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industrial land falls, housing flies

rows of vacant apartment blocks have become synonymous with egypt’s industrial cities, where a two-decade-old dream of creating a utopian industrial society has stumbled on a peculiar oddity. egypt, despite a population of 70 million people, is unable to populate these desert enclaves. so, for now at least, the industrial cities of sixth of october, al-sadat, 10th of ramadan, 15th of may, obour and others, remain largely empty shells centered on a handful of struggling factories.

last october, however, the government decided to try a different tact, tweaking land prices and regulations to encourage both industry and the resident workforce necessary to run it. minister of housing mohamed ibrahim soliman announced a 40-percent discount on land in industrial cities. one square meter of industrial-zoned land now sells for as little as £e 50, and buyers can even pay by installments.

“this price decrease aims to encourage industrial projects and create job opportunities for youth... and the government will cover price differentials,” soliman told reporters. he added that prices of commercial land were slashed by up to 50 percent, bringing the price of a square meter down below £e 300.

the move came too late for 500 factories in sixth of october city that closed last year due to deepening debt. magdi shahine, a board member of a food factory that went out of business, said factory owners forced to shut down were the real impetus to lower land prices. “the government has taken this move because the owners of closed factories were offering cheaper prices than those of the government,” he said. “there were people selling factories with all the facilities any investor could ask for at reasonable prices, while the state was selling at £e 150 to £e 100 per square meter.”

in sadat city, meanwhile, local investors claim 50 percent of factories have gone out of business in recent years and potential investors are wary. “the problem is not with land prices, as industrial city lands are always sold at relatively low prices,” said sabri othman, commercial manager of a plastics company currently operating at 40 percent capacity. “factories in all industrial cities need more incentives, tax exemptions and lower taxes on capital goods,” he said. “no one will come and establish a project if these incentives are not available, even if the land is for free.” othman pointed out that the cost of obtaining a license to build a factory is often three times the value of the land itself.

officials at the general authority for investment & free zones (gafi) maintain that reports of factory closures and failing industries are grossly exaggerated. speaking on the condition of anonymity, they pointed out that both local and foreign investors were granted great incentives by the new investment law passed last march, adding that the law has already given a push to investments in new industrial areas by offering tax exemptions for up to 10 years.

while it is still too soon to tell if the lower land prices and other incentives will revive industrial areas, the residential real estate market has clearly witnessed a revival in the recent few months.

investment in real estate jumped by some 45 percent in 2004, say real estate experts. the optimism in the market was caused in part by the devaluation of the pound, which encouraged foreign buyers to invest in real estate. among these are gulf arabs seeking vacation homes in the region now that political events have made them feel less welcome in the us and europe. “the pound’s devaluation has helped sell old housing units that were vacant for years and encouraged foreign buyers to invest in vacation homes,” explained fathi al-sibaai, chairman of housing & development bank. “in one year, we sold more housing units than we usually sell in several years.”

still, the government is not counting on gulf arabs to fill the rows of empty houses that line the entrance of egypt’s industrial cities. last november, the ministry of housing announced that citizens who failed to occupy housing units purchased from the government by the end of 2004 (later extended to december 2005) would relinquish their right to them. the units would be offered to people on the government’s waiting lists. the ministry also said it would repossess land sold to people at cheap prices if they do not make tangible efforts to build houses by june 2005. the measures are intended to stop land speculation.

“the government will not allow land to become a commodity that people can speculate on,” said soliman. “we have discovered that some people buy properties and leave them untouched until prices go up and then re-sell them.”

the government’s ultimatum has home and property owners scrambling to meet the deadline. in sixth of october city, the real estate market is booming for the first time in five years. landowners are desperately trying to sell their properties, slashing prices to attract buyers. “people know they cannot do what the government wants in the time allotted so they’ve begun selling like crazy before the government takes back their land and sells it at very cheap prices,” said real estate broker mohamed hassan. “instead of having land that was sold for £e 1,000 or more for one square meter, land in some areas has dropped to £e 400 per square meter.”

the falling prices have yet to affect the neighboring luxury housing communities of dreamland and beverly hills, where a typical villa sells for £e 650,000. nor has it cooled off rising housing prices in qatameya, where villas now sell for between £e 500,000 and £e 1 million. yet despite the hefty prices, real estate agents say buyers are still lining up to purchase dream homes.

the new mortgage law, issued in 2004, is expected to give a further push to the residential housing market. “the mortgage law helps people to buy houses, sell uninhabited units or build new housing projects,” said al-sibaai. “we expect the [residential housing] market will continue booming in 2005 as more investors pour their money into the business.”

qiz adds zip to land values the new qualifying industrial zone (qiz) agreement (see story page 46) could send land prices soaring, say experts. “the prices of industrial land included in the qizs in the greater cairo area could soon jump as many want to enjoy the great incentives offered inside the qiz areas,” said mohamed gamal, a broker in a private company in sixth of october city. “but prices in industrial zones excluded from the agreement, such as sixth of october city, will remain stable.” gamal added that the qiz deal could create a black market for industrial land since the government would continue offering subsidized lots for only £e 50 per square meter. “factory owners who want to make some extra cash before exiting the market could cause price increases because they know how important it is for companies, especially those based on textiles, to move into the qizs.” veteran investors, however, are less likely to start new projects in any of the seven qizs. “i think they’ll wait until the government expands the deal to include other areas, or they’ll put pressure on the state to get similar incentives,” suggested saaed al-mezayen, an independent broker in cairo. sabri othman, commercial manager of a plastics company in sadat city, pointed out that establishing or transferring a business to any qiz could cost the investors more than what they would gain from the deal. “it will be nearly impossible for me to transfer all my business, buy more land, apply for construction licenses and get gafi [general authority for investment & free zones] approval just to be in a qiz,” he said. the government has promised more qizs are on their way. investors could conceivably make huge profits by buying up cheap land in industrial cities not covered by the agreement and holding onto it until the cities’ qiz status is approved. it’s exactly the sort of speculation the government is hoping to avoid.

ahmad aboul wafa

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