Egypt’s property market surprisingly resilient
Last Updated: October 01, 2015
Following President Abdel Fattah el-Sisi’s election in June 2014 there is new found confidence, despite the ongoing Islamic insurgency in Sinai and several terrorist attacks.
The announcement of the mega real estate project Cairo Capital elicited criticisms of unrealism, but the proof of the pudding will be in the eating.
Further boosting the market is Law 17/2015, ratified by President el-Sisi, which, apart from removing the last remaining restrictions on foreign ownership of land and property in Egypt, introduced rules allowing the government, the biggest landowner in Egypt, to contribute land to the private sector as part of public-private partnership schemes against a share of the revenue.
With an equity share of the profits from joint projects with the private sector, the government now becomes the country's largest property developer.
“This is very positive for the industry,” says Ahmed Badrawi, managing director of real estate developer Sodic. “Essentially, they are becoming partners with a share of the top line. It is a very new thing. We are now bidding for 900 acres in two plots under [this] new system of revenue sharing.”
He says Sodic reported its strongest earnings ever in 2014, and is sitting on a “healthy amount of cash for expansion”.
The average sales price of apartments in New Cairo rose by 8% during the year to the second quarter of 2015, and by 1% compared to the previous quarter. Villa sales prices however declined 7% y-o-y.
In 6th of October City, the average sales price of apartments rose 26% y-o-y in Q2 2015. Likewise, villa sales prices rose 23% year-on-year.
Egypt: real estate market relatively unscathed by revolution
Rental rates are bottoming out in the residential real estate market of Cairo, according to Jones Lang LaSalle’s latest real estate report. The rental market seems to be reaching its lowest point and sooner or later, rental growth will start accelerating. In fact our figures already showed some growth, with a rise in rent demanded of around 10% from last year. The average rent per sq. m. ranges from USD 7 to USD 9 per month, whereas last year, it was around USD 6 to USD 8 per sq. m. per month.
The average buying price per square metre (sq. m.) of apartments in Cairo’s upscale neighborhoods remained more or less unchanged during the year to August 2012. Apartments in Maadi, Zamalek, among others, cost around USD 1,000 per sq. m.
A great majority of the apartments in our survey are located in Cairo’s old rich neighborhoods such as Maadi and Zamalek, though quite a few were located in the nouveau rich neighborhoods like Katameya Heights and El Rehab City.
Some of the neighborhoods to watch out for are in New Cairo. New Cairo is a part of the Beit Al Watan Project of the Ministry of Housing which provides 8,000 land plots (with sizes ranging from 300 to 800 sq m).
The apartments in our survey are listed on Egypt’s popular real estate websites like e-dar. In Egypt, it is a common practice among realtors to not archive old ads in their website. Ads listed as early as 2004 still appear on websites. Although we took extra proper care to include only apartments listed in 2012, we still have doubts about the veracity of the information on some of these ads.
Expats looking for apartments prefer direct methods rather than using realtors. One of the most popular methods is going to the American University in Cairo to look for apartment ads. Another one is going directly to the residential building of choice, and ask the bowab or the doorman for vacancies.
Moderate taxes in Egypt
Rental Income: Rental income earned by nonresidents is taxed at progressive income tax rates. The maximum deduction allowed to cover operating expenses is 50% of the gross rent.
Capital Gains: There is no capital gains tax.
For properties located in the Egyptian cities, a flat rate of 2.5% of the gross proceeds is levied on sales of real estate or building sites. No deductions are allowed.
Inheritance: Inheritance tax was abolished in Egypt in 1996.
Residents: Residents are taxed on their worldwide income at progressive rates, from 10% to 25%.
Moderate costs; complicated buying process
Round-trip transaction costs are around 11.30%; mostly consisting of the real estate agent’s fee (2.5% to 3% plus 10% sales tax), legal fees (3%), transfer tax (2.5%) and capital gains tax (2.5%). Investors should be cautious of the complex ownership and registration process; e.g., only around 10% of properties in Cairo are registered and there are numerous foreign-ownership restrictions.
Egypt's landlords are weakly protected by law
Rent: New tenants do not enjoy rent protection. Nor do they have the right to remain in the apartment at the expiry of the contract, although in the socialist past Egypt’s rental market was highly regulated.
Tenant Security: If however tenants do not leave, in Egypt eviction can easily take more than a year. So it is preferable to rent to foreigners, who are less likely to overstay.
Egypt: Positive economic climateThe Egyptian economy's outlook has turned positive. The rate of Egypt’s economic growth is expected to exceed 4% for the first time since 2010, on the back of a more stable political environment, large donations from Gulf Cooperation Council (GCC) allies and improving business sentiment.
Growth accelerated to 5.6% during the first semester of 2015, compared to 1.2% in the comparable period in 2014. Growth in the fiscal year ending June 2015 is expected to hit 4.2%, according to Planning Ministry data.
According to Minister of Investment Ashraf Salman, “there is an upward trend for the economic indicators of the country and the government aims to achieve better results in the upcoming three years.”
Uncertainties remain, however, due to the political situation. Also the fiscal deficit is still large, despite cuts in energy subsidies and new taxes. Financial support from the GCC has kept public finances afloat but is unsustainable, medium-term.
Nonetheless, the markets remain confident. Moody’s, for example, upgraded its outlook for the Egyptian banking system from negative to stable, forecasting 5% growth during the fiscal year ending June 2016.
“We expect that Egypt’s banking system will benefit from improved operating conditions, resulting in rising consumer confidence and business investments, which in turn will support loan growth and asset quality”, according to Melina Skouridou, CFA Moody’s lead analyst for Egyptian banks.
The rate of investments reached approximately 13% in FY 2014/2015, compared to an average of 10% registered in the past three years, according to Minister of Investment Salman. In particular, foreign direct investments (FDI) amounted to US$5.7 billion during the first nine months of FY 2014/2015, as compared to US$4.1 billion in FY 2013/2014 and US$3 billion in FY 2012/2013.
Egypt is targeting US$15 billion in foreign direct investments during FY 2017/2018.
The unemployment rate stood at 12.6% during FY 2014/2015, down from about 13.6% over the past three years.
High inflation remains one of Egypt’s major problems, due to the cut in energy subsidies in July 2014. Inflation was 11.5% in June 2015, according to the Central Agency for Public Mobilization and Statistics (CAPMAS). Inflation averaged 12.3% from 2007 to 2011, before falling slightly to 8.6% in 2012 and 6.9% in 2013, according to the International Monetary Fund (IMF).