CAIRO: “Four years ago, Egypt was not among the top ten destinations for investing in real estate, but now, according to a survey of 200 investors, it has reached the pinnacle,” said Blair Hagkull, MENA Chairman of Jones Lang LaSalle, a global real estate services and investment management firm.
Egypt now ranks number two behind Saudi Arabia in terms of investor confidence, Hagkull said as part of his opening address at the Cityscape real estate conference held on Sept. 23 in Cairo.
Khaled Sekry, chief operating officer for Palm Hills Developments, underlined that “the regional real estate hub is moving away from Dubai to Egypt, and will continue to do so for the next three years.”
Basically, “Egypt is on a role,” Hagkull declared, highlighting the market sentiment for the country.
The country’s remarkable performance in the sector is a reflection of a surge in activity worldwide.
According to Jones Lang LaSalle, “Total global commercial real estate investment totaled $132 billion for the first half of 2010, compared to $76 billion in H1 2009, and after reaching a low of 31 percent of total volumes in the first half of 2009, cross-border activity is now back above 40 percent [43 percent], a trend set to continue for the remainder of 2010.”
Moreover, Middle Eastern investors doubled their investments in the first half of 2010 over the previous year, making them, once again, the second largest inter-regional purchasers.
Positive market dynamics
Regarding Egypt’s real estate sector, “The fundamentals of the market”, as Ayman Ismail, Parnter and Chairman of Dar Al Mimar Group, stated, “are robust”.
Rural migration toward bigger cities, most notably, Cairo, has also been a driving force.
In addition, there are 600,000 marriages per year in Egypt, which, in theory, translates into the same number of couples looking to make a housing purchase, according to Ismail.
Foreign direct investment (FDI) — another imperative indicator — into the Egyptian real estate sector, said Sekry, began to gather steam following the G7 summit near the end of 2008, as “the new key word was ‘emerging markets’”.
Against this background, Egypt immediately blipped on investors’ radars, as it is a populous and stable country, he added.
A further incentive for many investors to pump liquidity into Egypt was the affordability of residential space. Ismail argued that Jordan offers double Egypt’s price and Dubai offers four to five times as much.
Filling in the gaps
Several panelists concurred with Sekry that international investors’ ignorance of the opportunities to be seized upon in Egypt is a major hindrance toward developing the full potential of the sector.
Hesham Shoukri, CEO and executive president of Rooya Group, supported the assertion, explaining that due to a simple lack of knowledge about opportunities in Egypt, investors were focusing on Eastern Europe, for instance, where yields are between 5 and 6 percent, while they are as high as 12-15 percent in Egypt.
Shoukri added that real estate market buyers could be divided into two antipodal categories: high and low-income buyers.
As such, the first group, which represents about 2 percent of the market, has a flush of liquidity with which to buy property, while the latter has little extra cash at its disposal to make even basic installments on a mortgage payment.
The result is a lack of a sizeable middle-income sector — unlike the case in developed markets — which can afford to take out a mortgage on a home and pay monthly installments.
Ismail noted that although the data is profuse, little analysis of it has been conducted, which fails to provide assurance to investors’ demands.
In this context, he mentioned that 65 percent of Egypt’s market remains in the informal sector, which is significantly larger than other North African countries.
Shoukri also castigated real estate research firms, including Jones Lang LaSalle, for having provided insufficient coverage of the Egyptian market until now.
Ismail drew attention to four key areas that need to be addressed for the local real estate sector to maximize its gains.
First, trust must be regained amongst local and international buyers, which had been tarnished due to instants of not respecting contract terms.
Second, foreign investors that are willing to invest in infrastructure must be encouraged to come to Egypt, which he characterized as a key issue.
Next, housing must be within the bulk of buyers’ affordability, which is essential, as 65 percent of Egyptians pay with savings or with funds obtained through remittances from abroad.
He noted this to be a particularly troubling dynamic, as savings have begun to bottom out in Egypt, which will likely leave buyers and the industry in a precarious situation.
Deciphering ‘opaque’ data
Inconsistent and non-existent data is a major concern that looms over the series of other formidable obstacles that the sector faces.
In an exclusive interview with the Daily News Egypt, both Blair Hagkull and Ayman Sami, advisor for Jones Lang LaSalle Egypt, explained the importance of accurate data in the real estate industry and its state of play in Egypt.
Sami noted that many elements of the necessary data are not fully collected in Egypt, such as the number of births per year.
“The current framework is unable to capture the complete statistics of the country,” he said.
Hagkull further added that the event’s anecdote about marriages is interesting, but fails to live up to being “hard data”.
As a result, the data that is available, Hagkull confessed, is opaque, but strategies can be established to surmount the challenge.
He illustrated with an example: Ten years ago, he was involved in a collaborative effort with a gulf country to analyze its population growth, which focused on “hard demand” and “growth analysis”.
The results demonstrated a divergence between the government’s numbers and his firms’.
By the end of the process, “by going deeper into the data, we were able to create a new benchmark for the country,” Hagkull explained.
He mentioned that this can “absolutely” be applied in Egypt, and the process has already begun despite still being in “its early stages”.
“The situation is very complicated due to the size of the population as well as the history of Cairo,” he noted.
He nonetheless anticipates that within the next five years, an authoritative framework will be developed, which will delineate how data should be collected and which will be derived from multiple sources.
“The government is working hard to get registration in place for property. They aren’t 100 percent there, but progress is being made,” Sami said.
This year in comparison to 2009, thanks to recent research, a 35-40 percent clearer picture of the sector has been established, Hagkull said.
His firm has compiled a comprehensive report on the Egyptian market, which will be released in the coming months.
Nevertheless, in spite of all research and analysis efforts, “At the end of the day, real estate isn’t a science,” Hagkull mused.