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Oct 01, 2015

Egypt’s property market surprisingly resilient

Egypt house pricesThe Egyptian real estate market has been hard hit by civil unrest.  But the new government´s recent economic and political stabilization, despite its appalling cost in terms of human rights, appears to have improved sentiment in all sectors of the Cairo real estate market during the second quarter of 2015, according to Jones Lang Lasalle.

Following President Abdel Fattah el-Sisi’s election in June 2014 there is new found confidence, despite the ongoing Islamic insurgency in Sinai and several terrorist attacks.

The announcement of the mega real estate project Cairo Capital elicited criticisms of unrealism, but the proof of the pudding will be in the eating.

Further boosting the market is Law 17/2015, ratified by President el-Sisi, which, apart from removing the last remaining restrictions on foreign ownership of land and property in Egypt, introduced rules allowing the government, the biggest landowner in Egypt, to contribute land to the private sector as part of public-private partnership schemes against a share of the revenue.

With an equity share of the profits from joint projects with the private sector, the government now becomes the country´s largest property developer.

“This is very positive for the industry,” says Ahmed Badrawi, managing director of real estate developer Sodic. “Essentially, they are becoming partners with a share of the top line. It is a very new thing. We are now bidding for 900 acres in two plots under [this] new system of revenue sharing.”

He says Sodic reported its strongest earnings ever in 2014, and is sitting on a “healthy amount of cash for expansion”.

The average sales price of apartments in New Cairo rose by 8% during the year to the second quarter of 2015, and by 1% compared to the previous quarter. Villa sales prices however declined 7% y-o-y.

In 6th of October City, the average sales price of apartments rose 26% y-o-y in Q2 2015. Likewise, villa sales prices rose 23% year-on-year.

SALES PRICE GROWTH (Q2 2015) Year-on-year (%) Quarter-on-quarter (%)
New Cairo    
Apartments 8.0 1.0
Villas -7.0 0.0
6th of October    
Apartments 26.0 -2.0
Villas 23.0 -2.0
Source: Jones Lang Lasalle

Egypt has seen erratic house price movements in the past few years.  The following data come from various sources:

  • Property prices in Egypt rose 13.7% (4.5% in real terms) in 2005
  • House prices then dropped 0.4% (-4.4% in real terms) in 2006
  • House prices fell 0.6% (-10.4%) in 2007, according to the 2008 Egypt Housing Survey conducted by Bearing Point Inc, which had a cross-Egypt sample.
  • House prices fell further in 2008, due to the global crisis.
  • By end-2009, house prices in the secondary market had fallen by about 37%, in real terms, according to local real estate analysts.
  • Egypt’s housing market strongly recovered in early-2010, mainly due to robust economic growth. House prices were estimated to have risen by about 10% in 2010.

Very strong demand

Demand remains strong at all income levels, buyers having turned to real estate for security amidst economic and political uncertainties.

Around 250 units were completed in Al Rehab City, New Cairo, and 640 units in the Zayed complex during the first quarter of 2015, boosting supply to 106,000 units. A further 31,000 completed units are expected by end-2015, 11,000 in New Cairo and 19,000 in 6th of October, according to Jones Lang Lasalle. Several major construction projects are being seeded by UAE and Qatari developers.

Investments in the lower segments of the market remain weak. The country’s major developers tend to cater exclusively to the upper middle and upper classes due to the absence of an efficient mortgage law.

Approximately 50% of the population is classified as lower income and around 37% of urban space in Egypt consists of informal settlements, while “unsafe slums” are roughly 1% of urban areas, according to according to Sherif El-Gohary, of the Ministry of Urban Renewal and Informal Settlements.

Rents up, rental yields rising

Cairo´s rental market has performed strongly, in fact rents have been rising faster than prices in most locations in the second quarter of 2015.

Rentals for the apartments in New Cairo rose 8% year-on-year.  On a quarterly basis, New Cairo apartments registered a 3% rentals decline, according to Jones Lang Lasalle. Villas in New Cairo registered year-on-year rentals growth of 6%, with latest quarter rentals rises of 9%.

In the 6th of October, apartment rentals rose year-on-year by 8%, with latest quarter rentals growth of 10%. Villa rentals rose 7% year-on-year, with latest quarter rentals rises of 10%.

Violence on all sides

President Mohammed Morsi succeeded Hosni Mubarak in June 2012. His administration faced rising complaints of prosecutions of journalists, attacks on nonviolent activists, granting himself unlimited powers, and general incompetence. It is however worth noting that the Morsi government´s effectiveness appears to have been deliberately undermined by the military. Morsi himself was ousted by a military coup in July 3, 2013.

Two years after Morsi was ousted, political violence has intensified in Egypt. Current president el-Sisi, the ex-general who led the overthrow, has launched a crackdown on Muslim Brotherhood supporters that has killed hundreds and jailed thousands. But as the crackdown intensified, so too did the Islamist insurgency.

In late June, Prosecutor General Hisham Barakat, prominent in efforts to get the Brotherhood declared a terrorist group, was assassinated in Cairo by a car bomb. Responsibility for the attack was claimed by Ansar Beit al-Maqdis, an Islamic State affiliate in the Sinai Peninsula, but Egyptian authorities mostly blame the attack on Morsi´s Muslim Brotherhood group – an accusation the Brotherhood vehemently denies. Officials of the group, however, warn that although the Brotherhood is committed to peaceful protest, continuous provocation from El-sisi’s government could lead to violence.

The government has issued a new draft counter-terrorism law which has been widely rejected by civil society representatives, human rights advocates and by the journalist syndicate. They cite article 33, which states that “anyone who intentionally publishes information on any terrorist operation other than what is mentioned in official statements can be sentenced to at least two years in prison.”

The Committee to Protect Journalists (CPJ) reported that at least 18 Egyptian reporters are in jail, the highest total since the CPJ began tracking detentions in Egypt in 1990. Amid the thousands of Muslim Brotherhood sympathizers in jail are dozens, if not hundreds, of secular activists jailed for their political activities.

Positive economic climate

Egypt gdp inflation

The Egyptian economy´s outlook has turned positive. The rate of Egypt’s economic growth is expected to exceed 4% for the first time since 2010, on the back of a more stable political environment, large donations from Gulf Cooperation Council (GCC) allies and improving business sentiment.

Growth accelerated to 5.6% during the first semester of 2015, compared to 1.2% in the comparable period in 2014. Growth in the fiscal year ending June 2015 is expected to hit 4.2%, according to Planning Ministry data.

According to Minister of Investment Ashraf Salman, “there is an upward trend for the economic indicators of the country and the government aims to achieve better results in the upcoming three years.”

Uncertainties remain, however, due to the political situation. Also the fiscal deficit is still large, despite cuts in energy subsidies and new taxes. Financial support from the GCC has kept public finances afloat but is unsustainable, medium-term.

Nonetheless, the markets remain confident. Moody’s, for example, upgraded its outlook for the Egyptian banking system from negative to stable, forecasting 5% growth during the fiscal year ending June 2016.

“We expect that Egypt’s banking system will benefit from improved operating conditions, resulting in rising consumer confidence and business investments, which in turn will support loan growth and asset quality”, according to Melina Skouridou, CFA Moody’s lead analyst for Egyptian banks.

The rate of investments reached approximately 13% in FY 2014/2015, compared to an average of 10% registered in the past three years, according to Minister of Investment Salman. In particular, foreign direct investments (FDI) amounted to US$5.7 billion during the first nine months of FY 2014/2015, as compared to US$4.1 billion in FY 2013/2014 and US$3 billion in FY 2012/2013.

Egypt is targeting US$15 billion in foreign direct investments during FY 2017/2018.

The unemployment rate stood at 12.6% during FY 2014/2015, down from about 13.6% over the past three years.

High inflation remains one of Egypt’s major problems, due to the cut in energy subsidies in July 2014. Inflation was 11.5% in June 2015, according to the Central Agency for Public Mobilization and Statistics (CAPMAS). Inflation averaged 12.3% from 2007 to 2011, before falling slightly to 8.6% in 2012 and 6.9% in 2013, according to the International Monetary Fund (IMF).

Will the Cairo Capital project go ahead?

The Egyptian government recently unveiled plans to build a new administrative and financial capital, dubbed "Cairo Capital" and “global city for Egypt’s future”. The proposed 700 sq. km. city will be developed in phases over 40 years, according to Mostapha Madbouly, Egypt’s housing minister.

The Cairo’s larger metropolitan area is now nearing 20 million people, making it one of the most congested cities in the world. In 2010, traffic costs amounted to about 4% of Egypt’s entire GDP, according to World Bank estimates.

Cairo Capital could house up to 7 million people, with the initial plans including 21 residential districts housing 1.1 million residential units, 40,000 hotel rooms, 663 health care facilities, 1.8 million sq.m. of residential space and 1,250 mosques and churches.

The new capital city is also envisioned as a “Smart City” that will “embrace an ethos of sustainability born from Egypt’s tradition. The new capital will take advantage of the sustainable technologies of today as well as be adaptable to future technologies, further enhancing its resource-efficiency,” according to Cairo Capital’s website. Cairo Capital will include 91 sq. m. of energy farms employing renewable energy sources.

The project lists Capital City Partners, a Dubai-based real estate investment fund, as developer of the master plan and source funding. Capital City Partners is headed by Emirati Mohamed Alabbar, founder of Emaar Properties, one of the largest real estate development companies in the Middle East which was also responsible for developing the world’s tallest building, the Burj Khalifa. Around US$12 billion had been pledged by Gulf investors, mainly from the United Arab Emirates.

The ministry claims that road construction linking Cairo and Cairo Capital has already begun, and the development is likely to be finished within five to seven years.

Key interest rates unchanged

The Central Bank of Egypt (CBE) has kept its benchmark interest rate at 8.75% and the overnight lending rate at 9.75% for the fourth consecutive meeting. In January 2015 both rates were cut by 50 basis points, the first action since being raised 100 basis points in July 2014 after the government slashed energy subsidies by LE 40 billion, raising fuel prices by up to 78%.

Egypt interest rates

The CBE sub governor finds the key CBE rates “are currently appropriate” considering the balance of risks that include both inflation and downside risks to the global economy, particularly Euro zone challenges and slowing growth in emerging markets.

Affordability a big issue for the poor

Egypt’s housing shortage is estimated to be 3.5 million; but with a population of 85 million and growing, around 175,000 to 200,000 additional housing units are required each year. While there are approximately 5.6 million vacant units nationwide, most of these are beyond the means of the low and middle income classes.

In response to this, President El-Sisi has announced the construction of one million housing units for low income youth. The USD 40 billion project is in collaboration with Arabtec Holding, a UAE company, and is the largest construction contract in the region. Called “For the Youth”, the project is expected to be finished by 2022, housing low income people in 13 cities across the country.

About 44.4% of Egypt’s housing stock is occupied by owners, while about 35.7% of the housing stock is rented. Other tenure types are gifts, and in–kind privileges (14.1%), and public housing (5.5%).

Residential supply stood at 108,000 by the end of the second quarter in 2015, up 45% from 2012’s 74,000, according to Jones Lang Lasalle.  Another 30,000 units are expected to be constructed by September 2015.

Low-income housing, usually priced around US$13,946 per unit remains unaffordable and most developers do not supply houses to this income group.

The deregulation of Egypt’s property market has not helped either. When almost all restrictions on foreign companies and individuals buying property in Egypt was removed by prime ministerial decree 350/2007, prices climbed 116% virtually overnight in the suburb-like “new cities” around Cairo and land prices rose at a rate of 148% per year from 2007 until the January 2011 revolution, according to Egyptian housing policy researcher Yahia Shawkat.

As Shawkat argues, it is in the interest of the Egyptian government, as the country’s largest landowner, to promote an unregulated property market and maximize profits from land sales.

Of course this was at the expense of the lower-income segment of the market. The price of the cheapest social housing units has risen by 14% per year over the last eight years, while average incomes only increased by 1% per year between 2008 and 2013.

House prices in Egypt relative to income are actually more expensive than in Western Europe, double that of most Gulf countries, and four times more expensive than the United States.

Mortgage market lacks steam

Most Egyptian and foreign property buyers still pay cash. Cash purchases represented 57% of all property transactions in Egypt from 2003 to 2008, according to the 2008 Egypt Housing Survey.

There´s little mortgage financing. Mortgage totals decreased by 17.1% during the 2014   The savings rate in Egypt is relatively high by international standards, but Egyptian banks are cautious lenders.  At the end of the first half of 2014, the loan-to-deposit ratio fell to 41.1% from 46.3% the previous year.  The value of mortgage finance offered by mortgage finance companies has reached LE 4.46 billion (USD 570 million) but lending has remained low partly because the complex registration process takes about 6 months to complete.

However, by 2013 there were 13 mortgage finance companies (MPC), up from only 2 in 2005.  The Egyptian mortgage market dates to 2001, when Presidential Decree No. 277 created the Mortgage Finance Authority (MFA).

The Central Bank of Egypt (CBE) launched a mortgage finance program in 2014 to finance low income housing projects – allocating LE 20 billion (USD 2.55 billion) to banks in the forms of deposit, to benefit low income citizens. Qualified borrowers can borrow money at an interest rate of 7-8% yearly.

Investment hotspots

The luxury, foreign and second-home property market is rather different from the gritty realities we have been talking about in much of this report. For this market, the buying opportunities in Egypt – and particularly the newly-built opportunities - can be conceptually divided into three areas: Cairo, the Red Sea, and the Mediterranean Coast.

1. Cairo

  • Emaar’s Uptown Cairo

The EGP 12 billion (US$2.2 billion) Uptown Cairo is being constructed by the developer Emaar Misr. The development offers several residential villages, a golf course, malls, sports and leisure facilities, as well as a business park. This is the first wholly foreign-owned developer to enter the Egyptian market.

  • Katameya Heights

The super-luxurious Katameya Heights launched prior to Uptown Cairo, covers an area of about 1.5 million sq. m. Katameya Heights, introduced in 1997, were purely local. Formerly a stretch of desert, Katameya Heights is now a large suburban area, with large houses, and has attracted enormous interest. The resort offers marvelous clubhouse, beautifully designed golf course and luxurious villas.

  • Rehab City

Rehab City, a real estate development located in New Cairo, is being developed by Talaat Moustafa Group (TMG). The development is located on the Cairo-Suez road. It offers many shopping malls and a cinema complex. Rehab City is preferred by many upscale locals.

  • Madinaty

With a total budget of EGP 60 billion (US$11 billion), Madinaty is considered one of the biggest and most expensive real estate developments in New Cairo. Developed by Talaat Moustafa Group(TMG), it will include 80,000 residential villas, townhouses and apartments. There will also be recreational and commercial areas, schools, medical facilities and hotels. Madinaty is adjacent to El Shrouq City. Construction began in July 2006.

  • New Cairo City

Emaar Misr is also building a5,000-home 3.8 m sq. m. project, New Cairo City. The development is considered a new extension to Cairo, the capital. New Cairo City, when completed, is expected to feature several villages offering gated villas, townhouses and high-rise apartments.

Mivida is a EGP 6 billion (US$1.1 billion) residential development located at the fifth district in the New Cairo City. The 3.8 million sq. m. development will feature 5,000 apartments, townhouses and villas.

2. Red Sea

  • Sharm el Sheikh

Sharm el Sheikh is now the country’s most luxurious and attractive resort, newer and more upscale than Hurghada host to 5-star hotels and international conferences. Sharm has a vibrant nightlife, and boasts many nightclubs, the longest continuous bar in the Middle East, and a marina which can handle private yachts and sailboats. Zoning laws limit building heights (limited to three stories),which has prevented the surroundings’ natural beauty from being spoiled by high rises.

Sharm’s development has been led by tourism, though hotels such as the Ritz-Carlton have sold private villas. New residential developments tend to follow this hotel-based pattern, such as the just-completed Sierra Resort Nabq Bay; the Laguna Vista Residence in Naqb Bay; the Carlton Resort, Hadava. Fully residential is Montazah in Ras Nasranr.

  • Hurghada

Hurghada is the most popular seaside resort in Egypt, though it is overcrowded and now slightly seedy. Hurghada has an international airport with direct flights to major European countries, as well as flights to Cairo. The city is divided into three parts: Downtown (the old part); Sekalla (the city center); and El Memsha (the modern part).

  • Gamsha Bay

In GamshaBay, 60 kilometers north of Hurghada,a 320 million sq. m. tourism and housing project is being developed by Damac, which developed the Dubai Towers, and will be completed over 10 years. The development has a total budget of EGP 2.9 billion (US$16 billion).

  • Sahl Hasheesh

Eighteen kilometers South of Hurghadalies Sahl Hasheesh Bay, where a purpose-built resort flanking 12.5 kilometres of sandy beach is being built. Covering 32 million square metres, by the time it was completed in 2014. Sahl Hasheesh has 20 5-star hotels and 8 golf courses. The Egyptian Resorts Company (ERC) owns the exclusive development rights.

  • Port Ghalib

Much further south near Marsah Alam, two and a half hours from Luxor, the Port Ghalib project is being developed by Al Kharafi Group of Kuwait along 18 kilometres of shoreline. It opened in November 2007, with around 100 properties for sale, and a further 350 in the pipeline. Marsah Alam has a newly-built international airport, an international convention centre, a man-made lagoon, and a multiplicity of sports facilities. A marina and the usual mix of shotel/residential mix are planned.

3. Mediterranean Coast

  • Marassi

The Marassi resort, worth around EGP9.92 billion (US$1.74 billion), is being developed by Emaar. It is located on a7-km coastline at Sidi Abdel Rahman on the Mediterranean near El Alamein. Marassi resort will offer up to 3,000 hotel rooms, luxury villas, chalets, a marina, an 18-hole golf course and healthcare facilities.

  • Almaza Bay

Travco, the main German tour, is building Almaza Bayat Marsa Matruh on the Mediterranean between Alexandriaand Libya.The Almaza Bay Resort has a total area of 5 million sq. m. and boasts about 2.5km of flawless beachfront in one of the most pristine beaches in the world. The three major developments in Almaza Bay include the Jaz Almaza Beach Resort, Jaz Crystal Resort and Jaz Oriental Resort.


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