CAIRO: Egypt’s property market may have slid into its worst crisis in years, largely because of the state’s poor land management, but a large and young population is building off the books and keeping demand for homes ticking, an industry executive said.
An uprising against president Hosni Mubarak brought further attention to a real estate industry that focused most of its time on the wealthy elite, pricing out the majority of Egyptians and missing out on key revenue from middle-income buyers.
Graft probes into state land sales have translated into increases in cancellations and little or no sales for many firms, derailing construction and hitting a tiny Egyptian mortgage market, which experts say is needed to unlock mid-income property demand.
But Egyptians are still building — unlicensed property — and even those with mortgages are paying early, rather than defaulting, Iman Ismail, managing director of Egyptian Mortgage Refinance Co (EMRC), told Reuters on Tuesday.
"We haven’t had a spike in bad loans. Strangely enough, we have had an increase in prepayments. So it is a very good sign. It suggests to me that people want to own houses," Ismail said.
"With uncertainty in the economy, they don’t want to get into the area where they are out of a job and they don’t have a home," she said at the Reuters Middle East Investment Summit.
Conflicting legislation and dragged out court disputes on state land sales to the country’s biggest real estate developers, like Talaat Moustafa Group (TMGH.CA) and Palm Hills (PHDC.CA), have unnerved investors and highlighted the formal industry’s weak exposure to the middle-income property market.
Strong as weakest link
The previous government auctioned land at high prices to firms that catered to the wealthy and used the money to subsidize housing for the very poor — leaving in the middle a housing shortage of over 200,000 units per year, she said.
"Any housing market is a chain, and like any chain it is as strong as it’s weakest link. There has to be supply, there has to be demand, there has to be infrastructure, and there have to be people that can afford to buy these houses," Ismail said.
Egypt looked to its mortgage market, worth less than LE 3.2 billion and making up about 0.2 percent of gross domestic product, to help unlock demand. But Ismail says mortgages can’t fix the flaws of an "unhealthy" property market.
"Mortgages do not solve housing problems. We have a very clear problem. The high end is finished. Let’s admit it," she said. "There is huge pent-up demand in other sectors."
"This demand is being met through unlicensed building," Ismail said, pointing to 80 percent of her firm’s clients as having mortgages on units lower than LE 30,000, a price point practically no major real estate firm serves.
Red brick buildings, a sign of unlicensed construction, have dotted the Arab world’s most populous nation’s countryside and capital for decades. Since the uprising, little regulation has meant an obvious increase in illegal construction.
"It’s a functioning market, they have their services, there is real supply and demand and there is a home equity market. There is actually something there to emulate," Ismail said.
The new interim government has promised to provide needed housing to plug a crisis that has fueled unrest for years, but as long as disputes over land deals dampen investment interest in the sector, Egypt would still be avoiding dealing with a total revamp of how business is done in its housing market.
"We need to have a resolution to these cases. We need developers that are capable of building big, building on time, on building to specs," Ismail said.
