Egypt has a growing housing finance sector. As the mortgage market does not yet meet the breadth of the population who might afford a mortgage, most households still finance their housing independently, with savings or non-mortgage credit.
The lowest recorded interest rate on a mortgage in Egypt is 12 percent, as of September 2016, at a term of 25 years. The cheapest newly built house by a developer recorded by CAHF is US$ 22 737, which is for a 63 square metre unit. Cement prices are lower than the continental average, at US$ 5.70 for a 50-kilogram bag.
With an urbanisation rate of 2.28 percent, demand for affordable housing will remain strong, both for rental and purchase. Housing microfinance will play an important role in increasing the supply of housing, and efforts to increase access should be undertaken. Egypt had EGP 364 million (US$ 41.4 million) worth of outstanding mortgages in April 2016, a 23 percent increase from the year before. The government has taken on an active role in the construction of new units, particularly with the planned new capital city. An annual average of 45 000 units have been constructed over the last four years, short of the annual demand of 100 000 units. With a good macroeconomic environment, sound policy, better data and increased access to affordable credit, an enabled housing market can increasingly provide housing that the average household in Egypt can afford
Find out more information on the housing finance sector of Egypt, including key stakeholders, important policies and housing affordability:
- Access to Finance
- Housing Affordability
- Housing Supply
- Property Markets
- Housing Policy and Regulations
- Housing Sector Opportunities
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2016 edition, which has up-to-date profiles for 51 African countries.Download yearbook
Egypt is a populous nation, part of the Maghreb Region. Its capital, Cairo, is one of the continent’s megacities, with a current population of 91.14 million. Egypt’s housing crisis affects millions across the countryThe government of Egypt is strongly working towards achieving the desired economic development for Egypt through its economic reform plan, in which housing and urbanization are highlighted as central to their agenda.
Egypt is working on improving the investment environment to facilitate the Private Sector’s access to Housing Projects. In one of in the World Bank’s (WB) workshop on engaging the private sector in the housing projects, the minister of International Cooperation Dr. Sahar Nasr emphasized the significance of cooperation between the private and public sectors and the necessity to inject investments in the housing sector to face relevant challenges, noting that the government was committed to helping limited-income families to obtain new housing and develop informal settlements. She noted that the government was committed to helping limited-income families to obtain new housing and develop informal settlements.
Egypt’s economy has improved since the presidential election in July 2014. GDP is showing continuous and sustainable growth, registering 4.3 percent during the third quarter of the fiscal year 2016/2017. This is up from 3.8 percent in the previous quarter of the same year and 3.4 percent in the first quarter of the fiscal year 2016/2017 and compared to 3.6 percent during the same period of the previous year. This is mainly due to improving investments and net exports. Investment spending rose significantly by 12 percent to record EGP 69 billion, which reflects the government interest to increase investments in infrastructure and to improve public services.
The government of Egypt has started implementing an economic reform program according to the International Monetary Fund recommendations. The program is targeting growing the economy to generate more job opportunities across all sectors. In addition, the program is targeting the improving standards of living for the low and middle-income levels. To achieve that, the government is keen on improving the slum areas and public services, as well as boosting investments in infrastructure. In addition, the government is working on providing social housing units for the low-middle income all over the government in addition to enhancing mortgage finance conditions for the poor.
With the increased confidence of international institutions in the Egyptian economy, by June 2017, Fitch Ratings has affirmed Egypt’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B’; with a Stable Outlook. The Country Ceiling has been affirmed at ‘B’ and the Short-term foreign currency IDR at ‘B’. Fitch announced that Egypt might be under pressure to increase spending on social programs specially the social housing program, as it expects inflation to be near 20 percent by the end of 2017, and to decline to an average of 13.5 percent in 2018.
Access to Finance
In 2016/2017, the Global Competitiveness report ranked Egypt 111 of 138 in financial market development indicator compared to 119 of 140 countries in the 2015/2016 report. With regard to ease of access to loans, Egypt ranked 136 of 138 countries. Risks to Egypt’s public finances have increased significantly during the political transition, and authorities continue to adopt an accommodative fiscal policy stance amidst low tax revenues.
In Egypt, there is 13 mortgage companies operating in the Egyptian market (Sakan, Al-Oula, EHFC, Egyptian Housing Finance Co., EMRC, Amlak, Al-Tayasor, Tamweel, Tamweel Emirates, Naeem, Al-Ahly, Arab African International, Al-Ahly United, and El-Masreyin) in addition to 12 bank out of 39 – and 197 real estate appraisers. Banks offer housing Loan amount starts from EGP 120,000 up to EGP 5,000,000. The interest rate is 7 percent for housing units of EGP 150 000, 8 percent for units worth EGP 950 000, and 10.5 percent for units that exceed the value of one million Egyptian pounds. The maximum amount of any loan depends on the net income of the borrower, and the monthly installment should not exceed 40% of the monthly net income.
The Central Bank of Egypt (CBE) made an amendment to the definition of SMEs and micro-projects. SMEs were previously described as companies with sales of less than EGP 1 million (US$ 55,555) and with fewer than ten employees. According to the new definition, the sales of small companies with less than 200 employees range between EGP 1 million (US$ 55,555) and EGP 50 million (US$ 2.8 million). Employment in small companies, according to the new definition, is less than 200 individuals.
During the first 6 months of 2017, mortgage finance granted by the companies was EGP 956 million compared to EGP 540 million pounds during the same period of 2016, representing an increase by 77 percent. The total amount of mortgage granted by the companies during the first 6 months of 2017 was estimated by 3.5 billion pounds representing an increase by 27 percent.
The volume of factored securities amounted to EGP 3.5 billion (US$ 0.19 billion) in the first six months of 2017, compared to EGP 2.4billion (US$ 0.13 billion) in 2016, an increase of 45 percent in 2017. Financing accounts of the seven licensed companies estimated at EGP 4.3 billion (US$ 0.24 billion) by the end of June 2017, representing an increase by 62percent.
Real estate activity was on the top of the list of economic sector activities recording EGP 6.9 billion (US$ 0.38) by 64 percent of the total activity, followed by manufacturing contracts by 10 percent , and Truck Leasing and Financing with a value of EGP 931 million (US$ 51.7 million) by 9 percent and in the fourth place, Contracts of heavy equipment recording EGP 732 million (US$ 40.7 million) by 7 percent from the total activity.
The World Bank classifies Egypt as a low-middle income nation, with a per capita GDP of less than EGP 12 000 (US$ 1 600). In addition, according to the World Bank’s calculations, the gross national income per capita was EGP1 960 (US$108.9) per month in 2013. Housing affordability is limited despite government policy efforts. Just over one-fifth of Egyptians have incomes lower than US$2 per person per day; with northern Egypt being the most impoverished.
On a yearly basis, there is around 900,000 weddings in Egypt, which is a major driver of demand on the real estate market. According to the managing director of Sixth of October Development and Investment Company (SODIC), he estimates that Egypt’s housing gap is around 3 million units. Private developers collectively provide about 20 000 units per year, which is not sufficient to meet the backlog. According to forecasts from Colliers, a real estate services company, an extra ± 90,000 units will be needed per year through to 2020 to meet demand.
According to a study by Pharos Investment Holding, real estate prices rose significantly during the period from 2011 to 2014, by at least 50 percent per square meter. Which led to an increase in the profits of real estate companies during this period, at rates exceeding 50 percent. One of the reasons for the steady increase is due to the continuous increase in the prices of building materials, especially after the central bank’s decision to float the pound and its depreciation against the dollar. According to Aqarmap (a real estate search engine), demand for real estate declined during the last part of May, with the value of the index (Aqarmap index) to 2364 points, which represents a decrease of 12 percent in the level of demand. They expect demand to remain low, with the exception of demand from returning expatriates from the Gulf region. Their number of visits to their site (https://egypt.aqarmap.com/en/) has increased recently and we expect their sales to represent more than 70 percent of total sales in the market during June.
On 24 of February 2017, the Central Bank of Egypt has amended the Mortgage Initiative for Low- and middle-income people which has been issued on 19 February 2014. The Executive Directorate of the Central Bank decided to adjust the maximum for the low-income segment to become EGP 2100 (US$ 116) instead of 1400 (US$ 78) with a five percent interest rate. In the same context, they decided to raise the maximum monthly income limit for the middle-income segment to EGP 10 000 (US$ 555) per single person From EGP 8 000 (US$ 444) and EGP 14 000 (US$ 778) for family from EGP 10 000 (US$ 555). In addition, they raised the maximum unit price for the middle-income segment to EGP 700,000 (US$ 38 888) instead of 500 000 (US$ 27 777).
Most developers focus on delivering housing for the high-income segment of Egyptians accounting for around 20 percent of the population. This generates more profit, than housing that is primarily targeted at poor and low middle-income groups.
House prices in Egypt relative to income are more expensive than in Western Europe, double most Gulf countries, and four times more expensive than the USA.
Real estate prices inched upward as the economy picked up steam. Coupled with corruption and real estate tax, fixed-price plots intended to spur affordable development and alleviate crowding in the capital were often bought and sold at a profit a few years later, undeveloped. Adding to this the continuous increase in the prices of building materials which led to higher prices in the real estate market.
Egypt’s population has tripled in the last half century, and now has a population of to 91.14 million; and the vast majority of its citizens continue to live on just five percent of the country’s land in the Nile Valley. While the private sector has produced a lot of luxury apartments and upscale developments, there are only a few options for ordinary working people. Seeking to address Cairo’s chronic shortage of affordable housing, the government has recently announced several mega-developments like the new administrative capital which is supposed to include a huge number of units and projects. It is to be located 45 kilometres (28 miles) east of Cairo, between Cairo and the Suez Canal and just outside the second Greater Cairo Ring Road. It is planned to consist of residential districts, artificial lakes, educational institutions, hospitals and clinics, mosques, 40,000 hotel rooms, a major theme park, 91 square kilometres of solar energy farms, an electric railway link with Cairo, and a new international airport. Furthermore, a plan was set to establish 20,000 housing units for civil servants. It will be built as a smart city. It is planned also to transfer the parliament, presidential palaces, 18 ministries and foreign embassies to it. The first phase of the project will cost around US$45 billion and it is planned to be delivered by 2022.
In January 2017, Housing Minister Mostafa Madbouli said that Egypt has implemented several projects over the past period in drinking water, sanitation and developing slum areas. Speaking at the national youth conference in Aswan, he said that the Housing Ministry launched a project for social housing for youths and limited-income brackets. Efforts are underway to build more than half a million units as part of these projects. The challenges of the housing issue for youths and limited-income brackets is planned to be addressed within three years. The Minister added that EGP 7.5 billion (US$ 0.42 billion) was spent on the new cities (Fayoum, Beni Sueif, Minya, Assiut, Sohag, Qena, Luxor, Aswan, New Tiba City, and Dar Misr project in New Minya) in Upper Egypt within the past three years.
In addition, in May 2017, during his participation in a real estate conference organised by Al-Aharm press institution in the UAE, Madboly said his ministry has offered 44 investment projects in areas of 30 to 500 feddans in the new cities in Egypt. He announced that investors contributed more than EGP 160 billion (US$ 8.9 billion) in the field of real estate last year, stressing that 600,000 housing units should be built each year to meet the growing population.
President Abdel Fattah El Sisi inaugurated the first two phases of “Asmarat” low-cost housing project in Muqqattam district of Cairo. Asmarat project was established on an area of 126 feddans with more than 10,980 housing units along with services utilities. It was set up through cooperation between the Ministry of Housing Informal Settlement Development Fund (ISDF) and the Ministry of Local Development and Long Live Egypt Fund at a total cost of EGP 1,582 billion (US$ 87.9 billion).
President Abdel Fattah Al Sisi decreed the increase of residential housing units in the first and second phase of the social housing program to 600,000 units to meet the citizens’ demand.
The first phase of the social housing project will create 256,000 units. A total of 180,000 units has been completed so far. The second phase of the social housing project will see 275,000 units completed in mid-2017, which would bring the total of first and second stages up to 531,000 units.
The new Urban Communities Authority will begin to receive the 400,000 apartment units commissioned by President Abdel Fattah Al Sisi during a year in a number of new cities. A number of contracting companies have completed implementing a large number of these units and it is planned that the authority will receive them by August 2017.
150 000 units are planned through the Dar Misr project with areas ranging from 100 to 150 m2. The meter price ranges between EGP 2700 to (US$ 150) EGP 4250 (US$ 236). It is targeting the middle income segment with a monthly income of EGP 3,000 (US$ 167) to EGP 10,000 (US$ 555). Currently, the ministry of housing is working on the implementation of 55 000 units in the first and second phases of the project, with a cost of EGP 18 billion (US$ 1 billion).
Egypt’s property tax law was amended in 2014. President Abdel Fattah Al-Sisi issued Presidential Decree 117/2014, amending the 196/2008 Property Tax Law to modify the tax-exempt tranche so that it includes those owning a single residential unit valued at up to EGP 2 million (US$ 111,111). Hotels, clubs, hospitals, medical centres and clinics affiliated to the armed forces are exempted from paying taxes. Residential properties with annual rental values less than EGP 24 000 and commercial units with annual rental values less than EGP 1 200 are also exempted.
Egypt’s property market is generally unregulated, consequently a vast majority of Egyptians cannot afford to buy a proper accommodation in most Egyptian cities which fits the number of the family members. The extremely high inflation has led to the growth of informal settlements, with poor infrastructure and quality of living.
The real estate sector was one of the of the most affected sectors after the Central Bank of Egypt’s (CBE) decision to float the pound on 3 November 2016, as it lost around 52 percent of its value. This caused uncertainty and doubts in the real estate sector, leading both investors and owners to postpone their decision until the value of the pound stabilises. Furthermore, this has increased costs of raw materials, and had a negative impact of investors’ cash flows. The extra costs were transferred to the end customer, resulting in huge price hikes. Most real estate developers had increased their prices between 15 and 20 percent. However, a lot of Egyptians started to buy properties at the new prices with longer payment plans of between five and seven years.
According to Aqarmap, the average price per meter for New Cairo’s Fifth Settlement (luxury area) has risen from EGP 5,450 (US$ 303) for apartments and EGP 11,550 (US$ 642) for villas in November 2016, to reach EGP 6,250 (US$ 347), and EGP 13,050 (US$ 725) respectively in March 2017 with an increase of 12-15 percent. In addition, the average price year-on-year increase is 30 percent. Average sales prices for both apartments and villas decreased significantly in US dollar terms. Property owners started to realise they have to increase unit prices, as keeping the same pre-flotation prices would mean losing 55 percent of the value’s property in dollar terms, according to a JLL report. Yet, rentals within the residential sector have shown more resilience towards currency flotation than sales prices. There is a huge gap between average incomes and residential property prices, with the average house price to income ratio in Cairo being 11 to 1; one of the highest in the Middle East.
Generally, rich Egyptians buy properties purely for investment purposes and to safeguard their savings them, instead of putting money into banks or investing in the stock market.
Egypt announced a new mortgage law in early 2016 which could have major impact on the market. The law will lower mortgage interest rates to five percent for people earning up to EGP1 400 (US$78) per month. Additionally, individuals earning EGP15 000 (US$ 833) per month or families earning EGP 20 000 (US$ 1,111) per month will be eligible for mortgages with 10 percent annual interest under the scheme for a period of 20 years. This new reform will require freeing up the mortgage market.
Real estate reforms are crucial to attracting investors. Egypt is ranked 109th out of 189 countries in registering property, according to the World Bank’s latest Doing Business report. It takes 60 days and eight procedures to register a property in the country, compared to less than 30.5 days and 5.7 procedures in other MENA countries.
Other factors that hinder the advancement of the housing sector include high vacancy rates, rent control and informality. Almost 3.7 million urban housing units are either vacant or closed, and an estimated 42 percent of the housing stock in Greater Cairo is frozen under rent control. The high vacancy rate is associated with past rent control in older areas and poor location of new housing.
Housing Policy and Regulations
A new mortgage law has been issued in early 2016. The law will lower mortgage interest rates to five percent for people earning up to EGP1 400 (US$78) per month. Additionally, individuals earning EGP15 000 (US$ 833) per month or families earning EGP 20 000 (US$ 1,111) per month will be eligible for mortgages with 10 percent annual interest under the scheme for a period of 20 years.
In addition, on 24 of February 2017, the Central Bank of Egypt has amended the Mortgage Initiative for Low- and middle-income people which has been issued on 19 February 2014. The Executive Directorate of the Central Bank decided to adjust the maximum for the low-income segment to become EGP 2100 (US$ 116) with a five percent interest rate. In addition, they raised the maximum monthly income limit for the middle-income segment to EGP 10 000 (US$ 555) per single person and EGP 14 000 (US$ 778) for family. Furthermore, they raised the maximum unit price for the middle-income segment to EGP 700,000 (US$ 38 888) instead of 500 000 (US$ 27 777).
The new investment law; Law 17/2015 ratified by President Abdel Fattah el-Sisi allows the government to directly assign, for free, state-owned land to the private sector as part of public-private partnership schemes. Additionally, the minister of housing in the second half of 2015 announced that based on its land ownership, the government will hold a 24 percent equity share in the new capital project.
Egypt’s housing policy framework has been assertive in addressing the challenges of supply and affordability, but its efforts have been criticised as insignificant. Recent political and social instability has further undermined these efforts and highlighted the need for a new approach. A shift from supply-side housing subsidies to mechanisms stimulating private sector involvement in the mortgage market promised to promote the rapid growth of Egypt’s housing sector, stimulating broader economic growth in turn.
EFSA’s board of directors published decision no. 64 of 2015 regarding the conditions and requirements that must be met for granting a license to practice mortgage finance and refinance activity. Among the conditions to be met in the mortgage finance company that its issued capital shall not be less than fifty million pounds. Upon its establishment, the company shall pay the quarter of this amount. The company is committed to disburse the entire amount within one year from the date of being listed at the commercial register.
The capital of a Mortgage Refinance Company shall not be less than two hundred and fifty million pounds. Upon its establishment, the company shall pay no less than half of the amount in cash. The company is committed to complete it in three years at the most.
Housing Sector Opportunities
One of the main issues facing Egypt’s real estate resale market is the fact that it is still underdeveloped, and most property owners ask for the requested amount as an upfront payment. During the current environment of volatility and uncertainty, buyers will avoid paying large amounts of cash. As a result, buyers tend to buy new properties with long-payment plans. If Egypt’s real estate market indicators are measured in Egyptian pounds, prices will show a general increase. Yet in US dollar terms, prices will show a decrease. The decrease, however, does not equal the 52 percent devaluation of the pound caused by the flotation in November but is slightly lower due to the value indicators’ increase in pounds. In the near future, real estate market prices are forecast to increase further to match the value lost by the Egyptian pound and rising inflation. Adding to this the low and decreasing value of the income of most the Egyptians, it is expected that the affordability levels will highly decrease. Hence, the real estate market will face a recession period of time.
While in regards to the resale market, it is expected to take a few months to stabilise but will eventually increase by percentages comparable to the new sale market. This is because the owners of the already purchased units have not been affected by the higher prices, as they have already purchased the units while the prices were low.
According to international real estate firm, “JLL”, residential sale prices have increased across Cairo in the second quarter of 2017, as the market begins to stabilise following the sharp decline in prices in USD terms from the recent devaluation of the EGP. The sale market continues to experience more flexible payment plans and the development of smaller units, to help mitigate the effect of price increase. The hotel sector is the only one currently in the upturn stage of its market cycle as the currency devaluation has made Egypt a more affordable destination for foreign visitors.
In an attempt to improve the investment environment, the Egyptian government is aiming to fast track the adoption of a new investment law, which is now undergoing final regulatory stages. This law aims to attract investment into real estate and other sectors by removing a longstanding bureaucratic obstacles. This new law should increase investor confidence and create new development opportunities.