Real estate market in the Egypt
Overview
The construction sector in Egypt is experiencing the best of times and the worst of times. On the one hand, the government has placed the sector at the heart of its economic agenda, ensuring that there will be plenty of contracts available in the foreseeable future. On the other hand, efforts to reform the economy through the removal of fuel subsidies and the flotation of the Egyptian pound have led to soaring costs and short-term pain for contractors. As such, many firms in the industry are simultaneously faced with the prospect of a massive pipeline of work — and the prospect of bankruptcy
General Performance
Construction remains one of the most important contributors to the domestic economy. In 2016 the sector’s output increased by 10.3%, a significant uptick after growing at an average of 5.3% in the preceding four years. This growth trend has largely been maintained into 2017, growing at a rate of 7.3% in the first nine months of FY 2016/17. This puts sector growth behind only tourism and communications. In the same period, construction also accounted for the highest share of implemented investments in the country. Of the LE391.7bn ($25.8bn) invested in the first three quarters of FY 2016/17, 18.5% was directed towards construction activities.
Beyond its recent performance, the sector also holds significant strategic value for policymakers, absorbing as much as 40% of the irregular and informal labour in the country. However, the availability of skilled workers is a challenge. “Egyptian contractors face a structural lack of qualified human resources, due in part to the outflow of local builders to the Gulf Cooperation Council markets,” Mohamed Ibrahim Mahlab, president and CEO of Rowad Modern Engineers. “However, this exportation of labour will also open the country to greater foreign currency flows.” It is perhaps unsurprising, therefore, that the industry is at the forefront of plans to revitalise the economy. The sector is bucking the trend that is affecting its counterparts across the Middle East: while a sustained drop in the price of oil has led to a retrenchment in public and private spending on construction in many parts of the region, Egypt continues to build. “Generally speaking, construction is moving ahead. It shows no signs of stopping,” Sherif Sweillam, director of business development at Gleeds.
Indeed, a large part of the government’s growth strategy in the wake of the postrevolution turmoil revolves around heavy spending on new projects, from the New Administrative Capital to the Suez Canal Economic Development Zone. This government-led stimulus has benefits beyond the potential to boost economic growth: many mooted projects will fulfil a real need within the country, from mitigating the massive housing deficit to improving the domestic transport network.
Demand & Pipeline
As this suggests, there are significant demand drivers for continued construction expenditure. With an estimated 98m inhabitants and an annual growth rate of 2.45%, the population will soon be over 100m. Urban areas are under particular strain, causing significant construction investment. As of early 2018 just over 43% of the population lives in urban areas, but this is growing at 1.8% each year and is likely to be further boosted by plans for new cities. Existing urban areas are feeling the strain from this trend. The capital, Cairo, has nearly 19m residents, while Alexandria, the country’s second-largest city, is approaching 5m. With such growth, there is substantial demand for housing. Top-end estimates suggest that the country has a housing deficit of 3m, with annual demand for an additional 350,000–500,000 units.
Furthermore, it is not only the need for housing that will provide a source of projects and contracts. The same population pressure that has created high housing requirements has also placed a burden on a wide variety of national and local infrastructure. For example, there are $117.4bn worth of power projects in the Egyptian construction pipeline and $57.4bn worth of transport projects. In total, the country has a projects market worth $395.7bn. Construction, narrowly defined as excluding the aforementioned infrastructure areas, takes the largest share of deal values, with $129bn worth of projects. Given all these demand drivers, it is perhaps unsurprising that the Egyptian market is forecast to remain on an upward curve for some time to come. According to a forecast by Timetric, a business information service, the sector was expected to grow at a compound annual rate of 8.03% between 2017 and 2021.
Spending
As such, and despite a 23% decline in the value of contract awards in 2016, Egypt is the third-largest market in the MENA region for project awards, after Saudi Arabia and the UAE. Indeed, on a variety of metrics the domestic construction market is one of the top performers in the wider region. According to a report released by HSBC in the first quarter of 2017, Egypt is home to the most prosperous construction market in the MENA region, not least because the market was set to witness a 95% increase in cash-led construction spending in 2017. This contrasts sharply with Saudi Arabia, which is a larger market but was expected to experience a 15% dip in spending over that same period.
A substantial portion of the domestic construction drive is spurred by government spending. In FY 2015/16 public spending on building and construction increased by 16.3%, reaching LE23.9bn ($1.57bn), according to the Central Agency for Public Mobilisation and Statistics (CAPMAS). The largest share of spending was on road, bridge and tunnel projects, with implemented projects reaching a value of LE8.7bn ($573m), a 12.3% increase on the previous year. Sewage and water projects accounted for a further LE4.9bn ($323m) and LE3.3bn ($217m), respectively, while the value of implemented residential building projects hit LE2.5bn ($165m), an increase of 5.7% on FY 2014/15. This continued into FY 2016/17, with budgetary spending on housing increasing by 276% during this fiscal period. Other segments also saw a jump in spending, with electricity projects increasing by 45%, water by 44%, sanitation by 21%, and transport by 10%.
Hussain aboaziz
Ambassador for LeaxCoin
in Egypt
