Deutsche Bank - Egypt Real Estate - (6th of July 2010) - SODIC

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5 July 2010 Real Estate, Construction and Building Materials Egypt Real EstateFigure 35: Workers’ remittancesFigure 36: Remittance inflows (% total)10,0009,0008,0007,0006,0005,000Others19%US31%4,0003,000UAE19%2,0001,000-2003 2004 2005 2006 2007 2008Saudi Arabia11%Kuwait20%Source: World databankSource: CEICDemand supply analysis: shortfall to widen, especially in the lowtomid-income segmentWe attempt to quantify housing supply and demand imbalances, restricting our analysis toGreater Cairo where developers under coverage have significant exposure. Our analysissuggests an increase in demand/supply shortfall from 264k units (5% of demand) in 2009E to730k (11%) by 2014E, of which around 35% stems from mid- to upper-income segmentswhere our developers under coverage operate.We base our population assumptions on data from CAPMAS (Central Agency for PublicMobilization and Statistics). The current population for Greater Cairo stood at 19.6m in 2009and, based on historical trends, we expect the population to grow at a 2% CAGR over 2010E-2014E. As per CAPMAS, the household size has been gradually declining in the past decade(1% per year over 2000-2009). We expect this trend to continue following urbanization andthe increase in number of families due to new marriages. We have assumed household sizewill decline from 3.9 in 2009 to 3.8 by 2014E. In addition, considering Egypt’s old stock, weassume an annual replacement demand of 13% (vs. 15% for KSA), in line with guidanceprovided by the Mortgage Finance Agency (MFA). This implies a total cumulative demand of5.7m units for 2009 and 6.4m units in 2014E, or an additional 790k units, demanded during2009E-2014E. On the supply side, we estimate 2009 stock at 5.4m (based on CAPMAS data).Based on future deliveries from developers, we expect supply to grow by 1% per year in2010E-2014E.Figure 37: Household size Figure 38: Demand-supply dynamics (units m)4.06.60-0.803.93.93.83.86.406.206.005.805.605.405.205.00-0.70-0.60-0.50-0.40-0.30-0.20-0.103.72009E 2010E 2011E 2012E 2013E 2014E4.802009E 2010E 2011E 2012E 2013E 2014E0.00Cumulative demand Cumulative supply Shortfall (in units)Source: CAPMAS, Deutsche Bank estimatesSource: CAPMAS, MFA, World Bank, Deutsche Bank estimatesDeutsche Bank AG/London Page 21
5 July 2010 Real Estate, Construction and Building Materials Egypt Real EstateFurther, we estimate demand and supply for low-/mid-/high-income segments based onEgypt’s income distribution provided by the World Bank to assess the market for ourdevelopers, which focus on upper-/mid-upper segments. We expect demand/supply shortfallin the target segment (mid-/high-income) ranging from 11% in mid-income and 4% in highincomeof the total segment demand by 2014E (3m units) against 4% and 3% respectively in2009E.Figure 39: Greater Cairo – cumulative demand / supply and shortfall by income segmentsMillion Units 2009E 2010E 2014E 2009E 2014ED S SF D S SF D S SF SF as a % of totalsegment demandLow income 2.98 2.81 0.17 3.06 2.81 0.24 3.40 3.00 0.40 6% 12%Mid income 2.53 2.44 0.09 2.57 2.45 0.13 2.86 2.53 0.32 4% 11%High income 0.15 0.15 0.00 0.18 0.17 0.01 0.20 0.19 0.01 3% 4%Total 5.66 5.39 0.26 5.81 5.43 0.38 6.45 5.72 0.73Source: World Bank, CAPMAS, MFA, Deutsche Bank estimates, D=demand, S=supply, SF=shortfallIndustry trend: mid-income segment to be the next focusOverall, we observe that the shortfall is especially prominent in the low-/mid-incomesegment. Currently, only TMG in our coverage universe operates meaningfully in the mid- tomid-upper segment. That said, other developers like PHD are progressively increasing theirfocus on this segment, offering smaller units. We expect to see more of such migration asthe high-income segment approaches saturation.Figure 40: Egypt – demand by income segmentFigure 41: Target segment by developer – 2010EHigh income3%0.30Mid income45%Low income52%Supply shortfall (units m)0.250.200.150.100.05TMGPHDSODIC-Low income Mid income High incomeSource: World Bank, Deutsche BankSource: Deutsche Bank estimatesAffordability held back by lack of mortgage availabilityMortgage finance market in its infancyThe Egyptian mortgage market is in its infancy, even with the creation of mortgage financelaw and Mortgage Finance Authority (MFA) in 2001. Despite strong growth in loans disbursedin the recent past (Source: MFA +274% 2003-2008), mortgages still form an insignificant0.5% of GDP (as of end-2009). This compares with 16% in Bahrain, 11% in Jordan, andaround 7% in the UAE. We believe conservative banking rules, a lack of efficient legalframework in dealing with defaults and high interest rates (12%+) combine to act as animpediment to all pervasive mortgage penetration. However, according to the Egyptianinvestment minister (Reuters), Egypt is set to pass a new mortgage finance law (to deal withevictions in the case of defaults more efficiently than that which is currently prevailing) afterthe elections at the end of the year to provide a thrust to the property sector.Page 22Deutsche Bank AG/London
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Deutsche Bank - Egypt Real Estate - (6th of July 2010) - SODIC

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