American Chamber Mada Press Ad 41(w) x 28.5(h)+5mm Bleed.pdf 2 12/8/16 2:40 PM C M Y CM MY CY CMY K American Chamber Mada Press Ad 41(w) x 28.5(h)+5mm Bleed.pdf 2 12/8/16 2:40 PM C M Y CM MY CY CMY K UNITING ENERGY TAQA Arabia is the largest private sector energy distribution company in Egypt with over 19 years of experience with diversified sources of energy, investing and operating energy infrastructure including gas transmission and distribution, power generation & distribution and marketing of petroleum products. Address: 2, Simon Bolivar Square, Garden City, Cairo, Egypt Tel.: (202) 2796 1494 / 2795 4671 Fax: (202) 2796 2821 www.taqa.com.eg Industry Insight (Real estate)_Layout 1 12/14/16 9:02 PM Page 12 Industry Insight Real Estate’s Filling the Vacation A Commercial Big Picture Housing Gap Venues Break 14 22 34 42 Power of Property eal estate is without a doubt one of the most resilient sectors of Egypt’s economy, with in- Rvestments and profits on the rise even when the economy as a whole is struggling. The 2016 edi- tion of the Real Estate Industry Insight looks at the success stories, challenges and opportunities this Khaled Sewelam many-faceted sector offers investors. First, we look at Director, Research and Publications how demographics are fueling growth even amid in- Amira Sheha Research Manager flation and economic uncertainty and how the gov- Fadila Noureldin ernment’s new mortgage schemes could expand the Author and Economic Researcher pool of homebuyers even more. Second, we detail Kate Durham the high-end suburban communities that still power Editor and Head of Corporate Publications the market and the ways the government and the pri- Nessim N. Hanna vate sector are exploring to secure land and financ- Senior Art Director ing to meet demand from the vast segment of Emy Emile Graphic Designer middle-income homebuyers. Third, we examine the Amany Kassem role of domestic tourism in expanding international Advertising & Business Development Director hotels across the country and the growing popularity Nada Auf of vacation rentals in the secondary home market. Fi- Advertising & Circulation Coordinator nally, we look at the untapped opportunities in the Aya Enaba market for new office buildings and shopping malls, Design & Administrative Assistant and how tenants and owners are working together to Hani Elias weather the currency crisis. Production Supervisor © 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. Industry Insight (Real estate)_Layout 1 12/14/16 9:02 PM Page 14 Real Estate’s Big Picture n The Resilience of Real Estate The real estate sector in Egypt has proven resilient to demand for properties has stayed strong, and a number economic and political shocks over the past decade, of regional real estate developers have made themselves including the global recession of 2007-08 and two rev- at home in the Egyptian market. To accommodate con- olutions since 2011. And that has been a saving grace sumers during the economic and political uncertainty, for the economy, as the sector employs about 5% of the developers have created more flexible payment terms country’s labor force and feeds into more than 90 in- and extended payment schedules, resulting in today’s dustries. Real estate has been growing tremendously typical seven-to-10-year payment schemes for residen- since 2005, often when the economy as a whole is tial properties, moves that have helped the sector to sluggish, and since FY 2012/13, the sector has consis- thrive. However, today its resilience is being challenged tently accounted for around 9% of total GDP. Despite by the many difficulties slowing down economic activity slackened GDP growth following the 2011 Revolution, across the board in Egypt. n Real Estate and GDP Growth Central Bank of Egypt 14 Industry Insight AmCham Industry Insight (Real estate)_Layout 1 12/14/16 9:02 PM Page 16 Power of Property Total implemented real estate investments are generally self-contained, mixed-use communities in Cairo’s east dominated by the private sector, which has accounted and west suburbs. Since 2013, public investments for an average of 94% of total investments since 2005. have increased due to a portfolio of government- Investments by the private sector are primarily fixed on planned projects to shrink Egypt’s housing deficit, the high-end consumer market, representing no more which is estimated at 3.5 million units as of 2015. than 15% of the population, due to its lucrative profit However, dwindling foreign currency reserves and a margins. Appealing to consumer aspirations for high-end widening government deficit threaten to curb the level living, real estate developers have invested heavily in of public investment. n Real Estate Private Investment Central Bank of Egypt n Millennials Driving Demand Home ownership is a goal for the majority of Egyp- the population had reached 91 million, increasing by tians, for both cultural and financial reasons. Growth 1 million in only six months. Between 2005 and in real estate has therefore been closely linked to the 2016, the population showed a CAGR of 2.4%. country’s demographics. Egypt’s population is rising Egypt’s population is projected to grow by almost 60% rapidly at a time when population growth is slowing by 2025, according to the global real estate consulting in other global regions, indicating a sustainable and firm Knight Frank. This exploding growth is a boon for stable stream of demand for housing. In June 2016, real estate as it guarantees people will be buying and the state statistics agency CAPMAS announced that selling homes for several generations to come. 16 Industry Insight AmCham Industry Insight (Real estate)_Layout 1 12/14/16 9:02 PM Page 17 The Big Picture But it is Generation Y, also known as the Millennials, sheer volume, millennials have a major impact on that is really driving today’s demand. Encompassing consumption and spending, making them an impor- those born between 1980 and 2000, this generation tant engine of the economy. And the first wave of this makes up almost 40% of Egypt’s population and more generation, those in the 25-35 age group, are in their than 90% of the current workforce. Because of their prime home-buying years. n Egypt’s Population by Age (2015) Millennial Market CAPMAS According to CAPMAS, the average age for marriage in The flip side of that is divorce: if a couple splits up, Egypt is between 25-27 years old; in 2015, there were one of them needs a new residence, especially if there 969,000 marriages registered, a 1.7% increase over the are children involved. The average age for divorce, ac- year before. As societal norms have it, a couple should have cording to CAPMAS, is around 35 years old, with their own home ready to move into by the time they have 199,867 divorces recorded in 2015—a 14% spike over the wedding ceremony. And when they become parents, 2014 divorces. they start looking to their children’s future. “As the main in- Around the world, owning a house is more costly in come providers, men are obligated to provide [a home] for terms of maintenance, financing, insurance and utilities their children and buy houses for them [to provide] security compared to the option of renting. However, Egyptians against anything that might happen,” notes Mostafa still prefer to inject their savings into home ownership Alashiry, program manager of the American University in rather than leasing. According to data from Aqarmap, Cairo’s (AUC) Real Estate Academy. an Egyptian and Saudi real estate online search engine, Industry Insight 17 AmCham Industry Insight (Real estate)_Layout 1 12/14/16 9:02 PM Page 18 Power of Property only 20% of transactions on the website are leases in and aren’t very stable at the moment. Accordingly, investing Egypt. Aqarmap CEO Amad Almsaodi posits, “There in real assets at this point preserves [the buyers’] wealth. seems to be some kind of a [minor] stigma around rent- Even if liquidating these properties is difficult, their value is ing and leasing especially for families, therefore most preserved.” of leasing activity is conducted by single professionals That said, the argument of real estate as a hedge or non-Egyptian residents.” against uncertainty underestimates the true magnitude Adding to the sociocultural dimension is the financial of demand in the Egyptian market. Jan P. Hasman, head one. Property offers not just a place to live but also a stable of CI Capital’s real estate sector, notes, “Real demand investment. According to a March 2016 report by real es- continues to play a dominant role in Egyptian real estate tate brokerage firm Colliers International, “The volatility of by virtue of its population demographics and migration the Egyptian pound, together with historically high inflation patterns. Currency and expected inflationary pressures rates, has attracted residents to the property investment should be seen as demand catalysts rather than an im- market in order to secure their money.” In other words, real mediate source of demand.” Faced with more economic estate has become a form of wealth storage for buyers look- uncertainty and rising prices, consumers have greater ing to hedge against economic pressures. Alashiry explains, incentive to buy now rather than wait. As a result, de- “The hedging options are foreign currency, which is cur- mand for real estate continues to outstrip supply, even rently quite impossible; or gold, which requires a precise amid pressures on developers to raise prices further due level of understanding; or conventional financial instru- to foreign exchange shortages, increasing construction ments, which are either in the stock market or bank options costs and a weakening Egyptian pound.