Cairo Real Estate Market Overview in Q3 of 2013

• Recovery continues to be affected by political unrest
• Selective growth in certain sectors of the Cairo market

Jones Lang LaSalle has released its third quarter (Q3) 2013 Cairo Real Estate Overview report. It outlines that whilst there are signs of stabilisation in certain sectors, the market continues to be challenged by political unrest which is impacting economic recovery critical for growth in the Cairo real estate market.

Commenting on the report, Ayman Sami, Head of Egypt Office at Jones Lang LaSalle said:

“The Cairo real estate market still holds a strong set of long term fundamentals which cannot be ignored by stakeholders. However, the ongoing political instability is impacting overall sentiment and is leading to a slowed pace of recovery in the short to medium term.

He added: “In this challenging scenario, it is interesting to note that the market is still witnessing selective interest in certain sectors of the Cairo real estate market. The hospitality sector is seeing some progress in the third quarter as we are witnessing some confidence returning to Egypt’s lucrative tourism market. In the office market, occupiers who had put their plans on hold are expected to start reconsidering relocation options. Similarly, there could be new entrants in the office market who would seek to take advantage of cost competitiveness. On the other hand, due to high inflation rates over the past couple of years, the retail market will continue to suffer in the short term and will dramatically affect the consumer’s ability to spend on non-essential products and services.”

Summary highlights, Cairo Market Overview – Q3 2013:

Despite some signs of stabilisation during Q3, the Egyptian economy remains under pressure from the continued political instability.

IHS Global Insights has reduced its forecast of real GDP growth for 2013 from 2.7% in January to just 2.1% in September.

Debt levels have continued to increase, with Egypt currently having USD 45 billion of foreign debt, which the interim prime minister has referred to as safe. The Central Bank estimates Egypt’s domestic debt has increased in Q3 to around USD 208 billion.

More encouragingly, Foreign Direct Investment (FDI) has increased to USD 1.074 billion in Q3, up from less than USD 195 million in Q2. The European Union (EU) invested a total of USD 955 million of which the United Kingdom contributed USD 586 million. The increase in FDI represents a vote of confidence in the interim government from overseas investors.

The interim government has made progress on a number of the key reforms required to stimulate the Egyptian economy:

A committee has been put in place to implement minimum wages across Egypt.
The interim government is planning to extend the current real estate tax to the industrial and hospitality sectors (it currently only applies to the residential sector. 25% of the revenue received from this tax will be used for urban renovation projects with a further 25% allocated for the improvement and development of slum areas.

Two new electrical power plants in the city of Banha will commence operation at the beginning of November, producing around 750 megawatts of energy. This represents the next stage of the USD 635 million projects to increase Egypt’s power production.

TUI (a German travel agency) have resumed their trips to Egypt, indicating a return of confidence in the tourism industry.

The New Urban Communities Authority continues to implement a USD 2.85 billion project to build 1 million homes on 250,000 land plots. These apartments will be priced between EGP 250 and 350 per sq m, a lot lower than other social housing units available at the moment. Work has already started on about 30,000 of these land plots.

The government continues to support the expansion of the industrial sector of the economy, providing USD 428 million to investors to develop industrial projects across 36 regions.

Craig Plumb, Head of Research at Jones Lang LaSalle in MENA commented on the Q3 2012 report:

“Despite the current political situation, the Egyptian real estate market continues to attract interest from both local and regional stakeholders, with developers and investors from the UAE and elsewhere in the region committed to projects in Cairo. The office leasing market has seen activity from corporates seeking to move from central locations to suburban locations, while a number of key projects remain on track for completion before the end of 2014.”