Everything you want to know about Egypt’s real estate sector: What is the growth trajectory of Egypt’s real estate market? How can Egypt become a regional hub for international companies? Where are the best options in terms of exporting Egyptian real estate? In search of answers to these questions, Enterprise spoke with Redcon Properties Chairman Tarek El Gamal (LinkedIn), a regional real estate expert with over forty years of experience in contracting, development, and the building materials industry. Here are edited excerpts from our conversation.

Enterprise: Firstly, how are things looking in Egypt’s real estate sector?

Tarek El Gamal: The currency float in March served as a turning point for the local real estate market. Previously, investors had been hedging against the decline in the value of the EGP as the primary incentive for real estate demand as an asset. This became particularly evident when looking at office real estate, a market that has witnessed a boom as more outsourcing service companies have appeared in Egypt on the back of lower cost of living requirements compared to other countries in the region.

The implementation rate of real estate projects fell prior to the EGP float, driven by limited supplies and high costs of building materials after import restrictions hit local production of cement and rebar. Following the float, things have gradually begun to return to normal.

E: How have pricing conditions been affected?

TG: Residential, office, and commercial real estate prices naturally changed after the float andthe interest rate hike. Now with the stability of the exchange rate of the EGP against the USD and the removal of the black market, many commodities have seen their prices fall, yet the rate of decline has been less significant in the real estate market. This has especially been evident in the North Coast area due to high demand.

Historically, residential real estate prices have declined at a rate of 70-80% against the USD every 25 years in Egypt, contrary to the global rate, on the back of urban expansion. This is in contrast to office and commercial real estate, as older areas have become commercial markets for newer nearby areas. If we want to change this pattern, there need to be more services made available and cheaper modes of transport.

E: What are the future prospects for the real estate market and construction sector in the wake of new government spending restrictions?

TG: The construction and contracting sectors are certain to be negatively affected by the reduction in government spending on public projects. However, the private sector will serve as an alternative source of investment, especially given government incentives aimed at attracting foreign direct investment into Egypt via public-private partnerships for infrastructure projects.

E: How can Egypt become a regional hub for international companies?

TG: Time is the key factor for Egypt’s transition to a regional center for international companies. Establishing the Ras El Hekma project as a private free zone served as the primary incentive in attracting the USD 35 bn investment from the Abu Dhabi wealth fund ADQ. A project like Ras El Hekma cannot be marketed via the off-plan sales system given its size, presenting the need for a private free zone system to attract investment.

On a different note, cooling represents the highest electrical load for any building. Electricity prices must be liberalized in Egypt to fall in line with international rates and in a way that stimulates competition in the local and regional real estate markets. The use of heat-insulating glass would also reduce electricity consumption bills, while also increasing employee productivity.

E: Why have local real estate funds not seen the same momentum that is being witnessed in Gulf markets?

TG: While the global market is witnessing the activity of some 4k real estate funds, the situation is different in Egypt. Here, real estate investment funds do not benefit from sufficient tax exemptions and are subject to internal and external oversight committees that deprive the market from huge gains. A project implemented by a real estate fund can derive double the value of that implemented by a company with self- or bank-backed financing, which will also have to sell part of its project — if not all — via the off-plan sales system in order to provide the necessary liquidity to undertake the project.

E: Why do some investors rely on foreign contractors and consultants for local projects?

TG: At Redcon, we rely on international consultants for new projects due to their huge library of data, meaning that they can offer the largest number of design ideas matched to geographic location for the most efficient price. This is something that many Egyptian offices focused purely on design do not have.

E: Where do Egyptian companies currently stand on the path to sustainable construction and how can they catch up to the global level?

TG: Redcon seeks to adopt a transportation-oriented urban development approach — a style of urban planning that focuses on creating integrated residential, commercial, and entertainment communities centered around public transport stations such as the metro, buses, or train stations. The proximity encourages the use of public transport and reduces dependence on cars, in turn lowering traffic congestion and pollution and increasing the value of real estate in these areas.

Land transportation is expensive for any economy, and in Egypt it eats up a large percentage of a citizen’s income, despite their share in the railway transportation networks being less than compared to citizens in countries with similar economies. In France, the per capita share of the metro or railway is 150 kilometers per 1 mn citizens, while in Bangkok it is 20 km. In Cairo it is only 7-8 kms, while in the governorates it is zero. Relying on smart mobility may help Egypt solve urban expansion problems, enhance sustainability, especially as Egypt’s population growth is expected to accelerate over the next six years, with some 20 mn people added to the population between 2021 and 2030.

Positioning green and sustainable construction as a fundamental pillar of modern construction in Egypt will be one of my goals over the next three years as a board member of the UN Global Compact — the largest global corporate initiative in the field of sustainability — which includes more than 24k participants from 167 countries.

E: The government is making great efforts to stimulate the export of real estate in order to increase foreign currency reserves. Where do you see the most important elements of success?

TG: I believe that the principles of transportation-oriented urban development can be considered a sustainable and effective solution to the dilemmas of urban growth and environmental challenges. The approach has been gaining global popularity, meaning it would serve as a way to activate exports of the local real estate market. Expanding the equipment of headquarters for Business Development Outsourcing centers would also give Egypt a competitive advantage. It will require the government making large amounts of land available for these high-value projects that bring in hard currency.

E: Tell us about Redcon and its plans for development in the local market?

TG: Redcon is still completing its Golden Gate project, which has benefitted from recent government incentives that allow developers to retain 20% of the land area allocated to any project as stock to be developed after pre-agreed implementation stages. Contractual sales for the project reached EGP 11 bn in the past year, of which the share of foreigners and Egyptian expats accounted for over 30%.

Redcon plans to develop a mixed-use, predominantly residential project within our largest project Westgate. The company is also aiming to acquire land in the North Coast for development.

E: What was Redcon’s volume of contracts in 2023 and what about the target for this year?

TG: The volume of work carried out by our contracting arm Redcon Developments over 2023 ranged between EGP 10-12 bn, while the volume of contracts reached EGP 30-40. In 2024, we are targeting growth of over 50% in the volume of executed work and aim to add new contracts worth some EGP 10-15 bn.

E: Talk us through Redcon’s future plans, including foreign expansion?

TG: Redcon International, the joint venture between Redcon Construction and Saudi Al Reyadah Holding Company, has obtained an A credit rating and the first technical rating in Saudi Arabia, qualifying the company to compete for the kingdom’s largest projects and reflecting the company’s financial and technical strength and solvency. We have obtained contracting contracts worth SAR 250 mn from the Red Sea International Company, an affiliate of the Saudi Public Investment Fund, to implement landscaping works at its Amaala and Triple Bay projects. Redcon International is also targeting business volumes of SAR 2.5 bn (c. EGP 31.7 bn) over 2024.

Redcon Development is moving towards foreign markets and reconstruction areas, including the Emirates and Iraq, and is aiming to establish a company in Iraq by early 2025.

E: Are you considering offering any of the group’s companies — Redcon Development or Redcon Properties — on the EGX?

TG: Of course, any real estate company that aims to continue expanding keeps the stock market in mind. But, moving forward with a Redcon offering will depend upon market conditions.