2 2017 6% 57% 36%

Well off Comfortable Make ends meet In difﬁculty

Source: Nielsen

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with retailers’ ecommerce business,” remarks Sharma. Even as advances in retail technology and ecommerce growth transform the industry, how ever, analysts and industry players say modern retail trade in Egypt remains a key growth sector with significant future expansion. While only 8¢ of internet users in Egypt make online transactions and around only 10 mil lion people are credit/debit card hold ers, Sharma says, “the country has solid cash recovery channels that are significantly growing,” such as Fawry, Paymob and other nonbanking pay Instead of sounding the retreat in the interest. “After the flotation, both in ment solution providers. face of economic pressures, investors vestment activity and consumer With disposable incomes shrinking are still launching new developments spending slowed down, especially in amid the pound’s 50¢ drop in value and expanding existing complexes. Q1 2017. But today the economy is in According to global real estate serv a solid state of normalcy compared to against the dollar postfloat, rising fuel ices firm Jones Lang LaSalle JLL, the 2016, and we’ve concerted a lot of ef prices and increases in taxes, con total stock of mallbased retail in fort in solidifying IKEA’s growth sumer affordability is also an issue that Cairo stood at 1.5 million square me plans in Egypt over the next five may alter demand for mallbased re ters of gross leasable area GLA as of years.” IKEA is looking to open con tail. But some retailers point out that Q3 2017. Q1 2017 marked the longan cept stores ranging from 300,000 to even in hard times, money keeps mov ticipated opening of Majid Al Futtaim 400,000 square meters in Sixth of ing. “I’m not worried about falling dis MAF’s Mall of Egypt in Sixth of Oc October and Alexandria, and also posable income because for a number tober, a USD 770 million investment plans to expand by introducing other of years Egypt has had an official on 165,000 square meters featuring a forms of retail in Egypt. ski complex and the country’s first However, a number of factors are economy that was sustained by a gray VOX Cinemas. MAF is also planning fueling concerns about local demand one,” MAF’s chief executive officer to expand its investments in the for mall retailing going forward. E Alain Bejjani said in an interview after Egyptian market over the next three commerce has transformed the global Mall of Egypt’s opening. “The current years. In December 2017, the UAE shopping industry by providing con situation is beginning to look positive based developer announced plans to sumers with convenience, choice and compared to where things were.” inject EGP 23 billion into expanding access to faster, easier shopping expe Retailers’ operations may be tested Mall of Egypt’s operations and com riences. Ecommerce giant Amazon going forward after the government in pleting its 300shop City Centre Al has rocked the U.S. retail industry, November imposed a VAT on leases maza project, which will open in nailing more than USD 130 billion in 2019. Numerous other largescale in net sales revenues in 2016. In early for retail space, malls, hotels, resorts, vestments are also under way. Saudi’s 2017, the Seattlebased online retailer sporting clubs and factories, as well as Fawaz Al Hokair Group is injecting made its way into the Egyptian mar spaces leased for use as educational or EGP 15 billion over the next four ket by acquiring UAEbased health centers. While no information years to expand the Mall of Arabia Souq.com, which has been live in has been disclosed yet on the rate re brand into Tanta, New Cairo and the Egypt since 2014. With nearly 50 mil tailers will be paying, the tax is ex New Administrative Capital. Local lion internet users in Egypt and an in pected to eat into retailers’ profits developer Al Amar Group is investing ternet penetration rate of 40¢, the even more. “While costs have in EGP 300 million in a 370feddan mall rise of ecommerce may reshape de creased by more than 120¢ since the in west Cairo, which is expected to mand for mall retailing going forward. open by 2020. “Egypt is not a single “I don’t believe ecommerce will can float, we’ve raised our prices by only straw market, but a definite multi nibalize modern retail but rather only 75¢¦we’ve bitten a part of the tough straw one,” says Sharma, explaining strengthen it. Around the world, the bullet, which has already crunched our the reasons behind investors’ ongoing success of retail goes handinhand profitability,” notes Sharma.

Industry Insight - REAL ESTATE •41 Real Estate Chap.4_Layout 1 1/15/18 5:31 PM Page 42

THE FUTURE OF COMMERCIAL PROPERTY

BACK IN BUSINESS JLL estimates show that 70,000 EGP 1 billion office complex in space in New Cairo is much higher square meters of new office space New Cairo on 25,000 square me because it is ¤near¥ the new adminis hit the market in the capital in 2017. ters, slated for completion in 2018. trative capital as well as Cairo’s inter These come on top of 958,000 Also in November, KVRD Real Es national airport.” square meters of prime office space tate began construction on its EGP As office space leases are quoted as of Q3 2017, which registered a 500 million Side Walk project, a in USD, monthly rents soared in CAGR of 6.5 since 2012. It may 20,000squaremeter commercial local currency terms when the cur sound like a lot, but demand has complex with 28 office spaces in rency was floated, putting pressure been particularly strong during 2017 New Cairo. The company plans on on tenants’ budgets. However, the and takeup for the next two years finishing the project in one phase market adjusted well, with vacancy is expected to top 1 million square and to start selling by 2018. rates witnessing a minor yearon meters of GLA as a big lineup for Most of the planned new space is year decline to 14 in Q3 2017 from investments is under way. Most of located in East Cairo, of which 17 the year before. JLL attributes these are business parks, which are 60,000 square meters is in Cairo Fes the drop to increased confidence as enclosed communities of office tival City’s office complex. “The of tenants gained greater leverage in buildings and prime commercial fice space segment has been doing negotiating rental rates. “Develop services such as dining facilities, very well since the start of 2017, in ers have responded to the soft mar wellness centers and extensive secu particular in the New Cairo area,” ket conditions and the pressures rity. Developed in the early 2000s, says Mohamed Abdalla, chairman and faced by tenants by reducing rents the first business parks to hit the CEO of Coldwell Banker Affiliates of in ¤H1 2017¥,” the JLL report noted. market were Samcrete Develop Middle East & Greater Africa. “Prices “While some developers have also ment’s Pyramids Heights Office have soared to as high as EGP offered exchange rate caps, the Park and the Ministry of Commu 40,00050,000 per square meter, preference has been to decrease nications and Information Technol while the western side of Cairo is not rents, at least for a short period, to ogy’s Smart Village, both on the doing as well. Demand for office attract and retain tenants.” west side of Cairo. These have paved the way for today’s office space market as tenants have be come more interested in landscaped gardens, modern work environ ments, flexible spaces and logistics facilities. In August 2017, Capital Group Properties CGP announced an EGP 1.5 billion investment in Smart Village East’s phase one, which is slated for completion by 2020, based on a publicprivate partner ship agreement with Egypt’s Smart Villages Company. The business park is located in CGP’s Alburouj project, a 1,200feddan 5.1square kilometer mixeduse community located between Suez and Ismailia Desert Road. Heliopolis Develop ers Group also announced work on Cairo Capital Center, a sixstory de velopment that will add around 7,750 square meters of prime office space in New Cairo by the end of 2018. In November 2017, Redcon Construction began work on an

42• Industry Insight - REAL ESTATE Real Estate Chap.4_Layout 1 1/15/18 5:31 PM Page 43

PRIME OFFICE SPACE MARKET (2017)

Cairo Ofﬁce Space GLA (‘000 square meters)

Current Supply ('000 square meters) Future Supply ('000 square meters)

66 70

889 804 921 958 958 1,028 1,094

2013 2014 2015 2016 2017e 2018f 2019f

Change in Ofﬁce Rents Post-Float

Rental Rate (USD per square meter) Q3 2016 Q3 2017

New Cairo 300 282 6 West Cairo 240 200 17

Central Cairo 420 300 28.5

Prime Ofﬁce Space Occupants (by Sector) Vacancy Rates

Banking

Oil & Gas 14 Food & Beverage Q3 2016 Internet Companies 17 FMCGs Q3 2017

Source: JLL

Industry Insight - REAL ESTATE •43 Real Estate Chap.4_Layout 1 1/15/18 5:31 PM Page 44

THE FUTURE OF COMMERCIAL PROPERTY

MONETIZING MEDICAL DEVELOPMENTS One of the key growth areas for tals and medical facilities.” There from parking to dining facilities. The the commercial property market is is plenty of room for investment, as entire Alburouj Medical District is medical real estate. Egypt’s health the Egyptian healthcare market cur slated for completion by 2022. care industry is one of the largest rently consists of only 2,020 private Medical property is starting to gain in the MENA region, buoyed by hospitals, 380,000 clinics, 40 trans popularity among developers, and a demand from a rapidly growing plant centers, and 582 dialysis centers, number of other projects are currently population. However, the industry despite a population that has passed under construction in New Cairo suffers tremendously from aging the 100 million mark. Davis esti such as Health Care City, Ozone infrastructure and a lack of state mates that “2.7 million square me Healthcare District, Medical Park oftheart medical complexes that ters in Egypt need to be developed Elite, Medical Park Premier and can cater to specialized healthcare into healthcare and education facil United Medical Center. needs. The majority of medical ities, and half a million square me According to Hazem Ashry, chair clinics in Egypt are located in ac ters in Cairo alone.” The market’s man and managing director of tual residential properties, which undersupply is attributed to a num RMP, there is a need for highqual are often distant from medical ber of structural obstacles, includ ity medical real estate projects for a labs, hospitals and complementary ing high land prices and the number of reasons, prime among medical services. This calls for a government’s fixedpricing schemes them being cost. As cost pressures focus on integrated real estate so for healthcare services. increase, healthcare facilities are lutions that facilitate the delivery In 2017, Redcon Medical Parks competing for staff and patients, of higher quality, more efficient RMP, a subsidiary of Redcon De but they have no competitive ad and technologically advanced velopment, launched its flagship vantages due to aging infrastruc healthcare services. “There is project Alburouj Medical District, a ture, poor service and no price room for growth in the MENA re threephase, EGP 2 billion project differentials. “Architecture is often gion real estate market in the with a builtup area of 33,000 square recognized as an important tool in healthcare and education sectors meters on the lands of CGP’s Al attracting and retaining the best more than other sectors, and even burouj. Launched in late 2017, the doctors and the most patients,” he in Egypt,” John Davis, the Middle EGP 800 million first phase covers said at the project’s launch event in East region CEO for the global 11,000 feddans 44.5 square kilome November. Premium medical facil commercial real estate services ters and includes 100 polyclinics as ities can also contribute to more ef firm Colliers International, told well as diagnostics and wellness cen ficient delivery of care. Because the media in October 2017. He ex ters, laboratories, a gym, pharmacies healthcare is a laborintensive in plained that the healthcare market and a lineup of restaurants. Phase dustry with 60 to 75 of hospital has vast potential “because the one is expected to be complete by expenses being labor costs, he ex population is growing, and new 2020. The project’s wider picture in plained that introducing a model areas, such as east Cairo for exam cludes four medical buildingsone that improves operational produc ple, have a chance of accommodat hospital building and three housing tivity and reduces staffing needs can ing large communities when specialized medical centers, polyclin substantially improve investors’ re developing day care clinics, hospi ics and clinicsand amenities ranging turn on investment.

44• Industry Insight - REAL ESTATE In ContrackFM, we believe in the detail. We believe in our people and we believe in consistent quality of service delivery that allows the transfer of assets into landmarks. Founded in 2004 as one of its kind in Egypt, ContrackFM provides total and professional integrated Facilities Management Services to large and specialized intelligent high-tech buildings. We customize our services and design them to specifically meet the bottom line business and commercial needs of our esteemed clients. We provide best practice innovative value for our clients, driven with optimum cost considerations that best suit the asset in its operating context.

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