CAIRO: Middle and upper class Egyptians plan to defy the global slowdown in real estate sales: 21 percent say they will buy or rent a new property in the coming year, according to a recent survey by market research firm Synovate.
Seventy-five percent of those surveyed acknowledged that although the effects of the real estate slowdown have yet to hit Egypt, the anticipated lower prices will make 2010 a good year to invest.
Tamer El-Naggar, Synovate North Africa’s managing director, justified the bullishness on property: “Generally, Egyptians believe in the stability of property investments and have a good grasp of changing business cycles.
Egypt’s real estate market has thus far demonstrated relative strength in the face of the economic slowdown. Huge demand for housing stabilizes a market that might otherwise have floundered. A report by Oxford Business Group estimates that 6 million units are needed, and with 500,000 marriages occurring annually, property developers can trust that demand for housing will remain high.
“The sector witnessed unprecedented growth over the past years, and although prices slightly decreased in the shadows of the crisis, real estate developers are now more focused on offering flexible payment terms and facilities to lure buyers , El-Naggar explained.
The bulk of home-seekers are middle and lower class citizens whose housing needs have been underserved by a market geared at the wealthiest 5 percent. Developers have recently adopted strategies mentioned by El-Naggar, which are aimed at attracting the top 25 percent of potential homeowners. Yet the survey alleges that the Egyptian upper class is also looking to buy, a market that some analysts say is saturated.
Khaled Khalil, real estate analyst from investment bank Beltone Financial, cautions that the survey seems unrealistically optimistic in the short-term. “Although it is possible that 21 percent of Egyptians would be interested in buying or renting new homes, with the current slowdown in the market it is unlikely that such numbers will actually materialize in 2010.
“The infrastructure is not yet there to support such high numbers of buyers, Khalil added.
Khalil acknowledged that real estate developers sought to encourage hesitant buyers by offering more flexible payment plans and smaller units. In his opinion, lower prices won’t be market-driven, they’ll come from developers targeting a wider swath of the population.
Regardless of underlying factors, Synovate’s survey provides a valuable resource for developers and investors. Mohamed Kamal, business development director for Synovate North Africa, lists several notable facts:
“Sixth of October [City] tops the list of preferred destinations for Egyptians who are considering to buy or rent properties within the next 12 months; followed by New Cairo (17 percent); Al-Tagammu (13); Obour and Shorouk (12); and Sheikh Zayed (5).
“The physical facilities of the property, which also used to be the main choice parameter in the past, has now been replaced by the residence environment in terms of quietness and privacy, which the newly developed zones have succeeded in providing, continued Kamal.
“Until a few years back, Egyptians preferred to cluster in populated areas, mainly in Heliopolis, Nasr City and Downtown. A new trend has emerged following the real estate boom and the development of new zones. Kamal concluded.
Financing the trend
The survey also indicated that the most important factors in buying or renting a property are the unit price (88 percent); the developer’s credibility (80); the property’s proximity to schools/universities (78) and the method of payment (73).
As Khalil and El-Naggar explained, developers have responded to the significance of price and payment method, and are responding, such as by encouraging mortgage financing.
Interestingly, those surveyed shared a preference for half finished apartments, (42 percent), allowing them to complete it at “their own financial pace. Around 150 square meters apparently represents the preferred average flat size, and respondents clearly had a predilection for flats with more than one bathroom (69 percent).
The survey population was drawn from Greater Cairo (Cairo, Giza, Sixth of October, Obour, Shorouk and New Cairo, 65 percent), Alexandria (25 percent), and in the Red Sea including Hurghada and Sharm El-Sheikh (10 percent); the survey size was 1,131.
Daily News Egypt asked Khalil whether, as a real estate analyst, he felt concerned about how vast investments in the outskirts of Cairo would affect the city. Specifically, the possibility of a greater class separation, a decayed and overcrowded city center surrounded by a ring of wealthy suburbs. Khaled indicated that he is not particularly concerned, as residents who currently own valuable property in areas such as Zamalek, Mohandiseen and Maadi would be unlikely to abandon them.
However, he did admit that his own office will soon move out into the suburbs, a telling indicator that for many, commuting in and out of Cairo will no longer be necessary, as business and life alike will be carried out away from city’s chokehold.
Whether real estate developers will make the effort to include lower-income housing in the new satellite cities has yet to become apparent. Although Orascom Housing Communities has partnered with the government to construct lower priced units and SODIC recently acquired land at a low enough price to possibly allow similar construction, according to Khalil, the price to purchase land often precludes the construction of less profitable housing.