A quick glance at the advertisements crowding the pages of many Egyptian newspapers is enough to reveal that real estate is currently one of the most active sectors of the economy.

After languishing for several years from the late 1990s, the sector is now booming on the back of three years of economic growth averaging 7 per cent.

“Yields in office building and retail are anywhere between 20 to 50 per cent,” says Maher Maksoud, managing director of Sodic, which is developing projects on the eastern and western edges of Cairo. “In Europe they are below 10 per cent. Residential yields are not as high, but they are very good in terms of cash flow generation.”

Big Gulf developers including Emaar, Damac and Al Futtaim Group are working in Egypt in competition with homegrown companies such as Talaat Mostafa Group, Sodic and Palm Hills Development. All are launching large projects encompassing residential property, shopping malls, office buildings and tourist compounds.

The properties being touted in the papers are mostly in large developments on the outskirts of the capital located in newly suburbanised areas reclaimed from the desert. Second homes in beach compounds on the Mediterranean and Red Sea coasts are also on offer.

The colour ads often show smiling well-dressed families posing in front of beautiful houses surrounded by greenery – all a far cry from the squalor, noise, congestion and pollution of Cairo, a city of around 16m people.

With the price of property in some of the new areas doubling and even tripling in the past two years, and with the prospect of further growth, developers these days are as happy as the people in their advertisements.

“I strongly believe this [boom] is justified,” says Mr Maksoud. “We’ve always talked about Egypt having a large population that was not part of the economy. What we are now seeing is trickle-down bringing more people into the addressable market.”

He and others say the market has been reinvigorated by a confluence of strong demand from newly-affluent segments of the middle class, government efforts to promote the expansion of Cairo into surrounding areas, and liquidity from oil-rich Gulf states.

Mr Maksoud points to the expansion of the private sector as essential to the growth. As entrepreneurs make big profits and their employees receive high salaries and share options, more people are now able to buy property, goes the argument.

These are the prosperous classes now fleeing the overcrowded city and heading to the up-market compounds of New Cairo on the eastern outskirts or to 6th October in the west.

These two areas are at the heart of the expansion. It is predicted that in five to seven years they will house some 3m people each, bringing the population of Cairo to 22m.

Realising that east and west Cairo will be cities in their own right, Sodic has teamed up with Solidere, the Lebanese company acclaimed for its reconstruction of central Beirut. The intention is to build two mixed-use projects to be known as Eastown and Westown. They will offer town centres with residential property, office blocks and retail space.

But with the property boom contingent on strong economic growth and with dramatic rises in land prices this year, some people are afraid of a bubble.

Unsurprisingly developers disagree, countering that Egypt is still cheap compared with other countries. “We still have room on the pricing side,” says Yassin Mansour, CEO of Palm Hills Development. “Also if you look at mortgages to GDP in Egypt it is almost zero. Once mortgages start taking off, it will become a more interesting field. All this expansion is happening with almost no mortgages.”

Source: Financial Times