- Egypt must find a balance between redeveloping slums, developing affordable public housing and providing accessible financing solutions for low-income families
- The authorities will find that attracting investors for low-end housing is near impossible
- Overvalued land prices mean local and international property developers find that affordable housing has very little financial feasibility
Egypts Ministry for Housing, Utilities & Urban Communities estimates that half a million new homes need to be built every year for five years to keep pace with a population expanding at a rate of 2 per cent a year and plug the estimated backlog of 3 million.
Fewer than 200,000 new units are expected to enter the market in urban areas this year, meaning the countrys housing shortage is set to continue, with no indication that government efforts are working.
In 2014, the housing ministry said Egypt requires $32bn to redevelop slums and informal housing areas over a period of 10 years.
Cairo has since received a $2m grant from the EU, as well as an undisclosed amount from the UAE in June this year. At the time, local reports quoted the then Minister of Urban Renewal and Informal Settlements Laila Iskandar as saying the UAE will provide a grant to help develop 10,000 housing units in impoverished areas in Upper Egypt and Cairo.
Informal housing makes up about 40 per cent of Egypts urban areas following years of neglect from previous governments, which have failed to regulate land sales and the development of unlicensed housing units across the country.
Meanwhile, the authorities have opted to redevelop slums rather than eradicate them. Real estate analysts say this is a result of historic corruption cases and illicit land sales too deeply rooted to rectify.
As a result, Egypt is left in a position where it must find a balance between redeveloping slums, developing affordable public housing and providing accessible financing solutions for low-income families.
The 1 Million Homes project stands out as the biggest effort by the authorities to press ahead with low-end housing units across the country. So it came as a major blow when the housing ministry failed to agree the terms that would have seen the UAEs Arabtec develop the entire project. Instead, the firm will now take part in the initial phase, consisting of only 100,000 units. The housing ministry has insisted the project will go ahead in its entirety and a ministry spokesperson told MEED that other international, Arab and local investors are being approached.
The issue is that while Egypts failure to attract foreign investors for lucrative high-end real estate schemes continues, the authorities will find that attracting investors for low-end housing is near impossible.
Chief among Egypts [barriers] is the fact that the government is the countrys largest landowner through various state-owned agencies, and it has been in its interest to maximise profits from land sales, says Yahia Shawkat, founder of the Cairo-based research centre 10 Tooba.
Tight government control over land across the country, coupled with the 2007 removal of all restrictions on foreign ownership, meant land prices witnessed a 148 per cent increase year-on-year during 2007-11, according to the Washington-based Middle East Institute.
Overvalued land prices mean local and international property developers find that affordable housing has very little financial feasibility in Egypt, although some major high-end real estate schemes have been widely successful despite inflated property prices.
We have to think about something new, says Hesham Shourkri, chairman and CEO of the local Rooya Group. Land is too expensive for developers to cut from cash flow to make it worthwhile. Low-income housing should be built against the price of land and then sold to the government.
The best thing instead of subsidies is that the developer is obliged to build a certain number of apartments for low-income housing and [hand them over] to the government. Such a model could see the private sector building large numbers of low-income homes.
In May this year, the Washington-based World Bank approved $500m of financing for Egypts $2bn Inclusive Housing Finance Programme, via the Washington-based International Bank for Reconstruction and Development.
The scheme is intended to improve access to home ownership and rental for 4.2 million low-income Egyptians, including 1.6 million who live below the poverty line.
The scheme is supposed to subsidise rents and mortgages for low-income households. It plans to use vacant and unfinished units, of which there are an estimated 3 million in urban areas alone.
Instead, the programme has not materialised into anything more than a ballot system, with no data to indicate the number of beneficiaries from the scheme.
The issue facing the government and the housing ministry in particular is that much of the funding for housing programmes was meant to be provided by the housing ministrys New Urban Communities Authority (NUCA).
For example, the Social Housing Fund that was recently established to build subsidised housing was supposed to receive revenue from NUCAs budget surplus in addition to a full 1 percent of revenue from NUCA land sales, the two most lucrative sources of finance for the fund.
However, an amendment to the social housing law after the Egypt Economic Development Conference in March changed the laws diverting surplus from NUCA to the fund in an attempt to protect the state budget. Further to this, the new public-private partnership (PPP) models for real estate involve no sale of land, thereby eliminating revenues that could be diverted to the fund in the form of a tax levied on land sales.
Egypts pledge to tackle the housing crisis is now under threat as the mechanisms required to deliver such a solution prove fragmented and inapplicable. The government must find a way to engage the private sector.
There is change in the market across the region where developers are looking at ways to offer affordable solutions and if the central bank in Egypt can continue financing with interest rates of 7-8 per cent, more developers could be interested, says Hassan Hussein, chairman and managing director of the local El-Taamir Mortgage Finance Company.
The challenge for Egypt will be to regulate land prices, ensure access to affordable mortgages and improve the general investor climate if it is to find solutions for a nationwide housing crisis that has resulted in illegal construction, informal housing and widespread poverty.