Will Egyptian government intervention bridge the country’s housing gap?

The main mission before the Egyptian Ministry of Housing is the provision of shelter for citizens for different income segments through subsidised projects for low-income individuals, in addition to units and lands provided to middle-income segments. There are also special lands and units provided to segments with higher incomes.

In Egypt, official and unofficial statistics show the annual demand on real estate of nearly 350,000 to 500,000 units per year for different segments. The products provided to low-income individuals do not exceed 30,000 flats annually.

In 2011, after the 25 January Revolution, the Ministry of Housing revealed the implementation of a project to build one million units for low-income individuals. More than six million citizens competed for the units of the project through reservation forms sent through the mail.

The size of the project now is estimated at 250,000 units in new cities and governorates. The Ministry of Housing revealed a plan to implement 400,000 units to reach a total number of 650,000 flats by the end of 2017.

The ministry’s plan includes providing shelter to other income segments. It is implementing the Dar Misr project to provide housing for middle-income citizens. The project includes selling unsubsidised units with a profit margin less than common in the real estate sector, as well as housing lands for the same unit and other special units for the construction of villas and buildings.

Criticism is mostly directed towards the ministry’s performance for the one million-units project. Experts in the sector believe that the project alone will not be enough to bridge the housing gap in Egypt. The project includes palaces in some aspects. The system used on all units is ownership rather than rent.

In an attempt to alter the path of the project, the cabinet has approved the annexation of other units as a first phase, in which about 6,000 units will be provided for rent to individuals with incomes less than 20,000 pounds monthly, in addition to 20,000 units for syndicates, while there are nearly 20,000 unsubsidised units provided to individuals with incomes of 5,000 pounds.

The Ministry of Housing has followed the mechanism of separate marketing to distribute the project’s units. About 85,000 units were distributed over 22 governorates and 11 new cities. More than 400,000 individuals have competed on the units, whereas only 250,000 were eligible.

On 1 May, the ministry opened the door for reservations on 500,000 units for a month. However, not many people competed for them compared to the number of applicants in the previous phases, causing the deadline to change from 15 June to 23 June. Reservations closed with only 379,400 applicants.

The ministry sold 605,400 particulars of sale to reserve units within the launched initial public offering (IPO), which included 500,000 units distributed as 100,000 units across 24 governorates, and 400,000 units across 27 governorates to be implemented within a year.

Ahmed Anis, civil engineering professor at Cairo University and head of the Egyptian Association of Real Estate Appraisers, said that the number of units the ministry is trying to implement is large and unprecedented. It may also be difficult to achieve.

He added that it is a mistake to name the project the one million units project because the need for housing in Egypt requires more than one million units, and the demand keeps growing.

Anis noted that the social housing project was announced in 2011 and implementation began the next year. Until now, about 250,000 units have been implemented at a rate of 60,000 flats. Will the ministry be able to construct 400,000 units within a year?

He noted that the ministry’s plan must be based on real studies to lessen the current demand and prepare for the demand expected to expand over the upcoming years. This can take place through several mechanisms other than the ownership mechanism that the ministry is using.

Anis said that solving the housing issue must include several axes, including housing units for young people for low prices, in addition to lands provided to middle-income individuals, flats for the poor, and other solutions like launching units for sale and rent at lower prices.

He added that the number of buyers in the recent IPO reached 605,000, and the decline of their number to 379,000 demonstrates the difficulty of reservations.

He explained that purchasing the particulars of sales requires seriousness, but citizens were shocked to learn the advance has increased to 9,000 pounds and that the unit prices also increased.

He noted that the unit prices are estimated according to supply and demand. The recent IPO proved that the demand on the units is more than the supply. The issue took place because of the inability to complete the required document and abide by the conditions of the real estate financing.

Anis believes that the demand on the cities surrounding Cairo, like 6th of October City, Badr City, and 15 May City, shows the increase of the material ability to compete for units in these areas, with a decrease of incomes in Upper Egypt.

“In all countries of the world, low-income housing is provided through the rent system because it suits everybody, compared to the ownership system that is used by the Housing Ministry, which is based on establishing units and reselling them.

He added that the housing problem in Egypt is a problem for low-income citizens. However, that does not mean that other segments do not have the same issues. Their issues do not really cause a problem for the ministry, especially since lands are made available to individuals with middle- and high-incomes.

Yehia Shawkat, a researcher at 10 Tooba for Urban Studies, said that the social housing project has been filled with problems since it was announced in the era of Fathy El Baradie and the former minister of housing.

He added that the Ministry of Housing will continue to implement the project incorrectly because it obtained a loan for 20 billion pounds to continue the implementation. It also doubled the social fund balance to 61 billion pounds despite the decline in demand on the latest announcement to about 379,000 individuals competing for 500,000 units.

Shawkat considers that including new aspects like rents and syndicates, as well as allocating unsubsidised units for higher income segments, is a deviation from the goal of the project, in which the ministry would turn into a real estate developer that is interested only in selling units.

Increasing the advance paid for the units to 9,000 pounds and the unit’s whole price to 154,000 pounds has lead to a great decline in the number of individuals reserving the units compared to previous announcements where the number of individuals was greater than the available units.

Shawkat said the real estate fund offers cash support to those who benefit from the social housing units. The amounts are worth 5,000 to 25,000 pounds. After increasing the unit prices, the value of subsidisation has declined from 18% to 15% of the total unit price.

He added that banks require an advance of 40,000 pounds per month—this means that the payer must have an income of more than 6,000 pounds in order to provide the required advance within a year under the name of “a low-income individual”.

Shawkat explained that increasing awareness of the real estate conditions after launching several phases of the projects has resulted in limiting the number of individuals who reserved the units to only those who can pay the advance required by financing banks.

He noted that the decline of the number of competitors on the units in Upper Egypt is due to the increase of workers in freelance jobs, as well as the long distance between new cities and villages inside governorates and the unsuitability of distributing units according to the size of demand.

“Social housing does not target low- and middle-income individuals because banks look for fixed incomes, which exist in only 30% of the working force in Egypt. They also require a minimum income that exceeds what the state determines for its employees,” he said.

He added that the poorest 20% in Egypt will not be able to compete on the units of the project without a fixed income. The 20% above them in the poverty index will not be able to meet the requirements of banks for financing, so 40% of Egyptians are excluded from the project in advance.

The rampant growth of housing prices cannot be compared to individual incomes in Egypt. Since 2005, prices of units have been increasing by 14% annually, compared to the average incomes of citizens, which increased only by 1%, according to data by the Central Agency for Public for Mobilisation and Statistics (CAPMAS).

The social housing project must be modified in order to include four new axes to provide integrated support for individuals with limited incomes, including the ownership-renting programme and the provision of small lands of around 100 sqm.

He explained that grants must be provided to renovate homes bound to fall. They are nearly one million units. He said that it is better to pay attention to this aspect instead of the cooperative loans that the Ministry of Housing offered to provide followed by applicants shock at the difficulty of the conditions of financing.

He said that the fourth axis includes subsidising rents for needy families by a range of 25-100% based on income level. This will provide shelters for a large number of needy families that cannot compete for the social housing units.

He noted that the housing gap in Egypt is not limited to the low-income segment; it also extends to luxury housing and above-average housing but with lower demand.

Shawkat said that the volume of real estate production in Egypt is estimated at one million units annually, including 300,000 units established officially through the private and public sector, and unofficially through ashwa’yat and houses bound to fall apart or without facilities.

On the other hand, leaders in the Housing Ministry have rejected the criticism towards the project, saying that the ministry managed to increase the rates of establishing flats for low-income individuals over the past period, which has resulted in an increase of the supply of flats in the real estate sector.

Leaders have added that the discussions about the decline in demand may be acceptable when there are established units, but there are 400,000 units that won’t be established for another year, which suit the size of the current demand and suffices part of the future demand.

They noted that adjusting the project’s axes to include the segment with incomes of 5,000 pounds as well as including syndicates may not be suitable with the current conditions of the social housing law.

The units are provided through the real estate financing mechanism with a monthly instalment of a minimum of 350 pounds. The instalment is based on the cost of the unit and the citizens’ income.

About 5% of the unit’s maintenance value is paid in cash at the time of contracting. The amount can also be installed within the financing granted to the customer. The real estate fund provides monetary support to the payer of nearly 25,000 pounds.

The Central Bank of Egypt (CBE) has launched an initiative worth 10 billion pounds to encourage the real estate financing sector with an interest rate of 7% for the low-income segment and 8% for the middle-income segments for units valued at 500,000 pounds. The bank also made a modification to the initiative in order to increase the maximum limit of financing to  950,000 pounds with an interest rate of 10.5%. The second phase of the initiative is expected to include 10 billion pounds.

Sources said that the Ministry of Housing is inventorying the cash flows of the return on selling the units of the social housing project in order to provide financing to undertake the upcoming phases of the project within a comprehensive plan to restructure the support of housing in the general budget.

The ministry prepared statistics that include the provision of 11.5 billion pounds of the revenues of selling 84,000 units in the first seven announcements of the project, as well as more than 43,000 pounds from marketing a minimum of 300,000 units.

Sources added that the ministry has a plan to provide necessary financing for the implementation of the upcoming phases that include revenues from selling the units, within the framework of the CBE’s initiative. They explained that the ministry will discuss with the CBE the mechanisms of expanding the initiative of encouraging the real estate sector, which is worth 10 billion pounds in the first phase, after which the second phase will be made available based on the accommodation of the new financing requests.

The government aims to lower the government spending rate on social housing programmes after providing sales revenues and entering into partnerships that include the private sector and the Urban Communities Authority in order to implement units within the project.

The government’s investments directed towards the Housing Ministry programmes in the current fiscal year are estimated at 47.9 billion pounds, including 14.7 billion pounds financing from the state treasury and 33 billion pounds allocated for the social housing project.

The Urban Communities Authority has approved the mechanisms for companies to establish social housing units in exchange for allocating pieces of land to establish investment projects.

The approval came with several conditions, including commitment to the unit prices and adherence to an implementation period specified by the authority.

Sources said that the new regulations will help avoid the manipulation that took place in previous projects. They will also make companies commit to the conditions by the Urban Communities Authority before approving land allocation.

“Until now, we believe that the social housing project is successful. The proof is the number of applicants in the first seven announcements,” the sources added.

They noted that the government is not using the mechanism of real estate development with citizens because the revenues of unit sales are allocated for the new phases. Moreover, winners do not bear the cost of the lands or facilities and only pay for the unit’s price. Winners also receive monetary support from the Real Estate Finance Fund.

Source: Daily News Egypt