Public-private negotiations on housing - Economy - Al-Ahram Weekly

Al-Ahram Weekly

18-02-2025

Negotiations are underway between the government and the private sector to build new social-housing units
The private real-estate sector is anticipating the announcement of a new initiative by the Ministry of Housing, Utilities, and Urban Communities aimed at accelerating the development of social-housing units.
The initiative will allocate land to private sector real-estate developers, with 30 per cent of the designated area reserved for the construction of social-housing units to be marketed through the Social Housing Fund, said Tarek Shoukri, head of the Real Estate Development Chamber at the Federation of Egyptian Industries and Vice Chair of the Housing Committee in the House of Representatives.
Mohamed Al-Bustani, head of the New Cairo and Administrative Capital Developers Association, said that the initiative was proposed by the Real Estate Developers Association as a solution to the housing crisis.
He added that the state would provide land to developers, who would undertake construction, while the government would receive a designated number of units. He noted that a similar initiative had been implemented during former president Hosni Mubarak's tenure, adding that such housing was much needed given that it serves approximately 90 per cent of the population.
Marwan Faris, a member of the Real Estate Investment Division and a developer in New Cairo, said the initiative would be attractive for investors, especially with the rise in construction costs by 45 per cent, increasing bank interest rates, and escalating land prices.
The initiative could ease the burden on developers by providing access to land without the constraints of upfront payments and installment costs, he pointed out.
Within the framework of the initiative, the private sector would receive land from the government at around LE13,000 per square metre. At present, developers often acquire land from private owners at higher rates, reaching up to LE25,000 per square metre.
Bearing in mind that the cost of land accounts for nearly 50 per cent of a developer's total expenses, Al-Bustani said that this would help to cut the final price of the finished units.
Alaa Fikri, a member of the Real Estate Investment Division, said that current market fluctuations make it difficult to determine the construction cost per square metre. The changing prices of labour, energy, and raw materials add to the problem, besides regional political developments.
With daily and hourly labour wage rates continuously changing, Fikri said it was nearly impossible to make accurate financial calculations over the next six months.
At present, lower-income applicants can secure housing via the real-estate financing system at an annual interest rate of eight per cent, while middle-income applicants are subject to a 12 per cent annual interest rate.
A minimum down payment of 20 per cent is required, with installments extending up to 20 years.
The lower-income classes are classified as people with an annual income of LE144,000 (LE12,000 per month) for individuals and LE180,000 (LE15,000 per month) for families. Meanwhile, middle-income classes have an annual income of LE240,000 (LE20,000 per month), with families in this category earning up to LE300,000 annually (LE25,000 per month).
According to Al-Bustani the Urban Communities Authority is responsible for extending utilities to the outskirts of newly developed areas, while the investor must bear the cost of infrastructure within the allocated land.
Faris noted that for the initiative to succeed, the designated plots must be situated in proximity to urban areas rather than in remote desert locations. He argued that placing the projects in isolated areas would necessitate the involvement of larger companies capable of leveraging their established market presence to facilitate sales.
He advocated allocating the land closer to existing urban developments and ensuring that the participating companies have a strong track record, having successfully delivered previous projects on schedule.
Fikri referred to an earlier proposal submitted by the Real Estate Investment Division that suggested developing plots of up to 100 square metres for state-owned housing, while allowing investors to construct their own projects on the remaining land.
He said that this model could benefit both the government and the private sector, as the Ministry of Housing would acquire residential units at no direct financial cost, while developers would secure land without upfront expenses in exchange for constructing state-owned housing units.
The state should conduct a rigorous technical evaluation of investors before awarding them contracts to participate in the initiative, he said, with this considering the developer's track record, adherence to project deadlines, and financial management capabilities.
Land currently offered to investors is available only in limited quantities and is priced in US dollars, with short installment plans, Fikri stated, adding that this imposes significant financial burdens.
Such land is either auctioned off or sold in foreign currency, with allocation periods extending to seven or nine months, making it challenging for companies to secure plots. Fikri said there had been a noticeable decline in the number of social-housing units being offered by the state due to a reduction in surplus stock.
In 2014, the government launched its One Million Social Housing Unit project and has been implementing it since then.
During the rule of former president Mubarak, the government introduced a social-housing model in partnership with the private sector that provided units not exceeding 63 square metres.
While developers were granted flexibility in interior finishing, they were required to maintain designs akin to residential compounds and incorporating green spaces. Sales were conducted through private companies, which engaged in competitive pricing strategies to attract buyers.
* A version of this article appears in print in the 20 February, 2025 edition of Al-Ahram Weekly
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