In the wake of the 2011 Egyptian revolution, a number of industries and economic sectors have struggled to regain their footing over the last few years. With political uncertainty continuing to dog long-term planning and growth, investors continue to be reluctant to put their money into the country.

Some of the side-effects of this situation have been a fall in tourism numbers, a lack of foreign currency and a shortage of fuel. Consequently, the Egyptian government has decided to adopt an economic reform programme that aims to improve the state of its public finances.

This began with the introduction of a value-added tax (VAT), an increase in the price of subsidised fuel and, most importantly, the free-floating of the Egyptian pound in 2016 so as to qualify for a $12 billion loan from the International Monetary Fund. This attempt to attract investors into the country halved the value of the currency almost overnight.

With the government now looking to private firms and corporations to invest into its economy and bridge the funding gaps, a number of crucial sectors are attracting significant foreign investment interest.

According to the Oxford Business Group’s The Report: Egypt 2017, recent macroeconomic trends – in particular the depreciation of the Egyptian pound and the foreign currency shortage – have reflected both positively and negatively on the country’s real estate market throughout 2016.

Real estate has always been a strong performer for the Egyptian economy, with the sector a major investment area prior to 2011. According to figures released by the Ministry of Planning and International Cooperation, property growth rates topped 15% ahead of the revolution.

While the market understandably dropped in the immediate aftermath, the trend was short-lived and generally the market has continued to perform positively despite the uncertain political and economic climate.

In many ways, The Report adds, the current situation has benefited the sector, as the negative interest rate and the devalued Egyptian pound have seen domestic investors move their cash into real estate as a safe and stable investment. Although the effects of the devaluation and subsequent float have been varied, one noticeable result has been a boom in the housing market, with investors looking at residential real estate as one of the few remaining stable investments.

“The demand for real estate is still strong. With a population in excess of 90 million persons that continues to grow, we expect this trend to continue,” Ayman Sami, country head – Cairo Office, MENA for Jones Lang LaSalle, tells Big Project ME. “The biggest factor that has affected real estate was the devaluation of the local currency. This had a direct impact on the cost of doing business in EGP terms, with construction costs increasing by 30-50%. We have seen residential unit prices increase in EGP terms; however, there was a substantial decrease in USD terms ranging between -35% to -45%.”

“On the retail and office side, the landlords for grade A space quoted their rents in USD. This has led all tenants to revisit their expansion/relocation plans, it also means that most of the tenants also started to push back on the quoted rents, pushing rental levels down further.”

Amany Sadek, senior research and business development executive at Business to Business for Investment & Real Estate Marketing (B2B), a local commercial and residential real estate firm, tells OBG that the uncertainty of future currency valuation means property will remain a safe bet for the foreseeable future.

“People feel they should be putting their money in real estate when there is political or economic instability, because it is something that you can guarantee,” he explains. “In Egypt now, the function of real estate as value storage has been greatly magnified because of the uncertainty of the pound.”

Sami adds that the main issue facing developers now is the cost of land, with consumers seeming to have absorbed the price increase on the back of more favourable payment terms. He predicts that the Egyptian construction industry will continue to grow, but is quick to point out challenges that must be addressed in the short term.

“Cost and affordability for the end user are the driving factors. This has led to developers revisiting their designs, looking at smaller units with more affordable payment terms. This is not the first time developers have faced such challenges, and when the market starts to slow down they do react quickly to the change,” says Sami.

“Contractors that contracted work prior to the devaluation and were obliged to continue throughout the transition period did suffer from some losses. However, with the larger volume of work going forward, they could make up for the losses if they are financially sound and are willing to take the longer-term view.”

With the private sector taking on a more active role in the development of Egypt’s real estate needs, a number of GCC developers are taking a leading role, with several projects announced or started in 2016, the OBG report says.

In March 2016, Capital Group Properties, owned by Abu Dhabi Capital Group, launched Albourouj, its first project in Egypt, which has a total investment of $2.1 billion. This 490-acre project will consist of residential, commercial and retail units between the Suez Canal and the Ismailia Desert Road.

In addition, in 2015, Dubai-based HMG Properties launched a luxury destination in Sharm El Sheikh, with CEO Raed Bourjass telling OBG that the luxury residential sector is growing in cities like Sharm El Sheikh. “While tourism is the main economic driver of the city, we believe that in the years to come, real estate here will appreciate faster than any other city in the country,” he said.

Local press also speculate that HMG is also planning new projects in Cairo, Alexandria, Aswan, Luxor and Hurghada.

“I believe that the presence of both local and international players is very important for the industry. As mentioned before, the demand is really big. JLL’s 2011 report on middle income housing published that the estimated shortage in housing was 1.5 million units, and the gap continued to widen,” Sami says.

“The real estate development industry in Egypt is mostly dominated by local players with a few regional players from the GCC. That being said, there is still room for more development and the presence of foreign investors is actually healthy, since not only will it help with catching up to meet the demand requirements, but it will also introduce foreign funds, which is needed to support with the struggling trade balance as Egypt relies heavily on imports.

“With the recent devaluation, the demand for local products has increased due to the fact that imported items have become really expensive for the locals, so this is also a chance to develop manufacturing plants in Egypt, making it a more competitive place to do business and providing support to increase exports,” he asserts.

“The residential sector shall continue to be the strongest, with the demand driven by the population growth. The other sectors like retail and office will follow. There is also a large demand for schools and hospitals to support this growth. Hotels will go through several phases before the growth kicks in once again; we are currently at a stage where there are many renovations underway, which is an interim stage before we start seeing more introductions.

“I would also say that hotels would be one of the sectors that will pick up again soon, with average occupancy rates in Cairo now reaching 69%. Construction will continue to focus on residential communities driven by the private sector, and the government has ambitious plans with the new capital which is being developed east of Cairo where there is a mix of uses being developed, including hotels, offices, residential, retail,” Sami concludes.