Egyptian developers remain buoyant despite market conditions

04 April 2017

According to data from US real estate firm JLL tender inflation has reached 12 per cent in some real estate segments

Although the Egyptian real estate market recorded a 30 per cent year-on-year increase in average unit prices at the end of 2016, the increase has been Egyptian pounds and does not overcome the near-60 per cent devaluation of the currency following the flotation of the Egyptian pound in November 2016.

Current market conditions have improved slightly in the first quarter of this year with many developers offering discounts and lenient payment plans for investors, but the market is set to for a difficult year as developers and investors alike adjust to the devaluation of the Egyptian pound.

For developers a decline in transaction values in dollar terms has meant that the model of raising capital through off-plan sales can no longer support previous plans. Some developers have been forced to scale down new phases of existing projects, offering smaller units in order to balance the recent increase in construction costs.

Construction costs 

The cost of construction has been heavily affected by increased fuel costs, additional taxes and increases to the cost of imported raw materials. This has forced developers to renegotiate contracts with contractors in order to reflect the new cost of construction in Egypt.

According to data from US real estate firm JLL tender inflation has reached 12 per cent in some real estate segments.

This has not stopped some of Egypt’s largest developers announcing new projects, with Cairo’s 6 October City and New Cairo area witnessing the largest announcements during this month’s real estate investor event, Cityscape.

The local Hyde Park Properties for Development Company (HPD) for example announced plans for two major projects across the country.

The company’s new $830m investment plans, which were announced during a conference in Cairo this week, comprises of a resort project in the North Coast area and the second phase of one of its largest projects.

The company spokesperson told MEED at the conference that HPD is launching the second phase of its Park Corner project in New Cairo and a major touristic resort in the North Coast area.

Land prices 

At the same time, for other local developer’s amendments to the interest paid on land acquired before the flotation of the currency last year is an important step that the government must take to ensure the market doesn’t continue to struggle.

“New interest rates are now applying for the total amount and all repayments going forwards,” says Ahmed Shalaby the managing director of local developer Tatweer Misr.

Shalaby also told MEED that he believes a number of government ministries are currently discussing mechanism that can be put in place to compensate developers for the additional costs incurred as a result of the currency devaluation.

It is understood that the government is looking to implement a similar compensation package to the one it has promised to contractors regarding the increase in construction costs over the past few months.

Moving forward, the big opportunity areas in Egyptian real estate in 2017 will be the 6 October City in western Cairo, the New Cairo area and the proposed new Capital City Project.

New Capital City

Egyptian developers are calling on the government to implement a more comprehensive public-private partnership (PPP) model for future real estate projects in the new Capital City.

Shalaby told MEED in Cairo earlier this month that he believes the government would benefit more if it opted for a comprehensive PPP model.

“If the government is able to offer larger plots of land to private sector consortiums that are made up of several developers, consultants, lawyers, banks and contractors, the delivery of the Capital City can be fast-tracked,” he said.

Since the announcement of the Capital City, there have been no projects announced under the PPP model despite the government saying on several occasions that it is prepared to press ahead with similar development models.

Despite this, a number of large local contractors have already been appointed to carry out work in the new Capital City. Hassan Allam Construction and Arab Contractors are currently carrying out over $1bn-worth of infrastructure and building work in the area, which includes the construction of a new ministerial district that will be home to Egypt’s new parliament building. 

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