The Treasures of Modern Egypt 2010

It is almost a year since I published my Blog on Buying Property in Egypt 2009 and as the world financial crisis has escalated it is time to reflect on how Egypt's rapidly growing property market has evolved.

Of course the market has changed; many investors and lifestyle buyers who have previously relied on borrowing against rising property values in Northern and Eastern Europe have found sources of financing drying up as banks take a tougher stance on borrowing.

In many parts of Europe this has had a catastrophic impact on the property market and all of those trades associated with it.

Not so in Egypt where traditionally the property market has never been financed by debt; most people buying here know that at best they may get Developer funding over the period of building a new project. This is normally restricted to an interest free loan over two to three years.

A few Developers, anticipating a slow down in sales, have introduced innovative low cost loan schemes over up to seven years at favorable levels of interest.

At the upper end of the market, where sales have slowed due to lack of finance on existing property at home, Developers have in some instances held off on planned price increases and in a few cases actually reduced prices or 'added value' by including extras such as air conditioning, kitchens and guaranteed rental schemes.

However a new and even more exciting phenomena has evolved; many Developers who in recent years have been forcing up prices by blaming the high cost of steel, land and cement have found themselves releasing land bought from the government at very low prices in the recent past and which they were hoping would bring rich rewards as prices escalated.

This land is now being used for new projects which in some cases are being offered for a finished price as little as £240 per m2! Just a year ago the lowest prices for new build property was closer to £500 per m2.

The significance of this is highlighted by a recent report by International Estate Agents Savills who published the top 35 locations worldwide in terms of price per m2. The report featured Cairo, Egypt as offering the cheapest property at 1425 Euros per m2, closely followed by Marrakech at 1425 Euros per m2; the cheapest coastal property was said to be in Mahe in the Seychelles at 2460 Euros per m2!

Had the search gurus done their homework a little more thoroughly they would have found in fact that Hurghada on Egypt's Red Sea coast is offering freehold Five Star, frontline beach property on the Red Sea from as little as 900$ per m2! Even the World Class resort of Sahl Hasheesh has frontline properties from only 1450$ per m2.

Both of these resorts are to be run by internationally renowned Swiss Hotel chains to a standard comparable with the best in the world.

At the lower end of the market it is amazingly still possible to buy a studio apartment, fully finished, in a development with 24 hour security, lifts to all floors and a swimming pool for just £6000, yes six thousand pounds! This buys a 29m2 studio and is just £207 per m2.

There are many cases like this and incredibly Hurghada is only five hours from most European cities, has a year round season, guaranteed sunshine, almost zero rainfall, incredibly friendly people and the lowest cost of living of any of the popular holiday destinations.

Add this to the crystal clear warm waters of the Red Sea, amazing coral reefs and a rich cultural history and the reasons for investing in Egypt are even more compelling.

It is true that in the recent past few properties in Egypt are 'registered' in the accepted sense but make no mistake, the established system of purchase through 'court validation' is totally safe providing prospective purchasers follow the generally accepted best practice:

• Always use an agent who has independently verified the Due Diligence on a project


• Always use a respected local lawyer (use the internet or forums to find the good guys)


• Ask your lawyer to check the financial status of your developer (does he have the funds to finish the project if sales dry up)


• Always insist on receipts for all money paid


• Check progress of Development before releasing each stage payment


• Insist on penalty clauses for late completion


• Ask your lawyer to get a 'money back guarantee' if your project is more than 6 months late completing

Most Developers may not offer these safeguards but a good local lawyer can often get the amendments requested.

In a number of cases full registration is possible with the recently introduced equivalent to the UK land registry but unfortunately the procedure for obtaining it is onerous; the building has to be completely finished and registered by the Developer first before individual owner can apply to register. The process can then take another year as International security screening is required for owners and the legal costs can be up to 2000 Euros.

Owners will also find that with full registration, referred to locally as a 'green contract', they are restricted to owning just two properties in Egypt and are prohibited from selling their property for five years from the date of registration.

With costs escalating in Eurozone countries many lifestyle buyers are finding it hard to make ends meet and are looking to Egypt and to the Red Sea coast in particular to make a new start; young couples are moving here in increasing numbers and older people are attracted by the safe environment, low crime rate, low cost of living and the many health benefits from the dry climate. Humidity is generally very low which has significant benefits for those suffering from arthritis or rheumatic complaints.

My company, Egypt Real, have been at the forefront of ensuring best practice in the real estate markets; our own renowned property lawyers check the due diligence on every new project and until they are satisfied we will not offer to our client base.

Like in all emerging markets Egypt has had it's share of rogue developers who have disappeared with clients hard earned cash but our policy of thoroughly validating the published due diligence has meant that we have managed to avoid dealing with most of them.

Investors and lifestyle buyers alike should take a closer look at Egypt; throughout the current world downturn capital growth rates have remained above 20% per annum and the relatively high rental returns on comparitively cheap properties ensures return on investment between 15 -20% per annum on a well managed portfolio.

If anyone reading this would like further advice then please email me on peter@egypt-real.com or visit our website on: http://www.egypt-real.com/.

For advice on interiors and furnishing visit: http://www.egyptianinteriors.com.pl/ For pre-owned or resale properties visit: http://www.hurghada-resales.com/ and for professional property management visit: http://www.hurghada-rentals.com.

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Buying Property in Egypt 2009

Written by Peter Mitry, Director of Egypt Real and founder member of the Egypt section of www.propertycommunity.com and by Nick Pendrell, also a Director of Egypt Real and author of 'Propertastic’s Guide to Hurghada Property and Egypt’s Red Sea Riviera Real Estate' , available from Amazon.

Egypt hit the headlines as a potential location for holiday homes and investment a little over two years ago, when Property Community invited Peter Mitry to form an Egypt section on their popular property forum. Up until this time, the potential of Egypt’s real estate market was known only to a very small number of educated buyers but, within 18 months, it became the most highly visited destination on the entire forum, toppling better-known markets such as Brazil and Dubai. In December 1997, Nick Pendrell's highly acclaimed property guide was released through Amazon and bookstores and the market went into overdrive.

Where else can you guarantee year-round sunshine with zero rainfall and some of the best diving in the world just five hours’ flight time from all European capitals? This fact has made Egypt an increasingly popular holiday destination with many visitors returning year after year for some affordable winter sun. Once these returning visitors discovered how affordable property was in the area compared with just about anywhere in Europe, it was inevitable that many of them would look to buy a holiday home here.

To cater for this demand, the popularity of owning property in Egypt really gained momentum around two years ago, spurred on by the Egyptian government’s stated intention to increase tourist numbers fivefold by 2016.

At this time, the market resembled the 'gold rush' to the Spanish Costas 40 years earlier, and with it came many of the inherent problems. Many less-than-scrupulous developers entered the market with widely exaggerated claims and due diligence was nowhere to be seen, although the few British and Dutch agents in the market are working hard to ensure that all new projects comply.

In the beginning, prices were rising sharply, with growth rates of 50-60% per annum not unusual. The Global Economic Downturn has slowed the growth rate to 15 -20%, but the market is still growing in stark contrast to most other parts of the world. The reason, quite simply, is that Egypt is not a credit dependent society; buyers wishing to buy here know that they have to have the cash and, whilst there are Developer loans, generally speaking this impacts mostly on the top end of the market, where traditionally buyers may have borrowed against property at home.

Property buyers come from a range of countries, but foremost amongst these have been buyers from the former Eastern Bloc; these include Russia, Poland and Slovenia. The UK and other areas of Europe have been slower into the market, possibly because they were heavily committed elsewhere. However this is changing, with many first time property buyers attracted by Egypt's low prices and favourable year-round weather. Many Germans established homes in Egypt as long ago as the early 1990's, but there have been fewer more recent entrants, probably due to the economic conditions back home. However, as the World slowly emerges from recession, it appears likely that there will be a resurgence in interest in Egypt from both lifestyle buyers and investors.

Where to Buy?

Probably because the area around Sharm el Sheikh is more compact, the development of Sharm as a major tourist destination has been more rapid; this has led to many new five star hotels, shopping malls and tourist facilities, spurred on by regular flights and competitive prices from all European destinations.

Now that land for development in Sharm is scarce and prices are rising, other markets are emerging and interest in areas like Hurghada and Marsa Alam is very strong. In fact, the market for holiday homes and residential tourism is now much stronger in Hurghada as all property purchased in Sharm and the Sinai Peninsular by foreigners has to be on a 99 year lease, as opposed to freehold on the Egyptian mainland.

Five years ago, the Egyptian government released thousands of hectares of former military land for commercial development in order to achieve their objective of boosting income from tourism. Land was snapped up for as little as 1$ per m2 and the development boom began; however it took a few years to attract inward investment to allow many of the new projects to begin. In the meantime, parts of Hurghada resembled a building site with many developers sitting on part finished buildings waiting for more finance to complete them. Now there are many signs of the progress that has been made; new roads and infrastructure projects, new shopping and entertainment areas and many hectares of parks with flowers, palm trees and lawned areas. Traditionally scruffy areas have been transformed, as evidenced by the Esplanade area of Hurghada and the new Hurghada Marina.

The latest areas to receive attention are the area linking the Esplanade with downtown Sakkala which now boasts a pedestrian promenade with amazing views to the sea and the offshore islands. Also the area between Hurghada and El Gouna has also been designated as a development area with a new 20km stretch of road widening, shopping malls and entertainment area already begun.

The most significant of all tourist projects is the area of Sahl Hasheesh, 18 km south of Hurghada. Sahl Hasheesh is the most significant touristic project in the whole of the Middle East, with many billions of dollars of investment having been commited over the past 10 years. Sahl Hasheesh covers 41 million m2 of prime beachfront and features a 13km promenade fronting the Red Sea. The first phase is already completed and features an entire 'old town' with 300 shops, bars and restaurants, a multi screen cinema and even a casino. The ERC (Egyptian Resort Company) who are behind this project, have recreated an entire Ancient Egyptian temple underwater, adjoining the bay of Sahl Hasheesh, as an attraction for divers and holidaymakers. There is also a pier for the many dive boats that will visit the resorts own reef and offshore island.

There will be at least 22 five and seven star hotels and up to 11 eighteen hole golf courses. Centre piece of the resort will be the central piazza; this will be a focal point for all visitors with its gardens and polished granite walkways with craft markets, coffee shops and Italian style fountains and water features. At the southern edge of Sahl Hasheesh is the Sir Norman Foster designed project featuring a marina and multi-million dollar palaces aimed at the Middle Eastern super-wealthy. After attracting financing from the Trump family earlier this year, the project has been renamed as ‘Trump Serrenia’.

Perhaps the most amazing feat of engineering will be the area known as 'El Mondial'; a system of waterways and lagoons creating 'islands in the sky' with buildings tracing the history of ancient Egypt through their achitecture and gastronomic offerings.

Sahl Hasheesh is totally self supporting with its own desalination plants and eco-friendly golf courses featuring special grass watered 60% with salt water. Profesional town planners were involved at an early stage to ensure that all elements of the resort harmonise perfectly with each other and with the environment.

How to Buy?

Prospective buyers in Egypt would be well advised to seek advice from one of the specialist agents who are actually based in the area. As with any developing market, there are many self-proclaimed experts and it is important to carry out research to ensure that you are getting the best advice.

Above all, it is imperative that purchasers use a lawyer and preferably one with experience in the Egyptian market; but do ask your lawyer if they actually visit Egypt themselves and deal personally with the local governor and planning offices. Using a lawyer who has personally carried out the Due Diligence on a new project can be a very good idea, providing he has no contractual links to the developer.

Once you have decided on a property, it is normal to be asked for a refundable reservation deposit whilst your contract is being prepared. Deposits may be payable to a lawyer’s escrow account or may be payable direct to a developer. Avoid paying money to agents; there have been a number of instances where money paid in this way has not been passed on to a developer and problems have arisen trying to get refunds if a deal does not go ahead. Reservation deposits vary from 1000 GBP up to 10% of the purchase price.

Normally, within 30 days, you will be asked to sign a purchase contract. At this point, you will be required to pay up to 50% of the cost, so it is important that your lawyer checks and approves the terms of the contract before you part with your money because, at this point, money paid is generally not refundable or would be subject to deductions for the developer’s costs.

The balance of payments may be spread over the course of construction or even longer, depending on the builder. Generally speaking, smaller constructors will expect to be paid in full prior to completion; larger companies may offer extended terms which may be interest free.

Usually, between 5 & 10% may be left until after snagging and, when your property is finished, it is quite normal for you to be expected to visit within a 30 day period to carry out a final quality check and to 'sign your acceptance' of the property.

What to Watch Out for?

Extravagant claims by developers; if something seems too good to be true, it usually is! Check the Due Diligence on your proposed project and, more importantly, have it independently verified by your lawyer.

Ask your lawyer’s advice before parting with any money and insist on receipts; be sure you keep an audit trail of all money paid.

Insist on regular progress reports on your project and, if it starts to fall behind schedule, ask why. Ask your lawyer to insist on penalty clauses for late delivery; these should be written into your contract before you sign it.

Ask your lawyer what safeguards exist if the developer does not complete the project; there are no bank guarantees in Egypt so clients must carry out their own research to assess the risk.

Fees & Taxes?

Always ask your lawyer about these before proceeding with any purchase. As a general rule, there are no purchase taxes for foreigners buying in Egypt; there are also no capital gains or inheritance taxes.

Income tax is currently at 20% so be prepared that there could be some tax liability on rental income, although generally this is only levied on relatively high levels of rental income.

Most agents take a commission from the vendor, so there should be no cost from the agent. Occasionally, some agents in Continental Europe may charge a 'finder’s fee' so it is worth asking to find out if this is the case.

The main cost you may be asked to pay, in addition to the cost of your property, is that of Registration.

Legal Process - Registering your Property?

There are two ways to do this; a resale property may be sold with the benefit of a full Green Contract. This is the most secure method of purchase available and is equivalent to a title deed from a UK Land Registry. However, this may not be the best choice for everyone for the following reasons:

Foreigners can only own two legally registered properties in Egypt which must have a floor area of 4000m2 or less; once bought and registered each property cannot be sold for five years.

Many people who are buying with a view to selling do not wish to be restricted either on the number of properties they can own or to the 'five year selling rule'; for this reason the vast majority of buyers use the alternative method of 'signature validation'. By this method, either the developer or your lawyer will register your purchase contract with the local notary to ensure that your particular property has only been sold to one person and to confirm the location and size of the property and the price paid. Using this system there is no limit to the number of properties that can be owned nor is there any restriction on when they can be sold.

The ‘signature validation’ method of registration typically costs around 2000 EGP (around 200 GBP). The Green Contract method usually costs more than five times this amount.

Healthcare Available?

Hospitals in the cities like Cairo, Hurghada, Sharm and Luxor are generally of a high quality, well run and well equipped. However, property buyers should be aware that all hospitals and clinics are privately owned and operated and it is normal for a three tier pricing structure to apply. The lowest prices are for Egyptian nationals who are generally very poorly paid, the next level of pricing is for those who are resident in Egypt, either on a twelve-month multiple entry visa or a full working visa. In these cases, you will receive treatment at very competitive prices with a doctors visit costing around 8 GBP and a hospital check up around 50 GBP.

Tourists on the other hand may be charged much higher prices, often more than in an equivalent hospital in Europe, so it is better to arrange medical insurance before you leave.

Eye tests are carried out by hospitals and not by opticians; most people tend to go to Cairo to be sure of proper treatment.

Travel?

Egypt is easily reached by air from most European and Middle Eastern capitals. Scheduled flights link most capitals with Cairo, with onwards internal flights by EgyptAir to Hurghada, Sharm and Luxor. Most European countries also have charter airlines operating direct flights from regional airports direct to the most popular destinations. Sharm, the fourth busiest airport in Africa, gets more flights, with a daily service operating from many UK and European destinations.

However, as Egypt's tourism gathers pace and with many owners now looking for budget flights, more services are being added all of the time. Two years ago all flights to Hurghada from the UK were on a Friday from just Manchester and Gatwick; now there are direct flights from Glasgow and Birmingham, leaving on several different days of the week. This trend is sure to continue in the future as the market expands.

New Destinations?

For some time to come, it is likely to be the traditional destinations of Sharm, Hurghada and Luxor which attract the most tourists. Luxor, in particular, is the start point for the ever popular Nile cruises and the resorts of Sharm and Hurghada for the Red Sea holidaymaker and residential tourists. However, the new airport in Marsa Alam is attracting ever increasing numbers with interest in particular from the diving community because of the largely undeveloped coastline. However, a word of caution here, it is likely to be several years before the infrastructure in the Marsa Alam area catches up with the growing number of visitors. Apart from established areas like Port Ghalib, tourists are often struggling to find the sort of restaurants and entertainment they are used to outside the all-inclusive resorts.

Luxor may the next growth area for residential tourism, with newly designated land to the South of the city centre being earmarked for Development; the attraction is, of course, the River Nile and the easy access to the many historic sites and the air and road links to other tourist hotspots.

For the serious investor who is less interested in a holiday home but rather the returns, Cairo could be of interest due to the fact that prices in the capital are increasing rapidly as rental yields are among the highest in the world and prices are still increasing rapidly as Egyptians start to gain access to home loans for the first time.

Few people realise that, until six months ago, travel between the different cities in Egypt by road could only be by way of a convoy, escorted by the tourist police. This has now ended and there is a growing market for car rentals as visitors now have the option to hire a car and explore the country more freely.

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