Why Arab states have lots of expensive villas

THE billboards almost seem to taunt motorists crawling through traffic below. They hawk luxurious town houses and villas with sumptuous pools in compounds that sound like Californian suburbs: Palm Hills, Eastown, Allegria. “Welcome to the greener side of life,” oozes one sign. But this is not California. It is Cairo, Egypt’s chaotic and crowded capital. The road is lined with endless rows of ramshackle redbrick buildings. Most are unfinished, their innards exposed, steel bars poking from the rooftops. The greener side of life is many kilometres away.

The drive along Cairo’s ring road is one sign of a paradoxical problem. Egypt has both a building boom and a housing shortage. At the high end, business is roaring. Developers are building tens of thousands of homes in upscale compounds, drawing young families with the promise of an escape from the city. But for most Egyptians these homes are out of reach. Villas can start at 10m Egyptian pounds ($560,000)—about 200 years’ pay at average wages.

Poor Egyptians, and even the shrinking middle class, have few options. Egypt has a shortage of 3m homes. Its existing stock is overcrowded. The average Egyptian family has 3.3 children. More than 2m families, 9% of the total, live in one- or two-room homes. Almost 1m Cairenes live in slums the government considers unsafe, without basic amenities like sewerage and water. Thousands of people live in cemeteries.

The problem is not limited to Egypt. In Jordan 26% of houses have at least two people per room, and 5% have at least four. Even in the oil-rich Gulf states, young people struggle to find affordable housing. The crisis has deep social consequences. Young people cancel engagements and postpone marriage because they cannot afford to make a home together. Crime is a growing problem in Cairo’s teeming slums.

Market manipulators

For decades Arabs have migrated from rural areas to cities in search of work. Cairo’s population has nearly doubled since 1996, to 23m. Amman, the capital of Jordan, has grown even faster, partly owing to an influx of Iraqi and Syrian refugees. Add to that Arab baby-boomers (mostly born in the 1990s and 2000s), who will soon look to buy homes and start families. Egypt alone has 50m people under the age of 20. It will need to build up to 600,000 new homes each year just to keep pace.

The market ought to provide them, but governments distort it. Corruption and mismanagement of land is a problem. Builders must cope with burdensome regulations and antiquated zoning laws. One study in Jordan found that they pay a third of a project’s value in taxes and fees. Rent controls also make it unprofitable to build in many places. Some Cairenes pay less for monthly rent than for a hookah at their neighbourhood café.

Large parts of Amman are zoned for high-end units, even though the market wants cheaper ones. The government has also set the minimum size for new apartments at 110 square metres (1,184 square feet), bigger than most people want or can afford. As a result, property transactions in Jordan were down by about 14% last year, even though developers have built 1bn dinars ($1.4bn) worth of unsold apartments since 2015, says Zuhair al-Omari, the head of the developers’ association.

Elsewhere, though, predictions of a luxury-housing glut have not yet come to fruition. The difficulty and expense of building mean that the only profitable portion of the Egyptian housing market is at the top (hence all those billboards). Demand has, so far, kept pace with supply. Richer Egyptians see property as the only reliable repository of value.

The Egyptian government has tried to fill the gap at the bottom of the market. In 2014 it unveiled a $40bn scheme with Arabtec, an Emirati contractor, to build 1m low-income units. But the project stalled the following year for lack of funds. Frustrated Egyptians have taken matters into their own hands. The towers lining Cairo’s ring road are known as ashwaiat, the plural of “random”. They were built illegally, without permits or safety inspections. Families invested their life’s savings to secure a plot of land and start construction, then added a floor or two whenever they had the cash. But most cannot afford to finish. Of Egypt’s 43m homes, 9m are vacant, and half of those are incomplete.

Many of these problems converge in Boulaq, a district of 40,000 people in central Cairo. Residents have lived there for generations, often in dismal single-room flats with shared bathrooms and kitchens. But the prices are unbeatable. With rent controls, some pay as little as ten pounds per month. Now the government wants them out. They live on some of Cairo’s most valuable land, just back from the Nile and behind a row of five-star hotels. Authorities plan to bulldoze the neighbourhood and spend $227m building a new, modern community. Sketches from the project’s British architect show rooftop gardens and wide pedestrian boulevards.

Though the warped market makes it hard to tell, the economic case for this seems dubious. Few wealthy Egyptians want to live downtown, and there are signs that the luxury market may soon slow. Many developers now offer financing with no down-payment, instead of the customary 15%. For existing residents, the project means uprooting their lives. Some have accepted a lump sum for their homes, at well below market value. Others were moved to Al-Asmarat, a new public-housing complex 15km south-east of Boulaq. They received two-bedroom flats and a year of free rent. After that they will pay a 30-year mortgage at 300 pounds per month. But the neighbourhood has almost no entertainment or retail, except for a few army-run shops. The commute to downtown Cairo can take an hour or more. It might be affordable, but it is not a place many Egyptians want to call home.

This article originally appeared here via Google News