Sunday, 16 August 2015

How much more expensive can homes in Cairo get?

***A MESSAGE FROM SODIC:

Much more, according to the minimum accepted bidding price in the latest government auction. Plots of land in New Cairo (35-150 acres) have just been announced at prices crossing the EGP 3,000 per square meter mark, with bids lower than EGP 2,900 per sqm being rejected. The largest plot of land (150 acres) was announced at EGP 3,290.

About a year and a half ago, SODIC was awarded its 301-acre plot in New Cairo at a price of EGP 1,915 per sqm — at the time, a record for a parcel of that size. The price in 2014 was driven by a lack of government land auctions from 2010 till late 2013, leaving developers in dire need of land. What resulted was the 40% price jump passed on to the end user — a price jump we all witnessed in the residential housing market last year. Upper-middle income prices rose from EGP 4,000-5,000 per sqm in 2011 to EGP 7,000-9,000 for core and shell offerings in the east and west of Cairo. Middle-income government offerings came in at prices hovering around EGP 4,000 in New Cairo.

Land price generally accounts for about 30% of a developer’s cost. With land prices jumping further over EGP 3,000, we can expect end-product prices to hit new highs. At these land prices, developers have no option but to address the top end of the market, thereby answering the eternal question: Why are developers only catering to a niche market and offering high-end products — leaving unanswered the demand of the millions in need of more affordable middle-income housing? Developers have long since asked for better land prices to offer more accessibly priced units.

A proposed solution was the government partnerships put forward earlier this year. Though promising to begin with, this ended up being another form of bidding — but this time with the government’s percent of revenue offered against the land. Developers have been offering the government a revenue percentage nearing the 50% mark, driving up land prices to be even more expensive than auction lands — and this without the tried and tested legal framework of auctions that gives the developer full land ownership and cover against allegations of favourable terms.

Egyptians currently reside on 7% of Egypt’s land, yet the fight for affordable land to address the housing gap — reported at over 3 million units, with an additional 300,000 to 500,000 units being added every year — remains a lost battle.

We think it’s time to explore new formulae that could allow private developers to begin addressing Egypt’s real housing gap.

This message was written by SODIC, proud sponsor of Enterprise’s Speed Round section.

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