REAL ESTATE

WHY INVEST IN REAL ESTATE IN EGYPT?

Heavily shaken by political turmoil and economic instability that followed the revolution of 2011, Egypts once strong real estate market is now showing healthy signs of recovery. Over the long term, the country could emerge as an even more attractive place to do business than before the revolution, experts believe.

26 I CITYSCAPE I AUGUST 2012

REAL ESTATE

year prior to Egypts revolution of February 2011 which marked the end of President Hosni Mubaraks 30-year rule, Cairo was one of the fastest growing real estate markets in the MENA region. According to the April 2011 Jones Lang LaSalle report Revolution and Real Estate: Cairo, in 2010, stable economic growth, relatively low debt levels, a young and growing population as well as a favourable geographic location with control of the Suez Canal, solidified interest from real estate occupiers, developers and investors from the MENA region and beyond. In January 2011, the overthrow of Tunisias President Zine El Abidine Ben Ali triggered initial street protests in Cairo, sparking Egypts 18-day revolution. This had a far-reaching impact on the countrys economy which practically came to a standstill with temporary closure of the banking and financial systems as well as many businesses. Consequently, investor confidence, tourism and foreign direct investment were also affected. Although the revolution affected investor confidence and 2011 demonstrated a period of uncertainty, analysts believe in Egypts fundamentals. These include a large, young and fast growing population, a large number of marriages, a diversified economy, shortage of quality real estate and cost advantages over other regional or European countries. Ayman Sami, JLLs Country Head for Egypt, is optimistic about Egypts real estate future: The Egyptian market fundamentals have not changed. The growth of new households, as illustrated by the large numbers of marriage still taking place, indicates that local demand will remain a strong demand driver supporting real estate growth. Over the long term, Egypt could emerge as an even more attractive place for business than it was before the revolution, he said. Although Cairos real estate market remained characterised by uncertainty during the first quarter of 2012, clarity returned to the market with increased activity in a number of sectors, the Jones Lang LaSalle Cairo Real Estate Market Overview Q1, 2012 found. According to the report, there are several indicators that this year should see a potential improvement in the Cairo real estate market. Some real

estate projects will continue towards completion, including Cairo Festival City which is due to deliver its first office phase; Damac is also looking to open its retail and office project opposite Dandy Mall before the end of the year. In addition to this, construction has recommenced on a number of previously suspended projects such as Qatari Diars major mixed use development on the Nile Corniche.

Residential sector
In 2011, residential sales transaction volumes declined sharply, primarily driven by uncertainty resulting from new legal measures introduced to control corruption and improve financial accountability between developers and the previous administration, said Sami. The protests also highlighted Egypts acute shortage of affordable housing, estimated to stand at 1.5 million units. Looking at the residential sector in Q1 2012, JLL observed increased sales activity. SODICs West Town project has sold out its first three phases off plan and many large developers such as Emaar and Amer Group have extended their payment plans which has stimulated further demand. As a direct response to the protests of 2011, the government has also continued with the construction and supply of the one million affordable homes programme, the report said. Over the past two years, there has been a major shift to apartments aimed at middle income earners within gated compounds, led by major developers such as SODIC (6th of October Development and Investment Company) and Palm Hills Development (PHD). Due to the trend of relocation to Cairos new satellite cities, central Cairo has seen practically no new large developments enter the market with exception of Emaar Misrs Uptown Cairo project. However, reflecting increased confidence in the residential market, Amer Group has launched six new projects across Egypt with three of them being in Greater Cairo, the report added. With regards to investing in the sector, Sami said that while the middle income sector offers very strong investment opportunities, housing aimed at low income earners plays an equally important role.

AUGUST 2012 I CITYSCAPE I 27

REAL ESTATE

One cannot ignore the demand for affordable housing, however, in order to make affordable housing attractive, the government needs to play a major role to support the developers, he said. Looking at performance, in Q1 2012, the average price per square metre in New Cairo is estimated at around $1,780 for villas and $1,040 for apartments. In 6th of October, the price is $1,246 for villas and $916 for apartments. Average rent for a 3 bedroom villa in New Cairo lies at $3,100 per month while 2 bedroom apartment rentals average almost $1,000 per month. In 6th of October City, 3 bedroom villa rental is around $2,800 per month while 2 bedroom apartments sit at $850 per month.

office sector
While in 2011 some companies had postponed their plans, others were actively seeking to implement their market entrance or expansion plan established prior to the revolution, JLL said. The firm also mentioned that due to disturbances in central Cairo, the citys peripheral commercial areas in New Cairo and 6th of October City are likely to benefit through offering higher quality new buildings, more car parking, lower rents and accessibility to the new and growing residential areas. Indeed, Q1 2012 saw active demand for up to 10,000 sqm of office space from a number of international occupiers. Currently, there is a stock of about 729,000 sqm of Grade A office supply across the Cairo metropolitan area with the vast majority of this space being in the new urban cities such

as New Cairo and 6th of October City. A further 61,000 sqm is expected to complete over the remainder of the year with major projects including Cairo Festival City and Mivida by Emaar Misr, resulting in an improved standard of available space and greater choice. Average office rents in Central Cairo peaked in 2010 at $55 per sqm/month for prime Grade A space but declined by 20% during 2011 to $45 per sqm/month. Rentals for Grade A space in New Cairo and West Cairo stood at $20 - $25 in Q1 2012. Major existing office projects in greater Cairo include Smart Village, 6th of October and Sheikh Zayed City, Citystars, Nile City Towers and Maadi. Major future office projects include Cairo Festival City, Citadel Plaza and Mivida. Looking at investment in the office sector, Sami says that the petrochemicals sector still provides attractive opportunities. According to Egypts General Authority for investment (GAFI), in 2010, the sector represented approximately 12% of Egypts total industrial production and holds a great deal of promise in terms of future growth. Egypt ranks eighth in the Middle Eastern Petrochemicals Business Environment Rankings matrix ahead of Turkey and top gas producer Algeria. (GAFI)

Retail sector
During 2011, Egypt experienced a temporary reduction in retail spending due to strikes and business closures during January and February, however shortly, trading returned to pre-crisis levels in most shopping centers. Egypts strong long-term fundamentals such as a large and young

28 I CITYSCAPE I AUGUST 2012

REAL ESTATE

population with increasing purchasing power make the countrys retail market one of the most promising markets in the region, experts believe. JLL said that in 2012, retailers continued to open new stores with recent examples including Go Sport, which signed a contract for their first store in Egypt at Dandy Mall. At the end of 2011, total mall based retail space was approximately 761,000 sqm, which is very low for a city of Cairos size. Despite delays, a possible 318,000 sqm of new retail space could enter the market during 2013, with the major completion likely to be Cairo Festival City with a GLA of 160,000 sqm. Other retail developments, including a number of mixed use schemes such as Emaar Square and Uptown Cairo, are expected to enter the market, adding more high quality retail space. Chris Jolly, CEO of UK real estate fund manager Cadena, commented: As of today, there are few quality malls in Egypt and this shortage presents good opportunities to investors. Also, Egypt needs the expertise to bring more international brands into the malls, and then to manage these malls, which is where we come in. In Egypt, Cadena focuses on asset management and currently manages Dandy Mall in 6th of October City. As Egypts retail sector is expected to grow significantly over the coming years, the market offers several attractive investment opportunities. Within the retail sector we are looking at value retail i.e. hypermarkets, supermarkets, and mid to low market fashion. The high end or luxury market is still underperforming, but it could be a market that will eventually grow as with all emerging markets, Sami said.

hospitality sector, the JLL report said. Hotel occupancy rates increased from 35% in early 2011 to 45% in March 2012. According to the Egyptian Hotel Association, there were 28 hotels offering 8,920 rooms under construction in Cairo early this year. Most current major tourist developments are concentrated around Egypts popular Red Sea resorts as well as its Mediterranean North Coast, an area gaining increasing international recognition as a tourist destination. The Red Sea has always been an attractive destination for European tourists and will remain so because it has sunny and warm beach weather almost all year round. Luxor and Aswan in the south of Egypt is also a very attractive destination for tourists who are interested in historical and archaeological sites, Sami said. Egypt had reached a peak of 14 million tourists prior to the revolution and the current government is pro growing this sector; there are still areas that havent been tapped into for tourism such as parts of the Red Sea further south of Hurghada like Marsa Alam, he concluded.

Future real estate investment

However, despite increased activity and clarity returning to the real estate market, Sami commented that Egypts future prospects largely depend on the countrys ability to address its political issues and that continued certainty was a basic requirement for the economy to fully rebound. With the formation of the new government [] we believe that these challenges [will] be slowly resolved, said Sami while adding that in order to support the orderly growth of the real estate sector, government spending on infrastructure needed to be revised as it has seen heavy cuts recently. For the longer term investor, Egypt will always be an attractive market with considerable potential. There is opportunity in the many challenges that need to be addressed, such as more affordable housing, but the sector needs stability to be able to do this, Sami said. Jolly agrees, saying that Cadena is determined to set up a shopping mall investment fund in Egypt, but is waiting for the right time to do so. The key challenge is political stability and the ability of the new president to work with the military. Also, the economy needs to be well managed and stimulated. The sooner investors can get clarity and confidence about the situation, the sooner they will return, he said. Investing in Egypt is not a question of if, but a question of when and how much, Jolly concluded l

Hospitality/tourism sector
The tourism/hotels sector, a crucial part of the Egyptian economy, has experienced the most dramatic short term decline following the 2011 unrest. Tourist arrivals have dropped drastically; in February 2011, official data showed a decline of 63% (month-on-month) in Cairos hotel occupancy while occupancy was down 72% compared to the same month in 2010. Tourism was hit very hard in the short term and new construction projects were put on hold or delayed with uncertainties around long term investment decisions, Sami said. According to the Egyptian Ministry of Tourism, revenues from tourism were $8.8 billion in 2011, down from $12.5 billion in 2010. Good news for Q1, 2012: Tourist visitors to Egypt have increased by a significant 40% compared to Q1 2011, providing a major boost to the Cairo

AUGUST 2012 I CITYSCAPE I 29

TOURISM

fRom DUST To DAWN

Having witnessed a significant increase in tourist arrivals in the first half of 2012, Egypt is working at rebuilding itself as a leading global tourist destination with the dust settling on recent political turmoil.

olitical instability following the revolution of early 2011 which resulted in the ousting of President Hosni Mubarak had a devastating effect on Egypts once thriving tourism industry. Today, confidence is high that the industry will soon bounce back and Egypt can reclaim its strong position as a global tourist destination. As one of the countrys most important sectors, tourism will play a central role in strengthening the economy. In 2010, tourism accounted for $11.5 billion of the countrys $500 billion GDP. According to Tourism Minister Mounir Abdel-Nour, revenues from Egypts tourism sector were

down over 33 per cent in 2011, accounting for a loss of about $3.8 billion. On the upside however, tourist arrivals in Q1 2012 have increased 40 per cent compared to last year, says the Jones Lang LaSalle Cairo Real Estate Market Overview Q1 2012. In his first public address on June 30, Mohamed Morsi, Egypts first democratically elected president, promised to work to attract foreign investment in all areas of the economy and to revive tourism. Already, prior to Egypts landmark election of June 16 and 17, the interim military government has taken several steps to boost tourism while major

30 I CITYSCAPE I AUGUST 2012

TOURISM

than others. In Hurghada, Sharm El-Sheikh, Marsa Alam and the other tourist hotspots along the Red Sea life during the past year continued as normal, no hooded militias roaming the streets, no vigilantes, no soldiers toting automatic weapons just happy peaceful people going about their daily business, said Peter Mitry, Managing Director of Egypt Real Property Brokers based in Egypts Red Sea destination Hurghada. As of May this year, Red Sea resorts were once again enjoying healthy occupancy rates reaching up to 80 per cent in areas such as Hurghada and are still attracting many tourists with year round sunshine and beautiful beaches. In 2012 so far we had evidenced increased occupancies across the main markets (Cairo, Hurghada and Sharm El-Sheikh) albeit at reduced average room rates in an effort to attract additional travellers as the political situation remained volatile. Recovery has been stronger for the resort towns (Hurghada and Sharm El-Sheikh) compared to Cairo that remained the epicentre of the demonstrations, commented Panos Loupasis, Senior Director of Development MEA at Wyndham Hotels two weeks before the presidential elections in June.

Current developments
Sharm El-Sheikh, the Red Seas most popular scuba diving and snorkelling destination, has fast evolved from a small village to a thriving tourism hotspot offering countless hotels, resorts, nightlife, shopping and entertainment opportunities. Citystars Sharm El-Sheikh of Citystars Properties is an impressive 7.5 million square metre luxury gated mixed-use community and will be home to the largest Crystal Lagoon in the world. Engineer Yehia alMeteini, Chairman of Golden Coast, the projects developer, commented: The record-breaking Lagoon will add a new dimension to the tourism and real estate markets, not only in Egypt, but also in the Arab region at large. Arab developers are quite capable of carrying out large-scale developments, and compete with key global developers, in terms of luxury and grandeur, al-Meteini added. He also emphasised the fact that the project will further promote the city of Sharm El- Sheikh as a magnet to beach tourists while playing a pivotal role in bringing it back in the spotlight. The residential component of Citystars Sharm El-Sheikh will offer 1 and 2 bedroom apartments ranging from 65 to 150 square metres in addition to 3 bedroom apartments as well as 3, 4 and 5 bedroom luxury villas. The development also includes four resorts, a retail waterfront promenade, an 18-hole signature golf course and a 9-hole desert course, a tennis academy, spa and wellness centre, extensive meeting and conference facilities as well as educational facilities. The projects initial phase is

developments are nearing completion and construction on new projects is resumed.

Signs of recovery
While tourist arrivals to Egypt dropped drastically in the aftermath of the revolution and the hospitality sector experienced great losses, experts also predicted that it would be the first sector to rebound quickly. Depending on geographical location, some areas are recovering faster

AUGUST 2012 I CITYSCAPE I 31

TOURISM

scheduled to be launched later this year. In Hurghada, the Red Sea coasts second largest city after Suez, a major new project was launched last month with Virgin Island. A 5-star front line beach apart-hotel, Virgin Island is set in the heart of Hurghadas new promenade and has a private beach with marina. Design and facilities are to the very best European standards and are sure to attract significant interest from investors and lifestyle buyers alike, Mitry said. South of Hurghada, Citystars Red Sea Riviera will cover 10 million square metres, with a 2 kilometre long beach front that contains a retail centre, a sports centre, a marina, an 18-hole signature golf course, hotels and resort residences. In addition to the Red Sea region, Egypts Mediterranean North Coast is also increasingly gaining recognition as a new target region for beach tourism in the country. Several large developments aimed at attracting international tourists as well as Egyptians are nearing completion, with

the major project being Emaar Misrs Marassi development, a 6.5 million square metre resort community including residential, hotel, retail, F&B and entertainment projects.

Steps to boost tourism

In an effort to boost the industry, Egypt is concentrating on the BRICS countries and Japan to hit its target of $25 billion in tourism revenue by 2017, Abdel-Nour explained. In May this year, the tourism minister told Gulf News: Were diversifying our markets. Were knocking on the doors of BRICS, Japan is coming back. Were opening a new airline link between Cairo and Tokyo and the second between Cairo and Osaka. Additionally, the country is looking at incentivising low-cost carriers, reducing airport fees and seeking to attract chartered operations to further boost tourism. In April, the government has also decided to resume the sailing of Nile cruises from Cairo to Aswan as of mid-May,

Citystars Sharm El-Sheikh

after a 15-year suspension. Encouraging cultural tourism alongside beach tourism is also high on the governments agenda for the coming years. Part of the plan includes the development of the new Grand Egyptian Museum, the largest museum of Egyptology in the world. Expected to be completed by July 2015, the Grand Museum will showcase approximately 100,000 ancient Egyptian artefacts and will include a conference and learning centre to educate visitors on ancient Egyptian history.

Prospects for the future

Looking at the future of Egypts tourism industry in the immediate

short term, Loupasis of Wyndham Hotels commented: The resort towns of Hurghada and Sharm El-Sheikh that typically rely on the tour operator business will continue to enjoy increasing occupancies hopefully with a gradual improvement of the average room rate in the mid run. Within Cairo, areas away from the centre (primarily the 6th of October followed by Heliopolis) will continue enjoying better yields compared to the city centre hotels where the yields remain highly sensitive to political events. According to Loupasis, the long term outlook for the countrys tourism industry will be determined by its ability to maintain political stability: Security, and sense of security, will remain the single most important

32 I CITYSCAPE I AUGUST 2012

TOURISM

Citystars Sharm El-Sheikh

factor driving the international traveller back to Egypt, he said. Peter Mitry believes that it wont be long before the industry fully recovers. Egypt has always offered a blend of history and culture as well as a near perfect climate for beach and diving holidays for visitors from the Gulf, from Europe and from the Baltic states. Add to that, the 5-hour flight time from most capital cities and it is easy to see the attraction, he said. However, due to the high volume of all inclusive holidays organised by tour operators, Egypts Red Sea region has created a low budget market where dining and activities is centred primarily around the hotels. As a

result, many restaurants in Sharm El-Sheikh and Hurghada had to close down after a while due to a lack of traffic, Mitry explained. In the future we need action to reduce flight prices to Egypt for travel only clients in order to provide encouragement for restaurant operators to continually try new ideas; staff training will also be a key requirement for the future as the many Egyptians working in the hotels and restaurants have little or no international experience so they are ill equipped to fulfil the needs of the more discerning overseas clients, he said. With close attention in these areas, Egypt has the potential to become a world-class destination within five years, he concluded l

Virgin Island Hurghada

AUGUST 2012 I CITYSCAPE I 33