Head of Research Suha Najjar outlines unrealized opportunities in housing market

CAIRO, EGYPT, December 3rd, 2008 - The Egyptian real estate market has a number of contradictions, Suha Najjar, Managing Partner and Head of Research at Pharos Holding, told a panel at the American Chamber of Commerce's November 23rd real estate conference. Prices of high end residential real estate do not reflect market fundamentals, while low to middle income housing is significantly under supplied.

"From an investment perspective, the real estate market is dominated by the high end residential sector." Najjar said "In Egypt this sector is a 'paper market' represented by high-end, newly finished or unfinished developments. This segment of the market is more driven by speculations. Prices of unfinished properties often exceed those of finished properties. This is not necessarily a 'real market'--one that is driven by fundamental forces and underlying supply and demand dynamics. "

Pharos Holding, an Egypt-based investment firm, estimates high-end residential demand at 15,000 units annually, far below the nearly 40,000 units entering the market each year. Despite this excess supply, prices have continued to rise with supply increases.  

"Liquidity-fueled speculation, rather than real demand for residence, has been the main driving force in the high-end paper market," Najjar concluded.

In contrast to flows of capital to the high-end housing market, Egypt's "real property market", as Najjar termed the affordable housing sector where demand mirrors housing need, is the economy's undersupplied middle and low income housing market.

Housing represents just 3.6% of Egypt's GDP, informal housing--where residents live illegally or without authorization stands at 65% and the country's 32% owner occupancy ratio is the world's lowest. In the next 10 years, Pharos Holding predicts that Egypt's population will require 5 million low cost housing units.

"The affordable housing sector is supported with real need and a simple, powerful economic rational--suppressed demand far outweighs supply," Najjar said. "Egypt needs to better house the 80 million people not served by the real estate market that has so far attracted capital."

Najjar highlighted several challenges to the supply of affordable housing sector.

On the supply side, affordable housing promises thin margins, exposing builders to possible losses if costs rise, and meaningful returns on investment only across high volume projects. The sector is serviced by small scale contractors.

Affordable housing demand is restrained by expensive credit and lack of affordability.

Najjar pointed to Egypt's mortgage market, which stood at EGP 3 billion at the end of 2007, less than 0.3% of GDP. 

"The housing market requires correction," Najjar concluded. "The same liquidity that fueled the housing bubble in Western markets funded the rapid rise of high-end construction in Egypt. But this is where the analogy ends where sub-prime lending funneled funds into low cost housing abroad, Egypt lacks the low cost producers and available cheap credit that spread the speculative bubble across the entire housing sector. This is a benefit, in retrospect, but now the affordable housing sector is an opportunity it is important that government and the private sector work together to remove the restraints that prevent proper investment reallocation."

-Ends-

Pharos Holding for Financial Investments is an Egypt-based Investment Bank offering a complete range of investment solutions to investors demanding the highest standards of service.  The firm was founded by its Chairman, Dr. Mohamed Taymour, in 2006 along with a group of financial industry veterans with vast experience in the Egyptian, Gulf and international financial markets.  Today, the firm offers Securities Brokerage, Research, Investment Banking, and Asset Management to institutional and high-net-worth investors in both the region and internationally.

For further information on Pharos Holding, please visit www.pharosholding.com or contact:
Hassan Fahmi
Director of Marketing and Public Relations
4A Hassan Sabry Street,
Zamalek 11211
Cairo, Egypt
Tel: +202 27373483
Fax: +202 27373482
Email: hassan.fahmi@pharosholding.com

© Press Release 2008