Egypt’s subsidy cuts take their toll on housing costs

Construction material prices have risen by 30% compared to last year.
Sunday 15/07/2018
Stubborn challenges. Construction workers are seen on the outskirts of Cairo.                               (Reuters)
Stubborn challenges. Construction workers are seen on the outskirts of Cairo. (Reuters)

CAIRO- Egypt’s economic reforms are raising commodity prices across the board and the effect of the reforms has been very noticeable in the construction and real estate sectors, where there has been an unprecedented rise in construction material prices and, consequently, the cost of housing.

The subsidy cuts are part of a government programme to bring down Egypt’s debts, reduce the budget deficit and support the national currency. This has included the slashing of energy, electricity and water subsidies, which is causing an increase in operating costs for construction material factories.

“The factories now pay more for fuel, electricity, water and transport,” said Kamal el-Dessouki, the deputy head of the Building Materials Chamber at the Federation of Industries, the national union of Egypt’s manufacturers. “This is reflecting on the final prices of the construction materials.”

Construction material prices have risen by 30% compared to last year, data from the Building Materials Chamber indicate. The price of construction materials was particularly affected by the most recent electricity subsidy cuts, with prices increasing almost 11% in the last month, the chamber said.

A tonne of construction steel that costs $719 in 2018 carried a price of $504 a tonne in 2017. A tonne of cement now sells for $50.50, up from $36 a year ago. The price of wood, bricks, glass, aluminium and almost all other construction materials have risen over the past year.

This is proving devastating for real estate contractors and their clients. Some contractors are failing to complete projects and others are operating at a loss due to the cost of materials. Some contractors have announced they are leaving the industry because of business conditions.

These developments are raising the prices of houses and apartments dramatically. Many would-be home buyers have abstained from buying because few can afford the

increased prices.

Real estate prices are up more than 30% in the last year. Some homeowners are exaggerating the prices of flats but the prices of other flats, especially ones built in the last two years, reflect the sharp rises in construction costs.

The trends mean many people who wanted to own a home will see those dreams unfulfilled.

Among them is Ahmed Hussein, a photographer in his mid-20s, who has been struggling to find an affordable flat for months. Rising house prices have a side detrimental effect in Egypt where the issue is linked directly with marriage because prospective grooms are expected to bring a house or apartment to the marriage.

“I feel really tired,” Hussein said. “Buying a flat is becoming a dream impossible to realise.”

Most of the suffering caused by housing prices is felt by Egypt’s middle class. Poor Egyptians cannot dream of renting flats, let alone buying them.

Egypt’s National Housing Project, begun almost four years ago, seeks to meet the needs of people who live in sprawling slums. Tens of thousands of flats have been constructed within the project.

“It has contributed a lot to reducing the intensity of the housing crisis,” said housing expert Abdel Meguid Gado. “You have to imagine how the situation would have become difficult if this project had not been launched.”

The Ministry of Housing is making deals with the private sector to construct flats to satisfy demand from middle-class and lower-middle-class people, such as Hussein.

However, the housing crisis is more about prices than about availability. There is a sufficient number of real estate properties in Egypt lying empty but prices remain high. There are approximately 5 million unoccupied apartments nationwide, the national Central Agency for Public Mobilisation and Statistics said.

These are apartments that are either too expensive to be sold or ones that have already been purchased and their owners are waiting before using or selling them.

The affordable housing crisis has forced many people into a life in the streets, specialists warned.

“Some people have to live on the streets and it is all because of the rise in housing prices,” said Saeed Sadek, a political sociology professor at the American University in Cairo. “This is very dangerous.”