Egypt Real Estate Sector - Talaat Moustafa Group

05 October 2011
What is the land worth in a “No-Demand’’ market
Developers such as PHD have already returned about 10 million sq m of land and
will return further land to avoid any further legal disputes and offset pressure on
working capital resulting from land payments. If the stand still in the sector continues, we
believe that the government will struggle to auction any potential recovered land at
reasonable rates as investors/developers are likely to continue to shy away till political as
well as legal uncertainty ends.
Sector standstill could severely affect employment
Following the crisis, unemployment rates have severely shot up to 11.8% during Q2
2011 from 8.9% at the end of Q4 2010. It remains extremely important for the present
government to contain the current high employment rate in Egypt by creating new job
opportunities (and restoring jobs lost during the crisis esp. in Real estate and tourism), in
order to avoid further protest/unrest. Real estate construction and other supplementary
activities have provided a significant c. 14% of total employment opportunities in the past,
which makes it all the more important for the govt. to revive the sector, in our view.
Figure 12: Egypt: Employment Breakdown by Industry
(Private)
in %
Figure 13: Egypt: Quarterly Unemployment Rate
in %
T&C
5%
Real estate
activities :
4%
Edu., health,&
Others
9%
Construction &
building
10%
Internal trade
13%
Restaurants &
hotels
3%
Others
1%
Manufacturing
17%
Agricultural
activities
38%
13%
12%
11%
10%
9%
8%
7%
6%
Mar03
Sep 03
Mar04
Sep 04
Mar05
Sep 05
Mar06
Sep 06
Mar07
Sep 07
Mar08
Sep 08
Mar09
Sep 09
Mar10
Sep 10
Mar11
Source: Ministry of Planning
Source: CAPMAS
The “Off-Plan’’ model needs to remain intact
Real estate buyers in Egypt are primarily cash buyers since mortgage penetration is very
low and house purchase is financed through savings and income, thereby making “Off
plan” sales model crucial to provide affordability as developers provide flexible payment
terms to facilitate house purchases. However, current land ownership disputes represent a
significant threat to this model, resulting in buyers putting their purchases on hold, despite
the genuine need for housing.
Figure 14: Egypt: Mortgage lending evolution
in EGP millions, unless otherwise stated
Figure 15: Egypt: Mortgage lending as % of GDP
in %, unless otherwise stated
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-
1,882
1,314
821
2,089
1,596
355
1,094
16
214
90 231
467
2005 2006 2007 2008 2009 2010
0.35%
0.30%
0.25%
0.20%
0.15%
0.10%
0.05%
0.00%
0.33%
0.28%
0.21%
0.11%
0.07%
0.02%
2005 2006 2007 2008 2009 2010
Banks
Mortgage Finance Companies
Mortgage Lending as % of GDP
Source: Egyptian Financial Supervisory authority, Ministry of Finance
Source: Egyptian Financial Supervisory authority, Ministry of Finance
Egypt Real Estate Sector 6