CAIRO // Egypt's property developers say that higher market prices, brought on by an influx of Gulf-based developers and soaring construction costs, have caused a slowdown in the industry. Analysts estimate that only two to three per cent of Egyptians can afford the properties, priced at more than 1 million Egyptian pounds (Dh687,000), that are springing up across the country. "This is a poor country - the people have it tough as it is," said Hatem Issa, the general manager of Iqarat Misr, a Cairo-based property investment company. "The Gulf developers who come here work in dollars. This is a pound-driven market, so it naturally drove prices up."
In recent years Egypt has been the emerging market of choice for many Gulf-based developers, since it offers a large domestic market with low input costs. Industry estimates place the value of Gulf investment in the Egyptian property sector in excess of $885 million per year and growing. "Initially the effect is that [Gulf companies] instilled a level of optimism and excitement because they came in and paid a lot of money for raw land," said Tarek Shahin, a property and construction analyst with Beltone Financial in Cairo. "They are willing to pay historically high prices for land because they think that much money can be derived from the Egyptian public."
The most populous country in the Arab world, Egypt is home to nearly 80 million people. Ninety-six per cent of them live on only four per cent of the land, due to the sprawling deserts both East and West of the Nile. Industry forecasts suggest a demand for 600,000 units a year in Egypt, although Mr Issa says the figure is unrealistic. According to the UN, the urban population is expanding at a rate of 1.7 per cent a year, triggering the dispersal of Cairo's city dwellers to outlying areas.
Intensive urbanisation projects have resulted in major developments around the capital, including Sixth of October City, New Cairo and Katameya Heights. Developers estimate that about 85 per cent of the upmarket properties built in recent years are owned by Egyptians and Egyptian expatriates. However, according to Mr Issa, prices are soaring at unprecedented rates, creating panic within the industry. In Sept 2006, Iqarat Misr sold villas in Sixth of October City for 800,000 pounds; today the same houses sell for 1.8m pounds.
"If the situation was moving step by step then it's one thing, but it's happening bam, bam, bam; not expected at all," said Mr Issa. "If we had time to reformat our strategies and re-evaluate our costs then it might be better, but it's happened so fast and nobody knows what tomorrow will bring." The impact of the Gulf-based developers' positioning in the market is exacerbated by soaring costs. The price of steel reinforcement bars, which make up approximately 20 per cent of the total cost of construction, has risen threefold since 2006.
Despite the concerns of local developers, billboards around the capital demonstrate the ubiquity of their UAE-based counterparts. Emaar Misr has invested Dh20.33 billion in Egypt, including a Dh7.7bn development in Uptown Cairo and the Dh2.57bn Cairo Gate, a commercial and residential development. The company will soon start a project in Marassi, an upmarket residential and tourism community built around an area of seven square kilometres at Sidi Abdel Rahman. The company paid Dh642.8m for the undeveloped land in an auction two years ago. Emaar Misr also plans to build a self-contained residential community close to the Smart Village on the Cairo-Alexandria Desert Road.
Also last year, Damac Properties announced a number of ambitious projects in Egypt, including Park Avenue, a mixed-use centre of four million square metres. It plans to build the New Cairo project, which will comprise residential and commercial properties, over an area of 6.3 million square metres. Al Futtaim Group also recently began work on Cairo Festival City, an indoor-outdoor shopping and entertainment centre of 154,000 square metres, similar to its namesake in Dubai.
Mr Shahin said that the greatest problem brought on by luxury developments from the Gulf was a mismatch in the country's property offerings. "Affordability is going to be an issue but the fact is, people will always need to buy a home so the question now is who will offer a project where they sell more affordable housing?" @Email:email@example.com