Given years of recession and shortage of foreign currency, in November 2016, the Egyptian government took an even drastic measure, namely, floating its currency as a mean to recover its economy, leading to price increase on all commodities; and where real estate developers are concerned, prices of all construction material more than doubled. Therefore, many -if not all- developers increased their property and projects’ prices. Putting the current economic situation in perspective, Invest-Gate looks into the newly drafted law, Investment Law No.8, that is soon to be enacted and how it reflects on the market.
Since 2011, local and foreign investments have been declining, given the “ensued political instability and followed by a high frequency of changing investment-related legislation, especially taxes, as well as foreign exchange shortages,” EFG Hermes Senior Economist Mohamed Abu Basha tells Invest-Gate.
With President Abdel Fattah El Sisi assuming office in 2013, “the market started to pick up as the regime pushed with the public sector in various infrastructure ventures,” Abu Basha says. According to the World Foreign Investment Report of 2016 on Foreign Direct Investment (FDI) in the North Africa region, FDI flows to Africa fell to USD 54 bn in 2015, a decrease of 7% over the previous year. Dynamic flows into Egypt boosted FDI to North Africa, which rose by 9% to USD12.6 bn in 2015.
The General Authority for Investment and Free Zones (GAFI) Real Estate Market Assessment Report of 2016 concludes that Egypt witnessed significant demand for residential construction, emphasizing a high population growth rate and a high urbanization rate. Through its Business Monitor International (BMI) forecast, GAFI demonstrated real GDP growth of 2.9% for 2016, up from 2.6% in 2015 and expects a rise to 4.6% in 2017. “The country’s real estate market, as a whole, has been seeing strong growth despite political instability through large shopping centers, modern grocery distribution, hypermarkets, supermarkets, retail and Mixed-use real estate development,” it read. The Central Bank of Egypt points out that the construction share of Egypt’s GDP is 9.7% in the fiscal year of 2014/2015 compared to a 7.4% in the fiscal year of 2013/2014.
This high demand on real estate in Egypt comes as buyers and investors see it as a safe haven, according to Coldwell Banker VP Mohamed Banany. “The real estate sector has seen heightened demand during the past few months following the floatation of the pound, with most companies recording an estimated growth in sales volume ranging from 30% to 40%,” he says. Even with Egypt aiming to create a competitive and inviting investment climate, state-investor legal disputes remained one major setback for investments in the country.
According Amgad Hassanein, head of City Scape, the largest annual real-estate conference in Egypt set to take place in March, Egypt remains one of the least attractive markets where investments are concerned. “Tax reductions are not as crucial to investors as they are thought to be,” he claims, highlighting the three major elements to open up the Egyptian market to the outside world. “The government should offer land plots at reasonable prices and applicable to the designated projects, guarantee the transfer of revenues abroad following the launch of projects, and the ease legislations and regulations,” he believes.
“Time is money and the country is in deep need of ending such prolonged procedures to attract foreign investments,” Hassanein argues, affirming that there was nothing wrong with previous amendments had such laws been abided by in the first place. “First, we need an investment dream, set goals and a strategy map; only then will a law serve us,” CEO and Board Member of Inertia Holding Group Ahmed El Adawy tells Invest-Gate.
In that perspective, the newly drafted law is to protect investors from prolonged bureaucratic procedures. All administrative entities are to finalize permits and regulations within a limited timeframe of 30 days, the Ministry of Investments confirms.
The amended draft is set, furthermore, to guarantee an easy process of transferring revenues abroad without any restrictions. According to the new law, all projects are to be treated equally by the government except in case of court ruling. For local projects, under the new law, investors are offered free lands and energy products for half price. Exporters are exempted from custom taxes and are to pay only half the amount of all other taxes over the course of 10 years. “Companies have the right to own lands and develop to implement and expand their real estate projects, regardless of the nationality or place of residence of partners and shareholders or the percentage of their participation,” the law reads.
Investment Law No.8, has once and for all, set GAFI as the sole authority responsible for investor incentives and guarantees. GAFI is to assist the investor in finding and acquiring an appropriate piece of land. The law also established a “One-Stop Shop” for investors to simplify the process of approval, registration, licensing and certification for new projects. “Such amendments are comforting for the investment climate but what we are keen on, is seeing it actually enforced to attract foreign investors,” Hassasein asserts.“There is a promising real estate future backed up by very strong and stable market fundamentals and mechanics,” El Adawy anticipates.
However, Abu Basha argues that stability is the key to attract foreign investments, with some minor changes in laws, from time to time, to keep up with the global markets changes. “Investment legislations are always in need of change to keep up to pace with the changing global dynamics and to ensure investors are receiving the best incentives,” he says, emphasizing that this is not, though, the key factor in attracting foreign investments. “A stable legal framework is needed with clear legal guidelines as far as disputes are concerned; these are critical factors to encourage investment, which are indeed the core of the new investment law,” Abu Basha advises. According to EFG Hermes, Egypt managed to attract the highest levels of foreign and local investment under existing legislation from 2006 to 2010.
In December, Head of GAFI Mohamed Khodeir stated, “The New Investment Law is the country’s correct move to achieve economic reform.” “It is not the cure for all problems but it is part of the reform plan to a better business climate,” said Minister of Investments Dalia Khorshid at the conference.
The real estate forecast for 2017 seems to be bright. Banany suggests that 2017 will see a further rise in demand. “Investing in real estate during this period is considered a safe choice,” he tells Invest-Gate. Whether the law achieves its goals, especially where the real estate market is concerned, remains to be seen.