Soon after being asked to form a new cabinet, Egypt’s Prime Minister Ibrahim Mahlab set out his priorities for government. The need to restore security and attract more investment were the two main issues he identified at a press conference on 25 February, but among a host of other items he also mentioned the need to develop real estate finance.

As a former housing minister, Mahlab ought to know the problems in Egypt’s real estate market well enough, but given how quickly prime ministers and presidents have come and gone of late, there can be little certainty he will have time to do much about them.

Affordable housing

The current authorities in Cairo do, however, have some friends with deep pockets. On 9 March, Hasan Abdullah Ismaik, CEO of the UAE’s Arabtec Holding, announced a deal to develop 1 million affordable housing units at 13 sites around the country. Arabtec says the £E280bn ($40bn) cost will be funded by Egyptian and foreign banks, and although the contractor did not name them, it would not be surprising if the Abu Dhabi government or the UAE federal authorities were the ultimate source of much of the financing.

Affordable housing is certainly badly needed, but the reality in other parts of the property market is that there is too much supply, particularly in the capital. Tourists and expatriate businessmen have stayed away because of the turmoil and any substantial and lasting improvement will require political stability.

The continuing problems are clear to see almost anywhere in Egypt. In the fourth
quarter of last year alone, rents for villas in New Cairo declined by 12.5 per cent to $3,500 a month, while apartment prices dropped by 18 per cent to $900 a month, according to data from US property consultancy JLL (formerly Jones Lang LaSalle).
In 6th of October City, villa rents remained steady, but average apartment prices fell by 28 per cent to just $630 a month.

Sales prices have proved more resilient. The average sales price for apartments and villas in areas such as New Cairo and 6th of October City remained steady in the final quarter of 2013, but there has been no real growth for more than two years.

The political turmoil also helps to explains the dire situation faced by hotels across the country. According to UK consultancy EY, average room rates in Cairo fell to $81 a night in December, down from $88 for the same month a year earlier. That made Cairo by far the cheapest of all the Middle East capitals surveyed by EY. Unfortunately for hoteliers in the city, they also had the lowest occupancy rate, at 26 per cent, meaning room yields were just $21 a night in December. Prices in the Red Sea resorts of Hurghada and Sharm el-Sheikh were even lower, at $25 and $44 a night respectively last year, but occupancy levels were at least higher, at 60 per cent in both places.

Yousef Wahbah, Middle East and North Africa head of transaction real estate at EY, says Cairo had the largest drop in revenues per room in 2013 out of all the markets it surveys around the region. Average room yields fell by more than 41 per cent compared with 2012, due to the twin issues of political uncertainty and security concerns.

New hotels are still being added, however. In the final quarter of last year, the 350-room Le Meridien opened its doors at Cairo International airport, taking the city’s total supply to 27,700 rooms across 161 properties. The Nile Ritz-Carlton, a remodelling of the existing Nile Hilton hotel, is due to open by the end of March, and the St Regis Cairo is due to open in September 2015.

Political situation

Ayman Sami, head of JLL’s Egypt office, says room rates are unlikely to fall further, but any growth hinges on the political situation.

“We would not expect to see any further softening in room rates or yields in Cairo as the current rates are already extremely low,” says Sami. “In our view, the hotel market is close to the bottom of the cycle and the next move is likely to be towards higher occupancies and room rates. The timing of this improvement will be related to the security situation in the coming months. The upcoming parliamentary and presidential elections could result in further demonstrations and protests. The scale of these and the response of the security authorities will have a major impact on tourism levels and therefore hotel performance.”

In contrast to the additional hotel rooms, no new grade A office space was added in the final quarter of 2013 and the total stock in Cairo remains at 819,000 square metres, most of which is outside the city centre. Some 127,000 sq m of new space was scheduled to be completed before the end of December, but many schemes were hit by construction delays. That work has been carried forward into this year and as a result, some 177,000 sq m of office space is due to come to the market in 2014.

Commercial demand

The lack of new space did at least help occupancy levels to rise slightly towards the end of 2013, and vacancies declined from 26 per cent in the third quarter to 22 per cent in the final quarter of the year. Prime office rents in the more sought-after Nile City Towers remained stable at about $35 a sq m. In other areas, rents were also steady, at $18-25 a sq m in New Cairo and $18 a sq m in West Cairo. JLL says it is aware of potential demand for more than 90,000 sq m of office space from foreign firms that are slowly finding their nerve once again. It says the most significant amount of demand is coming from companies in the oil and gas
sector, followed by pharmaceuticals, chemicals, telecoms and IT.

The fact that some investments are being made and there are tentative signs of demand from some quarters offers a glimmer of hope for the real estate sector, but it would be unwise to be too optimistic. Sami points out that there are fewer demonstrations on the streets these days, saying “2014 could mark the beginning of the recovery of the Cairo real estate market, providing the progress that has been made on the political roadmap during late 2013 is continued”.

Foreign support

For now, however, the only people that appear willing to invest heavily are from the Gulf. The UAE, Saudi Arabia and Kuwait have been providing billions of dollars in aid to the country after the army overthrew the leadership of Mohamed Mursi in July 2013, and where those governments are leading other private firms are following, as the deal with Arabtec shows.

Among other investors, Dubai’s Emaar Properties claims its local subsidiary, Emaar Misr for Development, is the largest single foreign investor in Egyptian property, with a project portfolio worth about £E43.3bn. Its schemes include mixed-use developments such as the 3.8 square-kilometre Mivida and the Uptown Cairo district, as well as the Cairo Gate shopping complex on the Desert Road north of Alexandria.

But for such schemes to do well in the longer term, they will need tourists, foreign businessmen and other expatriates to return. That will require political stability, which, for now, looks elusive.