New investments in real estate megaprojects could help the Egyptian economy to achieve escape velocity, analysts say.
But project execution is seen as a key test after past disappointments.
A plan to build a new administrative capital to the east of Cairo, which it is said will be the size of Singapore, and new investments from Majid Al Futtaim Group, Palm Hills, and several smaller Arab real estate companies, will have major implications for a real estate sector that has remained largely stagnant since the 2011 revolution.
That is in addition to Arabtec’s $40 billion-project to build 1 million homes, the terms of which are currently being hashed out between the company and the Egyptian government.
Egypt is the Arab world’s most populous country. It has a population of 90 million, and adds about 1.5 million people every year, according to the IMF.
This need to house the rising population has characterised Cairo’s real estate market. With more than 23 million people, the city is one-and-a-half times more densely populated than Manhattan, New York.
That puts the eye-watering house-building figures announced at last weekend’s Egypt the Future conference in Sharm El Sheikh into perspective.
“The city needs to grow, in order to house its new residents, and to remain competitive both in Africa and the wider region,” said Faisal Durrani, head of research at real estate consultancy Cluttons.
Real estate development will power economic growth in a country that has seen per capita incomes stagnate during three years of turmoil.
“Residential districts jumpstart the development of new communities,” Mr Durrani said.
“Once you start to develop residential districts, you create opportunities in commercial and retail infrastructure.
“Every aspect of community infrastructure needs to be put into place – whether it’s shopping centres, schools, hospitals or airports.”
Sharm El Sheikh Airport received a loan from the African Development Bank to help it expand, while the under construction Mall of Egypt will vie with new regional shopping developments in Mokattam and Cairo.
This is evidence that community infrastructure is being added in response to improving market sentiment, according to real estate consultancy JLL.
Ayman Sami, head of the Egypt office at JLL, said: “The first step is to regain confidence, and I think that is already there.
“New growth and new jobs will be reflected in new retail developments and more brands coming to the market. Eventually, people will buy more houses.”
Foreign direct investment from all sources fell significantly following the revolutions in 2011 and 2013, according to data from Egypt’s Central Bank.
But that is changing, as Arabian Gulf companies with a track record of undertaking projects in Egypt return.
Capital City Partners, the investment vehicle of Emaar chairman Mohamed Alabbar, is lead developer of the new government administrative district.
For Gulf businessmen such as Mr Alabbar, Egypt represents a good bet, says Mr Durrani.
“[These investors] have such a high concentration of assets in the UAE and Dubai, that they will look elsewhere to spread that risk,” he said. “So they look to a market they are familiar with and have worked in previously – Egypt is a good candidate.”
The UAE’s example is at work in the Suez Canal, where a free zone along the lines of Jafza is in the works.
Mr Sami said that development around the Suez Canal was a positive project for the Egyptian economy.
“The Suez Canal can become a centre for the assembly of many type of manufactures,” he said.
“Development here will create a lot of demand from industries, because it’s a great geographical location to cater to 1.2 billion customers.”
Still, execution risk remains a major challenge for the megaprojects announced at last week’s investment conference said Jason Tuvey, emerging markets economist at Capital Economics.
“We’re sceptical that [the new capital city] will get further than the drawing board,” Mr Tuvey said. “There were similar ambitions for the construction of the New Cairo suburb, which was planned to house 7 million residents. It ended up as accommodation for a few hundred thousand people,” he said.