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JLL publishes its second MENA ‘Middle-Income’ Housing report, reviewing the market in Cairo.
JLL, the world's leading real estate investment and advisory firm, has today published a special report on the middle-income housing segment in the Middle East and North Africa region. The report highlights the social and economic impact of a marked shortfall in the required supply of middle-income housing, suggesting that significant efforts are needed to address the current imbalance.
The report clearly outlines that this shortage is an important and consistent issue across the Cairo market, while there is a general recognition of the problem and a growing number of policy initiatives and projects targeting the middle income sector, more needs to be done if the current shortage is not to widen further before it is reduced.
'Middle-Income' Housing Defined
JLL defines 'middle-income' housing as that provided by the market which is affordable to the middle tranche (i.e. 40-60%) of households on the assumption that they spend no more than 30% of their gross household income on housing.
The report excludes labour accommodation and national housing projects where accommodation is provided by major employers for their workers or governmental agencies for local citizens. It identifies two major components to the market, properties for sale and those for rental, as many middle income households cannot purchase property due to either regulatory restrictions or a lack of available capital and finance.
The definition of affordable varies across the region in terms of 'price point'. JLL's report indicates that an 'affordable' sales price in Egypt is circa EGP285, 000 and annual rent around EGP 32,000.
The importance of the middle–income sector of the market should not be under estimated, as it accounts for over 60% of all household in Egypt. That equates to 12 million households in Egypt.
Shortage of 'Middle-Income' Housing in Cairo
In 2011, JLL identified the need for an additional 1.5 million affordable homes across Egypt. This problem has been acknowledged by the Egyptian government who has announced ambitious plans to provide additional housing for lower income families. Our recent research shows that there is also a shortage of homes for Middle Income families (which we define as those with a combined household income of between EGP5,000 and EGP12,500 per month). There have been very few projects launched by private developers aimed at this target market over the past 5 years and this is resulting in middle income families having to seek accommodation in existing units scattered around older parts of Cairo. Many of these units are covered by the existing rental laws and are therefore available at far below current market levels. While affordable, many of these units are in poor condition as there is no incentive for landlords to maintain them to current standards.
Overcoming the Challenges in Cairo
JLL's report highlights several factors that have contributed to the current shortage of affordable housing in Cairo. These include:
The complexity of these factors means that solutions are not necessarily easy to find. The report suggests that resolving the shortage of middle-income housing requires a concentrated effort involving government agencies, private developers and other stakeholders, focusing on six key factors:
Ayman Sami, Head of JLL in Egypt, said "Whilst none of these solutions are easy, we believe that working together, government agencies and developers can address the shortfall that JLL has identified in the Cairo market.
The Egyptian Government has recognised that additional resources should be allocated to the development of middle-income housing, but more needs to be done. We believe there is a need to re-think the existing relationship between Government and the real estate development industry to create more affordable housing that middle income families can afford .We also recommend more innovative planning and design initiatives to create more attractive, environmentally sustainable and cohesive communities as well as accessible financing, empowering middle income families to take a stake in their future.
Sami highlights "several examples of best practice that offer some hope that changes are already beginning to take root in Cairo with both Arabtec and Orascom seeking to provide more affordable homes". However, delays in servicing Orascom's existing project (Haram City) and delays in agreeing contractual terms between Arabtec and the Egyptian government continue to undermine these efforts. "
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