Locked up and locked out in Egypt

Locked up and locked out in Egypt
Feature: Millions of Egyptians are looking for homes, while millions of properties stand empty as owners capitalise on soaring prices. Al-Araby al-Jadeed examines Egypt's property paradox.
4 min read
24 March, 2015
Rents rose by 30 percent in some Cairo areas last year [AFP/Getty]

Egypt is suffering a housing crisis, with hundreds of thousands of young people unable to afford their own place while hundreds of thousands of flats lie empty with their owners happy to watch values rise in a booming market.

Hussayn Ahmed, a civil servant, is one of those young Egyptians whose salaries cannot keep up with soaring prices. In 2014 rents increased by up to 30 percent in some areas of Cairo, while sale prices rose by double-digit percentages, according to the property company JLL.

"I had no choice but to live in my father's house after getting married - I can't afford to rent an apartment," Ahmed says. "How can I pay $90 a month to rent a 60sq/m apartment when I get paid $150 a month?"

Karim Mohammed, a 35 year-old electrician, finds himself in the same situation, and has given up on staying in Egypt.

"After working for 12 years in Egypt, I am certain there is no way I can buy an apartment because of the significant increases in the price of real estate," he says, adding that he plans to migrate to get on in life.

Queue here

Egypt's housing ministry says that demand for residential units had increased by 500,000 each year, meaning hundreds of thousands of people are joining the two million already in search of places to live.

And here is the paradox - while Egyptians like Mohammed and Ahmed toil and get nowhere, hundreds of thousands of apartments stand empty across the country.

     After working for 12 years in Egypt, I am certain there is no way I can buy an apartment.
- Karim Mohammed

In July 2014, the the Egyptian housing minister, Mostafa Madbouly, estimated there were two million "locked-up" units, while other estimates suggests 1.1 million and 2.65 million additional units unsold and empty - a fifth of the 12.2 million estimated residential properties in Egypt in 2013.

Salah Hijab, the head of the Association of Urban Planning Experts, says that the phenomenon of these "locked up" homes was the result of a housing boom and the devaluation of the Egyptian Pound.

"Speculators and investors have rushed to buy apartments as investments. Their value will increase at a rapid pace and faster than returns earned on bank deposits," Hijab said.

"They either keep the residential units as a form of savings, or sell the units after a few years and make a profit of up to 50 percent of the initial price."

Lack of trust?

So why has this group refused to rent their investments to tenants? Rental yields in Egypt are high - up to 9.4 percent, the second highest in the region. One answer is that they don't need to - the capital gains from soaring property prices are enough.

Magid Abdel Azim, who heads a company that specialises in researching the residential property market, has another answer: a lack of trust. Some owners are scared of renting in case tenants refuse to leave at the end of the lease.

Azim suggested that in this case, "the state should enact that guarantees the tenant will leave, which is a pragmatic solution to address the lack of trust between landlords and tenants."

He also suggested that the government should establish a national company that would enter into contracts with owners of the closed-up units to lease out the properties for limited periods, instead of an agreement between the unit owner and the tenant.

Absent owners

Hussayn Gumuah, a professor of engineering at Cairo University and head of the association for "protecting real estate wealth", points outs that all the attempts made by governments so far to solve the issue of closed-up apartments have failed.

"The state does not have the ability to impose penalties on owners of closed-up units because they have the freedom to do what they want with them," he says.

Gumuah told al-Araby that the state had tried several policies: the Council of Ministers offered owners loans of $4,000 for refurbishments and to encourage them to make the most of the closed-up housing units, while also imposing a tax on empty units to encourage sales.

However, the failure to apply the law "decisively" meant it has yet to have an impact.

Hijab, the head of the Association of Urban Planning Experts, said the property paradox has hurt Egypt in others ways - those who cannot afford to rent or buy simply move into the slums.

"The issue of the closed, empty apartments directly contributes to the increase of slums, as a recent report showed that there are 12 million people living in slums just in Greater Cairo, which has a total population of 20 million," he said.

This is an edited translation of the original Arabic.