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.
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.
