Egypt offers 500,000 state subsidised housing units

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Egypt offers 500,000 state subsidised housing units

7:49 CAT | 04 May 2016

Last month, Egypt’s housing ministry opened its doors to applicants registering for what it described as the country’s largest-ever offering of low-income housing, with more than 500,000 state-subsidised units up for grabs.

For President Abdel Fattah al-Sisi, who has tried to build support with a populist message, the success of the programme would mean achieving what previous governments failed to do. Meeting that target also would bolster confidence in his government amid a deteriorating economy.

But the programme will not address the full magnitude of the country’s housing shortage and the units will be out of reach for the poorest, analysts say. Moreover, the programme has limited participation by the private sector.

Many of the emerging-market countries that have had the most success in developing affordable housing — like Mexico, Morocco and India — have made strides partly because of private-sector involvement, says Jean Pesme, World Bank’s manager for finance and markets in the Middle East and North Africa.

The private sector’s participation “is indispensable to deliver the government’s large-scale objectives in the housing sector,” he said.

Sisi administration officials say a government fund established last year to finance construction of affordable housing has 61bn Egyptian pounds ($6.87bn) for the new fiscal year starting July, from loans, the World Bank and profit from property and land sales.

That is enough to complete nearly 400,000 units still needed to meet a target of 656,000 units set by Mr Sisi for end of April 2017, said Housing Ministry spokesman Hany Younis.

“This is more than 10 times what we annually built in past years,” Mr Younis said.

Critics doubt the government’s ability to meet this target without more private-sector involvement, but Mr Pesme praised “the fiscal size and commitment of the authorities to move forward in this space despite multiple challenges”.

Mr Sisi essentially is picking up where previous governments left off, recycling an affordable-housing programme that was announced in 2011 as the country was hit by the so-called Arab Spring.

At the time, the programme targeted constructing one-million homes within five years, but political instability stymied implementation.

The first batch of delivered houses included 45,000 units, and was handed to residents last year.

The programme, which Mr Sisi is continuing, offers three-bedroom units about 90 square metres in size for sale at $17,350 each.

Accepted applicants get a cash subsidy of as much as £25,000, depending on their income, and a 20-year mortgage with interest rates of 5% to 7%.

The private sector has stayed away because of the narrow profit margin involved, analysts say.

The Housing Ministry hires small private contractors to do the work.

Affordable-housing programmes generally work better when the private sector also is involved in financing and ownership.

In Morocco, the government encouraged a surge in low-cost housing construction over more than a decade through a system that integrated the private sector at all phases.

Moroccan private banks made government-guaranteed loans to people with low or irregular income.

The programme was financed mostly by taxes on cement manufacturers, which enjoyed a boost in sales as developers were offered state land at reduced prices.

Supply grew both of much-needed homes for people with low income and the middle class while sales of luxury homes helped private businesses hit their profit margins.

“Such arrangements are complex in nature and require technical discussions in order to strike the best balance between both public and private interests,” Mr Pesme said.

Egypt is struggling to strike similar agreements with the private sector.

In 2014, Mr Sisi, who was the defence minister at the time and weeks away from confirming his presidential bid, announced a $40bn partnership between the Egyptian army and UAE’s developer Arabtec to construct one million low-income housing units.

The news, a rare show of interest from the private sector, was greatly welcomed before it quickly withered to an unclear fate due to disagreements over financing.

With a population of more than 90-million and nearly 600,000 new marriages each year, Egypt’s appetite for residential units is staggering.

According to ministry officials, Egypt needs between 500,000 to 600,000 homes annually, of which almost 70% should cater to the poor.

Decades of neglect from both public and private sectors amid a boom in population led to the spread of unlicensed homes, which some estimate to account for nearly 70% of annually constructed homes.

Investors, both foreign and domestic, continue to target the wealthy, erecting luxurious homes in gated compounds in a country where nearly 40% hover near poverty.

“Fifty-two percent of Cairo residents can afford residential units priced between $26,000 and $35,000. However, there is next to no new residential developments by the private sector being offered at these prices,” Colliers International, a global commercial-real-estate firm, said in an April report.

To fill this ever-growing demand, Egypt’s governments have for decades hurriedly built apartment blocks intended for the large low-income population, but such housing has neither kept up with demand nor has it proved to be as affordable as intended.

Some of these attempts involved a significant private sector contribution.

A 2005 programme launched by ousted President Hosni Mubarak targeted building 500,000 low-cost homes within five years, 20% of which were to be built by real-estate developers who bought land from the state for half its market price.

Until the 2011 revolt that overthrew Mr Mubarak, only 360,000 units were completed, and many remain vacant due to their desolate locations.

Houses also were unaffordable for many.

“For the authorities, it is important to build trust among all the stakeholders, notably the population, lenders, developers,” Mr Pesme said.

Source: Wall Street Journal