CAIRO: Egypt needs to up spending on infrastructure projects, Investment Minister Mahmoud Mohieldin said Monday at a housing finance conference in Cairo.
While the construction industry has grown at twice the pace of the economy in recent years, and recent declines in steel and cement prices have spurred continued growth, Mohieldin noted that construction is still well behind in some ways.
“We should not forget that despite of growth in construction, Egypt is badly in need of infrastructure projects, he said.
The Euromoney Egypt Housing Finance Conference kicked off Monday morning with speeches by experts in affordable housing finance both in Egypt and abroad.
The conference was intended to discuss developments in the housing market in light of the global economic recession. Even though the three morning speeches sought to address broader themes beyond the scope of the recession, the downturn loomed large nonetheless.
Richard Banks, Middle East Director of Euromoney Conferences, discussing what he called the ‘new normal’ economy, said that Egypt’s performance in the economic slowdown was encouraging.
“We remain bullish on Egypt, he said.
Banks noted that Egypt’s relatively youthful population meant that broad based demand (especially for housing) would remain high, but that a strong credit market attached to the housing industry had yet to appear.
Following Banks’ introduction, Investment Minister Mohieldin delivered the conference’s keynote address.
Discussing the broader Egyptian economy, Mohieldin touched on the country’s continued GDP growth in the face of developed economies, many of which experienced no or negative growth.
GDP growth for 2009 was originally supposed to exceed 2008’s totals and reach 8 percent. With the economic slowdown, though, the government’s revised estimate is that the economy will grow by 4 percent this year.
Egypt’s economy grew by 4.3 percent in the quarter ending March, an unexpected development that Mohieldin had called “a breakthrough.
“This is considered good in light of the financial crisis, he said. “But it is very bad in light of an economy that was expecting more growth.
Bringing the focus on the sector, he noted that only 5-6 percent of international investment in Egypt is directed towards the housing industry.
That, Mohieldin said, is a number he hopes will increase over the coming years.
While the housing finance industry also continues to grow by leaps and bounds, Mohieldin said that supply is far short of demand, especially for low-income housing which demands more comprehensive financing.
According to Cairo investment bank EFG-Hermes, Egypt’s housing finance sector is growing, but still underdeveloped, with outstanding mortgages representing just 0.3 percent of GDP, a low number even by emerging market standards.
The latest available figures show that the size of Egypt’s mortgage finance market is approximately LE 3 billion, according to EFG-Hermes.
“The housing finance field, he said, “will benefit a lot from the decrease in the interest rate.
According to government figures, the total annual supply of housing units is 150,000 only, which represents a deficit of up to 350,000 units per year.
Pamela Lamoreaux, South Africa’s investment director for International Housing Solutions, addressed the assembled audience to discuss lessons learned from the South African experience that might apply to Egypt.
International Housing Solutions is a firm dedicated to low-income housing projects.
In South Africa, she said, suggesting a method that might work in Egypt, the government required housing finance companies to direct a certain portion of their business to low-income houses.
As a result, the firms did LE 20 billion in financing for low-end housing.
Lamoreaux also discussed how governments need to commit more fully to developing the rental market. If a developer wants to purchase an apartment or a building for rent, she said, they need to have better access to credit.
In South Africa now, Lamoreaux said, the credit industry is weak for would-be developers.
The morning’s final speaker was Tonia Secker, partner at Trowers and Hamlins LLP in London, who discussed strategies employed by the British government to promote low-income housing.
Among the methods she mentioned were part-rent part-purchase plans. In this innovative plan, low-income families purchase whatever portion of their new house they can, paying rent on the rest. As time goes on and as their wealth grows, the families each have the opportunity to buy more equity in their house, thereby paying less rent.
Secker also talked about means of fair rent control methods that provide affordable options for the low-income renter but also treat the home or apartment owner fairly.
The most successful means of development, she said, was public-private partnerships through which the government and private firms collaborated to make affordable low-income housing more accessible.