The private sector needs a viable business equation to step into affordable housing. While Egypt faces a severe affordability crisis, with a house-price-to-income ratio that reached 15.1 in 2024, the entity best equipped to solve it — the formal private sector — has effectively ceased to participate. In 2022-2023, the formal private sector contributed only 8.8% of Egypt’s total housing production, Cairo-based think tank Alternative Policy Solutions (APS) said in a study (pdf).

This retreat is not due to a lack of demand, but a collapse in viability. For developers, the profitability gap between luxury and affordable housing has become too wide to bridge without structural intervention.

Why the private sector exits the mass market

The private sector operates on margins that typically range between 12% and 15%, Vantage Urban Development’s Chairman Mohamed Abdelgawad tells EnterpriseAM. However, rising material costs and high interest rates are currently eroding these already thin margins. Luxury developments offer higher returns that allow developers “to contribute more meaningfully to middle-income housing in the future,” Ora Developers CEO Haitham Abdelazim explains. In contrast, affordable housing operates on razor-thin margins, making it “less attractive” to commercial developers under current conditions.

The single largest barrier is the cost of land, which constitutes between 38% and 45% of the final cost of a housing unit, Abdelgawad said. Because the government allocates auctioned land through auctions to the highest bidder to generate revenue, the “raw material” for housing has become too expensive to support low-margin projects.

Developers also face what Abdelgawad calls a “triangle of time, money, and risk” created by bureaucracy. Delays in issuing building permits do not just stall constructions, but also increase financing costs. For low-margin projects that rely on speed and volume to generate a return, a delay that extends the borrowing period can wipe out the entire bottom line.

Developers are eager to adopt cost-saving technologies like pre-cast or modular construction to lower prices, Abdelgawad argues. However, current Egyptian building codes and approval processes effectively block these technologies, forcing developers to use more expensive, labor-intensive methods.

A structural disconnect also exists between the banking sector and the development cycle, creating a deadlock for affordable projects, Abdelgawad noted. Banks often refuse to finance projects until construction is complete or require assurances that exceed the project’s value, forcing developers to self-finance and carry the interest burden themselves. Abdelgawad warns that carrying these interest rates for extended periods causes net income to erode, sometimes dropping to “between 2% and 3%, and in some cases, it may reach a loss.”

Developers cannot build for customers who cannot pay. Current mortgage rules require proof of income where installments do not exceed 40% of monthly earnings. Abdelgawad explains that direct customer financing during construction is not easily done, because even if the target demographic can prove their income, the required installments may exceed 40%, leaving the developer with no liquidity to build.

The incentives for re-entry

Despite the barriers, the private sector has explicitly stated it is willing to re-enter the mass market. Abdelgawad and Abdelazim agree that developers do not fear “brand dilution” and can manage different portfolio tiers. To activate the private sector, some specific policy shifts are needed.

Land as a subsidy, not revenue: The private sector cannot deliver affordable units on land sold at market-rate auction prices, Abdelgawad said, arguing that the state must shift from an auction model to a partnership model — providing land at reduced rates or as a share of the project. This reduces the developer’s upfront capital burden and directly lowers the final unit price. A glimpse of this model is already appearing, with the government recently tapping private developers to construct 10k social housing units in a World Bank-backed pilot program.

There is a specific liquidity threshold that would bring developers back. Both Ora and Vantage executives agree that if reliable mortgage financing covering 50% of the unit price were available to middle-income buyers, companies would be ready to expand into this sector immediately. This assurance would transform affordable housing from a “theoretical segment” into “an active and scalable market,” Abdelazim said.

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