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 Magreb Region. Its capital, Cairo, is one of the continent’s megacities, with a current population of 91.14 million. Its economy has improved since the presidential election in July 2014: GDP is showing continuous and sustainable growth, registering 5.1 percent growth during the first quarter of fiscal year 2015/2016. This is compared to 5.6 percent growth during the same period of the previous year. By May 2016 Egypt’s budget deficit reached LE11 billion (US$35.34 billion), compared to a deficit of LE 261 89 8 billion (US$29.76 billion) during the same period in the previous year. Unemployment decreased to 12.7 percent in Q1 2016, from 13.3 percent over the same period last year. About 26.3 percent of Egyptians live in poverty (2012/2013 estimate), while 49 percent of upper Egypt cannot provide for their most basic food needs. The state budget for the financial year 2015/2016 saw an increased budget for social protection programs to improve Egyptians’ standard of living. Furthermore, the government is keen on improving the slum areas and public services, as well as boosting investments in infrastructure. Total government debt (domestic and external) reached LE 2 545 billion (91.8 percent of GDP) at end of December 2015.
With the increased confidence of international institutions in the Egyptian economy, by December, Fitch Ratings has affirmed Egypt’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B’; with a Stable Outlook. The Country Ceiling has been affirmed at ‘B’ and the Short-term foreign currency IDR at ‘B’. Egypt is suffering from growing fiscal deficit and high debt/GDP ratio, low foreign reserves coverage of imports accompanied with low external debt and slow progress in implementing economic reform programme.
An increase in FDI is also materialising, fostered by the Egypt Economic Development Conference (EEDC) held in March 2015, which resulted in pledged investment worth LE 443.8 billion (US$ 58.4 billion). In October 2015, the new cabinet adopted a comprehensive macroeconomic programme that focuses on fiscal consolidation, the business environment, the energy sector, and transformational infrastructure investments such as the new Suez Canal and Leather City in Robeiki, among others. According to the International Monetary Fund (IMF), if reforms continue, real growth, could accelerate to five percent by 2018/19.
Access to Finance
In 2015/2016, the Global Competitiveness report ranked Egypt 119 of 140 in financial market development indicator compared to 125th of 144 countries in in the 2014/2015 report. . With regard to ease of access to loans, Egypt ranked 128 of 140 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.
The main challenge facing small- and medium-sized enterprises (SME) in Egypt is obtaining required financing. SMEs in Egypt account for more than 90 percent of the private sector and employ almost 65 percent of the workforce. Long considered as the largest SME hub in the Middle East, as per operating density and pure numbers, Egypt’s current economic challenge is forcing it to rebuild and reinforce this vital base. Considering the dire need to promote SMEs, the Central Bank is focused on transforming the SME finance market. To this effect, it plans to provide a US$ 25 billion stimulus package to fund over 350 000 SMEs over the next four years.[i]
In January 2016, European Bank for Reconstruction and Development (EBRD) committed to provide LE 2 billion (US$ 260 million) in direct debt or equity financing to Egyptian SMEs. In addition to these loans, EBRD, in partnership with NBE, have developed two innovative new credit lines to be on-lend to SMEs,” said ter Woort (country Manager for Egypt at EBRD). The credit lines comprise a US$ 20 million loan focussed on women-led businesses and the second, a US$ 30 million loan to energy efficiency investments in SMEs.
As at the end of April 2016, mortgage finance grown by 23 percent. The volume of mortgages granted amounted to LE 364 million (US$ 41.4 million) compared to LE 296 million (US$ 33.6 million) during the same period of 2015. The Egyptian Mortgage Refinance Company (EMRC) held operations which amounted to 55 million pounds.
The portfolios purchased from real estate development companies reached 60 percent of the total value of contracts within this period and the rest for contracts by clients who deal directly with the companies and clients of the Mortgage Finance Fund (MFF). Additionally, 179 real estate appraisers were listed at EFSA as at end April 2016, compared to 214 in the same period in 2015.
Regarding factoring, the volume of factored securities amounted to 1.46 billion pounds in the first four months of 2016, compared to 1.28 billion pounds in 2015, an increase of 14 percent in 2016. Financing accounts of the seven licensed companies estimated by LE 2.4 billion (US$ 0.27 billion) by the end of April 2016, representing an increase by 73 percent.
Financial Leasing experienced an 8.8 percent decline as at the end of April 2016. The value of financial leasing contracts was LE 7.01 billion (US$ 0.795 billion) this year compared to LE 7.8 billion (US$ 0.886 billion) last year. Additionally, the number of financial leasing contracts declined from 910 to 836. And, the number of financial leasing companies listed at EFSA was 222 companies by the end of April 2016 compared to 216 in the same period last year.
Real estate activity was very high recording five billion pounds by 71 percent of the total activity, followed by contracts of heavy equipment recording 711 billion pounds by 10 percent and in the third place, comes Truck Leasing and Financing with a value of 609 million EGP by nine percent of the total value of the contracts during this period.
The World Bank classifies Egypt as a low-middle income nation, with a per capita GDP of less than LE 12 000 (US$ 1 600). The Central Agency for Public Mobilisation and Statistics (CAPMAS) maintains that the average Egyptian income was around LE 3 000 (US$400) by December 2015. In contrast, by the World Bank’s calculations, the gross national income per capita was LE1 960 (US$261) 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.
According to Oxford Business Group, Egypt’s housing gap is nearing three million units. “Private developers collectively provide about 20 000 units per year, but this barely scratches the surface.
According to forecasts from Colliers, a real estate services company, an extra 90 000 to 100 000 units will be needed per year through to 2020 to meet current demand. This is well above the annual average of 45 000 units that have come on-line in recent four years.
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.
The majority of Cairenes, i.e. 52 percent, are able to afford units in the US$26 000 to US$35 000 range. However, there is little to no supply offered by the private sector at this price it is only provided by the government for a 70-90 square meter flat.
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 simply flipped at a profit a few years later, undeveloped.
Egypt’s population has tripled in the last half century, and now has a population of to 89.4 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 glut 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 capital project which is supposed to be include a huge number of units and projects. In particular, these projects are targeted at medium-income (earns LE 36 000 per year) Egyptians who earn too much to qualify for state-subsidized developments but can’t afford to pay market-rate real estate prices. The vice president of the housing ministry’s New Urban Communities Authority identifies that there is a massive gap in the middle-income segment. The private sector has been moving more upmarket and demanding increasingly high prices, while the public sector is trying to establish more units which fit the low level income.
The Egyptian government plans to build 150 000 affordable homes in the fiscal year of 2016/17. This will lead to greater economic activity and stimulate growth in the wider infrastructure sector, including power and transportation sectors. It has also pledged to provide all utilities in newly developed areas where houses are located in close proximity to strong transport networks.
In April 2016, Egypt’s housing ministry opened its doors to applicants, registering for what it described as the country’s largest-ever offering of low-income housing, with more than 500 000 state-subsidized units available. The qualifying salary must not exceed LE 3 000 per month.
A government fund was established in 2015 for the purpose of financing the construction of affordable housing. The fund is currently worth LE 61 billion (US$6.87 billion), for the new fiscal year starting July 2016, it comprises loans from the World Bank and profit from property and land sales. That is enough to complete nearly 400 000 units still needed to meet a target of 656 000 units set by Mr. Sisi for end of April 2017, said Housing Ministry spokesman Hany Younis.
According to ministry officials, Egypt needs between 500 000 to 600 000 homes annually, of which almost 70 percent should cater to the poor. With a population of more than 90 million and nearly 600 000 new marriages each year, Egypt’s need for residential units is staggering. Over 60 percent of the population is below the age of 30, and as they enter the workforce and get married, they will require homes of their own.
Recently, the Egyptian president Abdel Fattah Al-Sisi had also announced that Tahya Masr (Long Live Egypt) Fund would earmark US$ 127.7 million for the social housing scheme tailored for the youth.
In addition, the Informal Settlement Development Fund (ISDF) is planning to develop 83 shanty towns across 18 governorates next year. The government has announced a spate of new projects to address increasing demand for housing, including the development of a US$ 45 billion new capital in the southeast of Cairo. The 30 000-hectare development will comprise 21 residential districts, 25 “dedicated districts”, 663 hospitals and clinics, and 1.1 million homes capable of housing around five million residents.
The Ministry of Housing hopes to attract new investment in the real estate sector by promoting various investment projects in Arab countries, and by expanding its proposal for new projects in partnership with the private sector. Some of these projects were proposed by the ministry in the Sharm El-Sheikh Economic Summit – aimed at attracting investments.
During the Saudi-Egyptian Coordination Council’s meetings, the ministry proposed 22 new projects to Saudi Arabian investors. The projects will be located in the New Administrative Capital and eight new cities affiliated to the New Urban Communities Authority (NUCA). Moreover, a new Emirati project will be launched in Egypt with investments worth LE 40 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 LE 2 million. 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 LE24 000 and commercial units with annual rental values less than LE1 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.
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.
Over the past year, there has been a substantial shift in investor confidence in Cairo’s real estate sector. The infrastructure and real estate megaprojects, driven by the government and international investors, have had a positive impact on overall sentiment, although this varies across different sectors. Egypt’s currency devaluation is anticipated to boost the property sector. Investors would look to diversify their risk by investing in land and property; property is likely to become more popular for Egyptians “who want to hedge against inflation”.
Egypt has announced a new mortgage law early this year (2016) could have major impact on the market. The law will lower mortgage interest rates to five percent for people earning up to LE1 400 per month. Additionally, individuals earning LE15 000 per month or families earning LE20 000 per month will be eligible for mortgages with 10 percent annual interest under the scheme. This new reform will require freeing up the mortgage market.
Real estate reforms are crucial to attracting investors Egypt is ranked 111th out of 189 countries in registering property, according to the World Bank’s latest Doing Business report. It takes 63 days and eight procedures to register a property in the country, compared to less than 30 days and 5.7 procedures in other MENA countries.
Housing developments, notwithstanding, the persistent inefficiencies in property registration and the unfettered competition from developer finance, further hamper the development of an efficient mortgage market and consequently the down-market affordability of houses.
While the registration fee ranges from LE 525 (US$75) to LE 2 000 (US$300), the Global Property Guide suggests that the actual, full costs of a transaction can be as much as 10.85 percent to 12.3 percent of the property value, of which about a third is paid by the buyer and two thirds by the seller.
It is against the law for a property to be formally traded within five years of purchase. To get around this, property buyers often use a ‘signature validity court verdict’ method, which allows resales whenever necessary and without approvals.
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. The lack of market mobility has led to stagnating neighbourhoods that should have undergone change as part of urban and employment transformation (such as the downtown area of Cairo). The relatively low housing production levels, high vacancies, and low incomes relative to housing costs have resulted in a rapid growth in informal housing production, estimated at half of all housing production, and sometimes more.
Housing Policy and Regulations
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.
Despite the mortgage size growing by 30 percent during the first quarter of 2016, chairperson of the Egyptian Financial Supervisory Authority (EFSA) Sherif Samy believes this is not enough, saying that problems with registration remain the main challenge. It is illegal for companies to finance unregistered real estate units, which currently account for 90 percent of all residential properties.
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
All sectors of the Cairo real estate market have witnessed a positive performance and improved sentiment during the first three months of 2015 due to stronger confidence and investment appetite created by increased economic and political stability. The recent announcement of the mega real estate project Cairo Capital will serve as an extension for New Cairo and will draw the centre of gravity further to the East of the existing city. And, is expected to increase confidence in the Egyptian market.
The positive economic outlook arising from the Economic Summit is expected to result in additional investment in the residential sector, strengthening the market further in 2015. According to international real estate firm, “JLL”, residential sale prices have continued to increase across Cairo in the first quarter of the year with office rents increasing in New Cairo and retail rents edging further upwards over the past quarter. The hotel sector has also recorded improved performance with tourist numbers and hotel occupancy rates improving.
There is a general optimism that home financing will gain an increasing foothold in the market in the medium term. In a clear signal of this optimism, in May 2015 Egyptian investment bank Beltone Financial announced plans to open a mortgage-financing subsidiary with a paid-up capital of LE50 million (US$6.9 million). The move will bring the total number of dedicated mortgage providers to 14, a substantial number for an undeveloped sector.
The provision of home financing is critical in making home ownership a realistic target for Egypt’s citizens. The introduction of the mortgage law in the early part of the last decade has facilitated the growth of the market in Egypt. The recent amendment allowing foreign companies to offer home financing as well as the Central Bank initiative to provide long term financing to institutions offering mortgage products for low cost housing will contribute to the continued growth of the sector.