Investment Property in Egypt

With a growing economy and major developments in the tourism sector, Egypt satisfies the requirements of many discerning property investors today.

Forward thinking government policies and a solid infrastructure are making Egypt the next property and tourism hotspot. With high capital returns of up to 30% per annum in key locations, the investment climate in Egypt is widely regarded as a promising one.

Due to recent reforms, the process of property purchase in Egypt has been streamlined, facilitating property purchase for overseas buyers and focusing investors' attention on Egypt as a prime investment location.

Why Invest in Egypt?

Today, investors seek the stability and simplicity of the property market to gain good returns on investment. Under-performing stock markets are often proving more volatile than property and this is especially true for the non-professional as there are many external factors that can effect your financial investment. Did you know that 50% of the members of The Times Rich List made their money through investing in property?

The benefit of buying specifically for investment purposes is the removal of emotion from your purchase while property is used purely as an investment vehicle. Investment property in Egypt offers many possibilities in the form of re-assignable off-plan contract options to sell at a substantial profit prior to completion, or "buy-to-let" situations to generate reliable rental income and eventually substantial capital appreciation.

Main Reasons Why Egypt is a Desirable Investment Location

• Low property prices starting at around only £30k
• Steady year-on-year capital appreciation of between 20-30%
• Beautiful, well established tourist hotspots suitable for varied tourist interests, from excellent diving and snorkeling to cultural and historical locations
• Stunning natural, unspoilt landscapes
• Steady annual growth in tourist figures
• Less property taxes than paid in the UK
• No capital gains tax
• British residents avoid inheritance tax on any property in Egypt
• Foreign investors are regarded by the government as a big investment opportunity and laws have recently streamlined procedures, making the purchase procedure easy.
• Strong economic growth and increased investment in infrastructure are boosting the property investment market as a whole.
• Warm desert climate with temperatures ranging from 14°C in winter to 30°C in summer creating a year-round tourist season
• Politically stable country
• Increased inward investment, creating a rich investment climate.
• Well renowned developers are creating luxury resorts to cater for Egypt’s new influx of international tourists
• Easy air access from many European destinations makes Egypt an ever popular medium haul holiday location
• Cairo International airport is being modernized and a new terminal is to be built by early 2007
• Low cost of living and maintenance costs
• English is widely spoken, after Arabic

Egypt Investment Growth

Investment property in Egypt, as in many emerging markets, relies heavily on the success of Egypt’s ever increasing tourism industry. Beautiful, well established tourist hotspots are already in existence, particularly along the Red and Mediterranean Sea coasts and cater for a wide variety of modern tourist requirements, from excellent diving and snorkeling, five star hotels and golf courses to cultural and historical activities. New off-plan opportunities from heavy weight international developers are now springing up, attracting overseas investors looking for a secure investment with good growth potential at rock bottom prices. Due to increased tourist numbers, these buyers are also safe in the knowledge there will be a strong market for their investment. Furthermore, the imminent opening of the newly modernized Cairo international airport in early 2007 is set to bring a new influx of visitors to complement Egypt’s new look 21st century tourist industry.

Egypt’s Prime Minister, Ahmed Nazif is concentrating on the country’s potential as a promising investment hub, especially in major infrastructure sectors, which will inevitably have a direct result on the attraction of Egypt property to foreign investors. During the Middle East Travel and Tourism Summit of 2006 in Jordan, Munir Nassor told more than 400 leaders of from the international tourism industry that Egypt and the Middle East as a whole, can expect to attract new investment in the hotel, spa and airport sectors. He added, “The cooperation we’ve had so far between private and public sectors is giving the right kind of push forward”.

Due to recent reforms to streamline purchasing procedures for property in Egypt, the country now attracts more overseas property purchasers than ever before. This can also be put down to its relatively simple purchase system with lower taxes than in many other countries and no capital gains or inheritance tax.

Capital Growth Predictions

Based on a steady increase in investments in the tourist sector and a resulting surge in visitor numbers, Egypt property offers promising growth potential to all types of investors, while some areas of the Red and Mediterranean Sea coasts as well as certain areas of Cairo and Alexandria, are currently attracting as much as 25% annual capital growth. Investment in Egyptian property is offering great opportunities for purchasers while it waits during the infancy of an exciting emerging market.

Rental Yield Predictions

Rental income from property in Egypt is of great interest to investors as high rental yields are already achievable from property located in the current tourist hotspots. It is expected that mortgage payments and bills can be covered for the year from the rental income achieved. A fantastic year-round climate attracts a reliable tourist trade throughout the year.

Egypt Economy

Due to a number of economic reforms, private business has increased to represent some 80% of the economy today. Experts agree that the current economic climate should improve the economy of the country, create more opportunity for employment and domestic wealth growth, and increase the attraction of the country from an overseas investor’s point of view. With direct foreign investment continuously on the up, Egypt’s economy shows enormous potential over the long term.

Natural and Cultural Factors

It is clear to see why so many visitors pick Egypt as their choice of holiday destination. White sandy beaches, colourful coral reefs and desert landscapes are all part of the exotic Egyptian experience. Resorts such as Sharm El-Sheikh on the Red Sea are firm favourites among international diving and snorkeling enthusiasts, the Red Sea being one of the world's most popular scuba diving destinations, and second only to Australia's Great Barrier Reef. Other water sports such as windsurfing are also popular in the region and draw tourists to the area.

The River Nile also offers a rich cultural experience, with luxury cruises on the top of most tourist agendas. Egypt is also well known for its ancient history and Alexandria boasts a rich Graeco-Roman history which for many centuries was at the center of the culture and learning of the entire world. Alexandria was, and still is, of prominent cultural interest for knowledge seekers the world over, while today the city of Cairo offers visitors a great cultural experience combined with good accommodation, restaurants and shopping.

The warm desert climate in Egypt means that visitors enjoy temperatures ranging from 14°C in winter to 30°C in summer, creating a year-round tourist season. Egypt is only 5 hours direct flight from the UK and, with increased flight availability; it is an increasingly popular tourist destination.

Many resorts and major cities in Egypt are becoming increasingly cosmopolitan with real estate buyers from all over the world planning investments here. One bonus for many buyers is that English is spoken widely in professional circles, in addition to Arabic.

Egyptian culture dates back some five thousand years of recorded history and the country is rich with ancient Egyptian treasures, particularly around Luxor and Alexandria which continue to lure visitors every year. This ancient history blends in perfectly with a modern, international way of life to be enjoyed in many popular towns and resorts in Egypt.

Logistical Factors

Egypt is only 5 hours direct flight from the UK and, with increased airline schedules coming into play, Egypt is now well-known as a top medium haul luxury destination for European travelers.

Many airlines serve Egypt and new services and fares are constantly being added to their routes. Main operators are; Egyptair, Excel Airways, First Choice, Flythomascook.com, GB Airways (Operating as BA), Sudan Airways, ThomsonFly.

Egypt is well served by its major airports at; Abu Simbel, Alexandria, Aswan, Borg el-Arab, Cairo International, Luxor and Sharm el-Sheikh/Ophira. Cairo International airport is being modernised and a new terminal is to be built by early 2007, encouraging an even greater influx of tourists.

Investment Strategies in Egypt

Short Term

As a growing tourist economy, Egypt has much to offer investors looking to profit from short term off-plan investment opportunities. Growing tourist numbers and an ongoing influx of foreign investment into Egypt bring buoyancy to the real estate market and overseas buyers are encouraged by a reliable and expanding property and tourist arena.

Low off-plan prices (from just £30k for a beachside apartment), guaranteed rental yields, luxury holiday homes in the sun and high returns on investment (up to 25% per annum in some key locations) are all reasons behind the current success of Egypt as a holiday and property location. An increasing number of visitors are buying into apartment complexes in the major holiday hotspots, safe in a strong belief in the current Egyptian government's commitment to further economic growth and stability. At only 5 hours from the UK, Egypt is now already well known as a number one medium haul top end destination for European travelers, offering investors a ready-made market for their properties.

Egypt offers investors the type of all-purpose, self-contained holiday resort option so popular in the current overseas property and holiday marketplace. Easy to maintain Red Sea properties on secure communities within easy reach of golf, beach and other resort facilities are firm favourites, enabling short-term investors to achieve their off-plan contract re-assignment within a relatively short period of time.

Egypt's economy is on a dramatic growth curve and in the last quarter of 2005, the annual growth rate in Egypt rose for the first time to 6.1% and inflation dropped dramatically from a huge 18.1% in 2004 to only 3.1% in 2006. The IMF, with which Egypt long had bad relations, now glows with pride over the Egyptian government's stabilisation programme – all great news for today's investors in Egyptian property.

Timescale

Investors in off-plan developments factor in between 18 and 24 months for construction from reservation to completion stages. Short term investors normally look to profit from a carefully selected, promising market, selling on their unit to mid or long term investors approximately 14 to 18 months after making their initial reservation, regardless of whether or not the project is yet completed.

Of course, the earlier the investment is made, the greater the investment returns. As importantly by entering the project at the earliest possible stage, investors get the best choice of units which will always be first to attract buyers in the future.

Level of Complexity

Short term strategies offer the lowest level of complexity as the purchase has not yet been officially made; therefore, no property taxes or maintenance or management charges are due. This is a simple capital investment, often with no need to proceed to Purchase Contract, or make any mortgage finance arrangements. Remember to check with the developer if there are any charges made to “flip”, or reassign your contract, and at what stage you are permitted to do so, before you proceed

Risk Assessment

All investors must carefully assess the particular project and units in which they wish to invest. In many cases a wide range of other projects will be under construction and a choice will need to be made. A decision will need to be based on how a particular development or project will outshine its competitors in terms of appearance, location, on-site facilities and the unit itself. Investors will also need to consider issues such as the number of other units available within the particular development, predicted demand as well as competition for the type of property they wish to invest in.

To curb risk, a short-term investor should normally seek to buy the best possible unit, i.e. a corner unit, a penthouse or ground floor unit with a private garden, which will always sell in preference to a standard first floor unit.

Investors need to be clear how their exit strategy is to run. How will the unit be marketed and by whom? How much will the selling agents charge in commission? Should a buyer not be found prior to completion of the property, investors must be confident they can cover payment to completion of the unit and adapt their strategy if necessary.

Short term “flip” investments are undoubtedly more risky than longer term strategies, but, with careful research and planning in place, off-plan purchase in well located Egyptian resort projects offers a sound investment with lucrative returns.

Returns

Estimated returns of up to 25% per annum are being achieved on off-plan projects within major tourist hotspots along Egypt's Red Sea Coast. Shrewd investors have the opportunity to reach the highest figures possible by selecting prime resorts at pre-release pricing levels, allowing investment at below market value. An earlier than normal reservation of course affords the maximum possible returns on investment on any given project.

By reserving at pre-release stage, investors profit from discounted prices and, in many cases, these are subject to successful planning applications, allowing for additional pricing uplift.

Financing

The short term investment strategy is purely based on capital outlay as mortgages cannot generally be raised against property that is not yet built. In order to cover all eventualities, investors MUST be confident they can complete the purchase if necessary, even if using a buy to flip strategy.

Payment terms will vary; good projects often offer terms of as little as 20% initial payment with stage payments of 40% to final completion. This system allows short term investors to operate their strategy with minimum capital outlay and it can be assumed that they will have exited the strategy, at the latest by the time the final payment is due.

Taxation

Purchasing a property and then re-selling prior to completion is a tax-efficient way to invest in property. However in Egypt the current absence of stamp duty and other taxes allows for ease of transaction even higher returns on investment.

Medium to Long Term

Although a successful tourism market is nothing new to Egypt, the country is currently undergoing unprecedented growth in tourist numbers. Last year Egypt received a record 8.6 million tourists and is experiencing growth of up to 60% from some Middle Eastern markets alone.  As a result, Egypt is also undergoing a boom period in terms of property investment in coastal tourist resort areas, particularly along the Red Sea Coast.  Here beautiful beachfront purpose-built complexes are going up to serve the growing demand for luxury self-contained holiday resorts in Egypt.  As is the case the world over, these provide a full range of recreational facilities to satisfy today’s most demanding of tourist requirements. 

With current economic strength and government initiatives to encourage further investment from foreign investors and a growing native middle class, investors are acting now while property prices are still very low.  Beachfront apartments start at around £30k and, with capital growth of around 20% per annum, it is clear to see why many overseas property buyers are focusing on Egypt for their next investment. 

Off-plan developments for buy-to-let investment are attracting many buyers who look to supply a high demand for quality holiday accommodation in prime locations, while many projects come complete with rental guarantees of up to five years. 

Second or holiday homes are also popular as Egypt becomes the holiday destination of choice for the international jet set.  Here they can find affordable holiday properties located within the stunning natural and cultural setting that Egypt provides.  Many purchasers help cover costs by renting out their properties when they are not in use, while benefiting from longer term capital appreciation over time.

Timescale

Mid to long term investors look to hold onto their units after construction, normally for at least 18 months from initial reservation, either to rent it out and/or benefit from capital appreciation upon eventual resale.  Many long term investors wish to generate significant and reliable rental income over a period of time as sustained rental returns are their main focus, followed by eventual gains through high steady capital appreciation.

Growth is expected to continue to be strong over the next 5 years, notably along the Red Sea Coast and the longer investors are able to leave capital in their purchase, the higher their potential returns will be.  Tourist levels are high and the resulting strength in the buy-to-let market allows investors to reap in solid capital growth from their properties, all the while supplementing this income with high rental yields in key tourist locations.

Level of Complexity

In the case of off-plan purchase, full payment for the property needs to be completed at various stages of construction, prior to final completion of the purchase.  In some cases, developer’s finance can be arranged for up to 50% of the property value, however most investors raise alternative finance or inject their own capital investment over the stage payment periods.

For mid to long term investors, all costs will be applicable, of around 10% of the purchase price while ongoing costs such as maintenance, community fees and utility bills will also need to be factored into the strategy finance plan. Bear in mind it’s advisable to open a bank account in Egypt in order to pay for the property’s utilities and other ongoing expenses.   

Some good arrangements are often to be made with property management and rental companies that are usually conveniently based on or near the site.  These ensure that such ongoing costs are covered and that your unit is rented out regularly.  Maintaining a property abroad can therefore become no more complex than an investment closer to home. 

Key Risks

A medium to long term investment strategy entails much lower financial risk than a short term plan which relies on finding a buyer within a very short time frame.   Provided the right investment is made on a quality, well located project with multiple facilities, establishing a rental market and eventually a buyer for your investment should not be difficult.  However, as with any investment, patience and money is sometimes required until the end user is found. 

Egypt’s popularity as a growing tourist destination bodes very well for buy-to-let investors.  This of course translates to an increase in buyers and renters on the one hand, but brings with it intensified competition on the other. 

By appointing independent legal representation, the client can be sure that all the necessary paperwork is in place before signing the purchase contract. 

Property ownership in Egypt is sold freehold, leaving no room for ownership disputes.

Returns

Mid to long term investors expect to see returns of around 20% per annum based on the fact that their properties are located in resort areas of high demand. Rental yields are also very promising at approximately 7% per annum and these sometimes come guaranteed for periods of up to five years, allowing for further returns on investment to be made. 

Many discerning investors not only choose property in prime locations, but also buy at pre-release pricing levels, allowing investment at below market value.  An earlier than normal purchase not only secures the best unit, but also maximises future returns.

Increased worldwide exposure of Egypt’s new holiday property hotspots will also have a positive effect on the tourism market, bringing with it a further boom in the real estate arena and inevitable price increases. 

Financing

Payment terms for property purchase in Egypt will vary; good projects often offer terms of as little as 20% initial payment with stage payments of 40% to final completion.   

On rare occasions, developers may offer 50% mortgage finance for completed projects in Egypt as finished projects can offer security against a loan.  However, for now most investors rely on alternative means such as equity release or capital outlay with which to fund their purchase.   The situation is expected to change as mortgage providers soon begin offering products to support this fast growing overseas market.

Off-Plan Property in Egypt

• Off-plan investment allows investors the important opportunity to buy at the lowest price possible and achieve maximum returns on investment.
• If you keep your property for a longer period of time, excellent rental income can be achieved, while your property further appreciates in value.

The best investment property in Egypt today is to be found in off-plan developments. With the introduction of new reforms, the government of Egypt has created an excellent climate for overseas investment in Egyptian property. A number of new luxury resorts are becoming a major source of interest among international property purchasers with a keen eye for a bargain. A growth rate of up to 30% being obtained in the main resorts is another obvious attraction.

It may be possible to purchase off-plan properties as these development projects are completed, but prices will be substantially higher as the original investor will already be pocketing his/her return on investment. We source quality new investment opportunities in Egypt in areas that offer the greatest potential for capital appreciation. These opportunities are normally located in popular tourist areas that will allow investors to generate high rental returns.

Buying off-plan property in Egypt is a relatively easy process and allows you to purchase at the lowest possible price while taking advantage of the best possible finance options available.

How & Why Property Can be Cheaper if Bought Off-Plan

Developers are always exposed to risk and it is clear they wish to cap this risk as quickly as possible and limit bank loans and other debts. They therefore sell off-plan units at excellent prices. Buyers are unable to see a physical property yet and must rely on the location and artist impressions, diagrams and computer simulations, and for this reason they expect a reduction in price.

Excellent finance structures are in place for off-plan purchasers, which are a valuable advantage to the off-plan strategy. Depending upon the project, the investor usually only needs to pay around 20-40% of the value of the purchase in the form of a deposit, while the rest is payable when the project is completed.

When you decide to invest in off-plan property in Egypt, you will need to choose an appropriate strategy to adopt to achieve a good return on investment. Our investment experts will gladly help you choose the most appropriate method and create you an investment plan, be it a "Pure Investment" or a "Buy-to-Let" strategy.

Maximizing Profit From an Off-Plan Investment in Egypt

Purchasing early

We cannot over-emphasize the importance of purchasing off-plan property as soon as possible within an emerging property market. Prices will be very competitive but rising fast. Investors who purchase early will always see the best returns.

• Purchasing the best units
  By purchasing early, shrewd investors also have the opportunity to purchase the most sought after properties on any given development. Due to demand, these units always offer the highest capital appreciation in the least amount of time and will command the greatest rental income.
• Price increases as development matures
  When construction begins on a given development, the value of the units begins to rise steadily. A completed show home is then available for viewing and buyers take on less risk as they now need not rely entirely on plans.
• Price appreciates as more units sell
  Buyers begin to purchase units while construction is in progress and as they sell, so the price of the remaining units rises steadily. A phase payment structure is often in operation which reflects the increasing value of the properties. To early investors, this means that should you decide to sell your property at this stage, it will be worth considerably more already than when you made your initial purchase and paid the 30% deposit.

Taxation

Property Tax

Today, taxes on the sale of real estate bear no relation to standard property taxes or real estate registration fees in other countries. The Egyptian government is currently debating a reform of property registration fees and is proposing to impose international-standard on property tax in Egypt.

Tax from the Sale of Property

In terms of property in Egypt, the sale of land and/or buildings is taxed in the same way and the system is very simple. Tax is chargeable at 2.5% of money earned from a sale and it must be filed as tax owed by April 1st. For example: an individual or corporation selling a piece of land for LE 100,000 must file a tax return by March 31st stating that LE 2,500 is owed in taxes.

The only exceptions (under Article 42) are income from the sale of inherited land or other real estate is tax which are free, as is any income earned from the sale of land or other real estate you own through a shared capital company, provided you keep your shares in the company for at least five years after the sale. This last provision is designed to prevent the formation of “paper” companies to dodge tax liabilities from the sale of properties.

Stamp Duty/Capital Gains Tax/Inheritance Tax

In Egypt there is no stamp duty or capital gains tax payable on real estate and, if you are a British resident, you will also avoid inheritance tax on any Egyptian properties that you decide to pass on to your loved ones.

Tax on Rental Received

Any person, partnership or company must file a tax return detailing all rent or other income derived from real estate by March 31st of each year. For rental income the basic threshold for taxation is LE 5,000 per annum and, provided your rental income is less than this figure, you need not declare your received income.

For rental incomes greater than LE 5,000, 50% of the total amount is tax-free to cover maintenance and other expenses associated with owning the property. The balance is taxable at a standard rate of up to 20% rate of personal and corporate income. For example, you rent out a flat for LE 8,000 per month, grossing LE 96,000 in rental income per year. Simply subtract the deduction against costs of 50%, leaving LE 48,000 as taxable income. The balance owed in taxes is LE 6,100.

Investment Finance in Egypt

The mortgage market is relatively under-developed in Egypt but due to newly implemented mortgage laws, foreigners can now obtain Egyptian pound mortgages for loans of up to 85% LTV.  Lending can extend to 30 years up to the maximum age of 65 and maximum monthly installments are not to exceed 25% of your monthly income. However, currently the interest rate stands at around 14% p.a. so many buyers still prefer to seek alternative means of finance.

In order to obtain pre-approval, proof of land ownership is required, as is the name of the developer.

This new law is expected to open up the market considerably and create a storm of development and real estate activity in the near future.  The past lack of a fully developed lending system slowed down the construction industry in Egypt.  Even though Cairo is one of the most densely populated cities in the world, there has been a high demand for new housing.  This situation is destined to change just as soon as mortgage facilities become more developed in Egypt.

Many buyers usually arrange alternative financing in their own countries or free up equity via a re-mortgage or equity release system, allowing them to purchase their property in Egypt outright.

Some off-plan developments offer their own finance arrangements of up to 100% finance, depending on status. The charges applicable vary according to developer and repayments are usually indexed.

If you have property in your own country and would like to borrow against this in an equity release plan, we can introduce you to independent financial advisors who can help you raise the necessary finance.

Summary

All indications show that investment property in Egypt is now a highly beneficial market in which to invest. While the tourist infrastructure and economic climate is constantly improving in Egypt, we would urge investors to catch this market at the very beginning, while prices remain incredibly low and high returns on investment are there for the taking.