Egypt: Overview

RENTAL YIELDS

Spectacular yields at 15% in Maadi

In Cairo many foreigners like to live in Maadi, so there are good yields on medium-sized family apartments in the right streets (10%-17%). Mohandessine is attractive to rich locals. They buy rather than rent, so yields are in the middle range, at 5.70%-8.25%.

The alternative to the ‘old’ elite areas are the relatively new gated subdivision developments, notably Katameya Heights, and the developer Emaar’s shortly-to-be-completed Uptown Cairo. Rental yields in Katameya Heights are lower than in the old areas. Uptown Cairo rents cannot be foreseen.

Rental yields in the tourist areas such as Hurghada and Sharm El Sheikh are generally believed to be low.

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TAXES AND COSTS

Low income tax, no other taxes

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	10.0%	10.0%	10.0%
Click here to see a worked example
Source: Disclaimer

Rental Income: Income tax on unfurnished lettings is low, because assessed rental values are low. There is no requirement actually to declare the income, a gap in the law widely taken advantage of.

Income from furnished rentals is taxed at 10%, 15% or 20%. However, the maximum allowable deduction for operating expenses is 50% of gross income. This leads to a low effective income tax rate.

Capital Gains: There is no capital gains tax.

Inheritance: Inheritance tax was abolished in Egypt in 1996.

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BUYING GUIDE

Moderate costs; complicated buying process

Round-trip transaction costs are around 10.85% to 12.3%; mostly consisting of the real estate agent’s fee (2.5% to 3% plus 10% sales tax), legal fees (3%), transfer tax (2.5%) and capital gains tax (2.5%). Investors should be cautious of the complex ownership and registration process; e.g., only around 10% of properties in Cairo are registered and there are numerous foreign-ownership restrictions.

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LANDLORD AND TENANT

Egypt's landlords are weakly protected by law

Rent: New tenants do not enjoy rent protection. Nor do they have the right to remain in the apartment at the expiry of the contract, although in the socialist past Egypt’s rental market was highly regulated.

Tenant Security: If however tenants do not leave, in Egypt eviction can easily take more than a year. So it is preferable to rent to foreigners, who are less likely to overstay.

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ECONOMIC GROWTH

Continued economic growth

Best known for pyramids, pharaohs and the Nile River, Egypt serves as a vital gateway between Europe and Asia. About two-thirds of Europe’s oil passes through the Suez Canal. Egypt has a population of 75 million and GDP per capita of US$1,518.

There is a sense of optimism in Egypt. Though the economy continues at a modest annual 5% GDP growth, inflation has been dramatically reduced from 11.40% in 2005 to 4.40% in 2006. The privatization and customs reform measures announced in late 2003 and early 2004 have begun to take effect. Egypt is benefiting from new money from the Gulf, which sees it as less risky than either Lebanon or Jordan, and is increasingly being used as a business process outsourcing centre. In addition, there is enormous interest in Egyptian property from Europeans.

Pressures on the overvalued Egyptian pound led the government to float the currency in January 2003, leading to a sharp drop in its value. The lower currency has allowed expatriate Egyptians to enjoy huge drops in real estate prices, which has helped boost the property market. Since the war in Iraq in 2003, tourism and Suez Canal revenues have fared well.

The passing of the Real Estate Finance Law (148/2001) in May 2001 has begun to create a real mortgage market. For the first time since the 1948 civil code, banks can now repossess properties and evict owners who default on loan repayments. The new mortgage lending has been positive for the housing market.

Politics is increasingly a worry. The last presidential and parliamentary elections were highly fraudulent, returning the same president of the past 25 years, Hosni Mubarak, at the head of the same ruling party.

The regime is corrupt and unpopular. Arbitrary arrests touch not only the extremists, but also the middle class. There is general agreement that Egypt's oldest Islamist group, the Muslim Brotherhood, would win any free election. Unfortunately, the Brotherhood’s leadership is low quality, and it has no policies except Islam. Faced with a choice between the corrupt present regime and the Muslim Brotherhood, the middle class will choose the former – for the present.