Exploring potential market opportunities in Egypt’s real estate industry requires assessing the feasibility of current fundamentals, experts say. In light of making the best out of the market opportunities, head of the Real Estate Development Chamber in the Federation of Egyptian Industries (FEI) Tarek Shoukry announced that real estate developers are expected to consult the Royal Institutions of Chartered Surveyors (RICS) in upcoming projects through using the International Valuation Standards (IVS).
The IVS – released by RICS in 2017 – underpin the use of consistency and transparency by including financial statements and securing lending and transactional activity. The IVS also promote approaches to examine the competency of professional stakeholders.
RICS’ director of Europe and the MENA region Robert Jackson spoke with Business Forward about solutions to Egypt’s real estate market challenges, best practices of the IVS and the needed steps to secure foreign direct investment (FDI).
A recent study revealed that Egypt has around 12.5 million unoccupied units, as well as an increase in informal settlements due to the lack of affordability. How can the country reduce the resulting housing gap?
What we have seen in other parts of the region where we have got undeveloped land or unoccupied units was that the government imposed some form of taxation on landlords that pushed them to find tenants or buyers. In Saudi Arabia, there is a significant shortage in housing and yet, a lot of land plots were vacant. Hence, the government applied land taxes, which in turn pushed landlords to develop projects on their lots.
The same concept could be applied to unoccupied houses. Landlords could potentially be subject to a nominal tax on unoccupied properties, which would encourage them to find tenants. The reason why many properties are left unoccupied is due to landlords’ greed – they often look for elevated rents. Accordingly, a strict tax system will encourage them to lease out the properties.
Egypt also has an abundance of unused lands which developers are trying to attain at reasonable prices from government. What are some of the valuation standards and techniques that could be used to determine the prices of lands in Egypt?
The IVS explains to professionals how to value land based on documented assumptions used in the market. What happens in a lot of countries is that the transaction value of every piece of land gets publicly disclosed. This brings forth not only transparency, but also enables developers to carry out a comparable analysis with other land plots sold in the same area.
If, for instance, developers in Egypt feel that prices are inflated due to the government offering lands at high prices, then they could be comfortable if they were provided a data bank to clarify and challenge the provided values.
Do you think foreign investors are losing interest in the real estate market? What are some of the best ways for Egypt to secure FDI?
I feel that investors are not quite losing interest. In fact, a lot of international investors would constantly look at Egypt as a future hub for emerging markets, but perhaps they are questioning the real estate market’s fundamentals.
Egypt’s growing population and inclination to a strong tourism industry imply that the fundamentals of the real estate market are really strong. However, in order to secure investor confidence in the market, embedded standards and regulations have to drive transparency.
Would I buy a property from a developer that has no financial liquidity? Now, that is a high risk because what happens if the developments do not generate revenues? We have seen this in different parts in the Middle East. In Dubai, for example, there are new developments entering the market with no track record and many investors put money to buy properties off-plan. These properties are not completed on time or turned over. In response to that, the Emirati government introduced major policies to protect investors such as obliging all developers to have an escrow account that would enable investors to recover their capital if a development failed to deliver.