The supply of housing, whether by the government or the private sector, is mainly focused on high-end housing or affordable housing, leaving a notable market gap in the middle-income housing, a report published by Jones Lang LaSalle (JLL) stated.
The report identified middle class as households who cannot spend more that 30% of their income, which ranges between EGP 5,000 and EGP 12,000, on houses. The affordable sales point for such houses were set at EGP 285,000 and a rental price of EGP 32,000 per annum.
JLL mentioned that the “middle–income sector of the market should not be under estimated” as it “equates to 12 million households in Egypt”.
Similar points of argument were raised by a recent report published by Colliers International. The real estate company highlighted that 77% of the housing demand in Greater Cairo is generated by middle-income Egyptians.
“Income levels of this majority range between $5,000 and $65,000 per annum, and affordability is limited to units priced below $151,000,” the Colliers International report said.
Colliers International added that economic housing represents 16% of the total demand, while low cost housing comprises 5%. Demand for luxury houses contributes 2% to the total demand.
Regarding what contributed to the shortfall of middle-income housing, JLL pointed out that high land values, high cost of infrastructure, such as roads, electricity and sewerage, all resulted in that shortage. The report added that for developers, launching such projects is not as attractive from a profit point of view.
“Low adoption of prefabricated construction techniques have contributed to higher construction costs,” the report said. It added that the “limited access to suitable finance for low income families, due to generally immature mortgage markets” also attributed to the shortage challenge the market currently faces.
Discussing means to fix the market shortage, the company suggested that developers should be provided with affordable lands, and the improvement of the access to mortgage finance.
The reducing of the infrastructure and land servicing costs was also addressed, in addition to having regulations to issue the continuous supply of middle-income housing and its affordability.
The report also highlighted the importance of the “promotion of industrial approaches to construction and more unified, large scale procurement processes to reduce construction costs”.
Ayman Sami, Head of JLL in Egypt, stated that having government agencies and developers work together can help address the issue with ease.
“We believe there is a need to re-think the existing relationship between Government and the real estate development industry to create more affordable housing that middle income families can afford,” Sami said.
“We also recommend more innovative planning and design initiatives to create more attractive, environmentally sustainable and cohesive communities as well as accessible financing, empowering middle income families to take a stake in their future,” he added.
Sami noted that although some companies, such as Arabtec and Orascom, are seeking to offer more affordable houses, the obstacles faced by those initiatives weaken them.
“Delays in servicing Orascom’s existing project (Haram City) and delays in agreeing contractual terms between Arabtec and the Egyptian government continue to undermine these efforts,” Sami said.
