Egyptian developers turn to middle priced projects in the short term, report indicates
The current shortfall in mid-priced residential real estate in Egypt will continue until 2012 and could push prices higher, it is claimed.
According to a new report from Markaz, property developers have focused more on the market sector as housing prices and demand for luxury properties fell in the country as a result of the global economic downturn.
Despite this the mid priced real estate sector remains undersupplied but the report predicts that as the economic recovery quickens developers will return to high end projects within the next two years although not to the extent that was seen in the past.
‘After going through the moderate impact of the economic slowdown, Egypt’s real estate sector is expected to provide healthy long-term prospects in all of its sub-segments,’ the report says.
The report studies the economic cycles in Egypt back to 1986 and argues that the average real GDP growth rate has been on the rise from 3 to 4% during the 1990s to 4 to 5% in the past decade. It forecasts that the cycle will last until 2014/15 with an average growth rate of 6%. But the possibility of a double dip in global economic growth trends could create a temporary glitch in this expected growth pattern.
Egypt’s population is expected to grow at its natural growth rate of 2% per annum and income growth is the key driver for real estate demand, it suggests. As more people get better paid jobs then a growth in demand for middle prices real estate is expected.
The report also suggests that take up levels are poised to return to the vibrancy of 2006/08 in 2012 when the average real GDP growth rate is expected to reach 6 to 7% again.
Due to the low mortgage penetration, which stands at 0.4% of nominal GDP, the source of funds to purchase a house has essentially been savings and sale of existing assets. Savings got leveraged by the growth in mortgage financing during the recent boom. However, the growth in lending has slowed down of late and the report expects mortgage financing by banks to recover during 2010/11 aided by an 8% average growth in deposits.
The report shows that in the residential sector sales levels contracted due to the economic slowdown which manifested itself in a fall in reservations and rise in cancellations of property offerings by major developers. But the downtrend turned around during the third quarter of 2009.
Meanwhile separately Blair Hagkull, head of the Middle East office of the property consultancy Jones Lang LaSalle, said that Egypt had been shielded from the worst effects of the financial crisis as it was less exposed to other global markets than other Gulf states.