The Associated Press May 1, 2011, 12:00AM ET

Swan Lake vs slums: Egypt faces housing challenge

From the roof of the house in which he lives, Mohammed Hassan can see some of central Cairo's most prized real estate. A five-star hotel sits in the distance to the right, the towering foreign ministry building seems close enough to touch, and the Nile is a straight shot ahead.

The 27-year-old restaurant delivery driver shares the eight-room mud brick home with his mother and three siblings.

And then there's the seven other families that also live there, each in one of the rooms. All of the at least 70 residents share a toilet that's basically a hole in the ground.

"You can call this a house, but you can't say what we're doing is living," says Hassan, who makes 900 Egyptian pounds ($150) per month. "I wish I could move out, but I can't afford it...In Egypt, even dreams are expensive."

This is the math of Egypt's revolution: Seventy people, sharing one toilet, in an eight-room house in a slum that has more residents than the combined population of Qatar, Kuwait and Bahrain. It reflects the kind of conditions that, over years, fueled a build-up of resentment that led to the ouster of former President Hosni Mubarak in February.

As Egypt charts a course forward to what many hope will be a democratic nation, officials face the daunting task of keeping the economy stable while undoing a legacy of corruption and cronyism widely seen as favoring companies and a minority of businessmen at the expense of millions like Hassan.

For many in the country, property developers are justified targets, in part because they secured state land at cut-rate costs and then resold developed lots at exorbitant prices. But some fear the companies -- and the private sector in general -- are becoming the victims of a witch hunt that will undercut growth and undermine the economy.

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Beverly Hills, Allegria, Swan Lake: The suburban communities' names offer a glimpse of the respite they promise from Cairo's sardine can mash of humanity, in which 20 million people are crammed into a city designed for maybe a quarter of that.

For years, ads for these communities filled the pages of Egypt's newspapers. Now the ads have quietly disappeared, as developers try to keep a low profile and distance themselves from links to former regime cronies, including two housing ministers under investigation for corruption.

It's easy to see why such firms are laying low in the new Egypt.

The anger against Mubarak crested on Jan. 25, morphing into a mass uprising that, in a matter of days, turned Egypt from a regional pillar of stability into a landscape of uncertainty.

Tourists fled by the thousands. Production ground to a near halt. Exports fell by 40 percent, and foreign currency reserves dropped from $35 billion to $31 billion in two months. Inflation appeared set to climb, and GDP growth projections of almost 6 percent were cut by two-thirds for the current fiscal year.

Egypt's finance minister said recently that the economy contracted by 7 percent in the third fiscal quarter, and that the country was trying to secure $6.2 billion in soft loans from the World Bank and the International Monetary Fund.

And those are just the short-term effects of the uprising. In the longer term, there are the years-old challenges that confront tens of millions of people like Hassan.

While a select few in the nation of 80 million lived in luxury, the overwhelming majority struggled to make ends meet. Unable to afford an apartment, young men delayed marriage and lived at home. Building a household or planning for the future were basics that seemed unattainable.

The gated communities in between Cairo and the desert became symbols of the Egypt that millions here viewed with the kind of resentment only envy can inspire.

Stucco villas, townhouses and roomy apartments front golf courses, including one designed by Greg Norman. The superstructure of what could easily be called a small city is being placed in an area where, just 10 years ago, a flat tire meant motorists were stranded for hours. It's just one of several mini-cities and mega-projects bankrolled by developers like Talaat Moustafa Group, Palm Hills Development, Amer Group and SODIC.

Prices in many of these areas start from near 1 million pounds ($168,134) and increase exponentially. Meanwhile, Hassan and the others in the house pay 8 pounds ($1.35) per month rent for each family.

A small two-room apartment in the Boulaq Abu el-Ela neighborhood in which Hassan lives can fetch 120,000 pounds ($20,176). It may as well cost 1 million, he says.

"There's an element of mismatch," acknowledged Ahmed Badrawi, business development director for SODIC, which is building the Allegria project that includes about 1,200 villas and townhouses surrounding a Norman-designed golf course. "The supply that's available is not necessarily one that meets all the demand."

SODIC, which is also developing Westown, a mini-city that boasts a downtown business district as well as luxury apartments and homes, has fared fairly well compared to other developers. The company quickly moved to clarify the stake held by Magdi Rasekh, its non-executive chairman and the father-in-law of one of Mubarak's sons, who is under investigation. The company said Rasekh held only 649 shares.

Others have fared far worse.

Palm Hills Development, which is linked with the family of former housing minister Ahmed Maghreby, had an earlier land sale contract recently annulled by a Cairo court but is expected to appeal. Maghreby and his predecessor are both being held in jail pending investigations into allegations of corruption.

Talaat Moustafa Group, the country's biggest publicly traded developer, allegedly bought land for its sprawling 13-square-mile, $3 billion Madinaty or My City project at a steep discount that critics argue cost the government billions in lost revenues. A government commission ordered the contract annulled and then eventually re-awarded the land to TMG, but the company still faces legal challenges.

It was the latest hurdle for a real estate giant whose former chairman, a leading member of the formerly ruling but now dissolved National Democratic Party, is jailed for his role in the murder of his Lebanese diva girlfriend. Then-prime minister Ahmed Nazif, who is also in jail pending corruption investigations, at the time likened the case against TMG to "economic suicide" because of its potential to scare off investors.

Another company, the Egyptian Resorts Company, had a preliminary land contract canceled by a government agency. Ex-board member Ibrahim Kamel, another former top NDP figure, is also in jail on allegations of involvement in attacks on protesters.

Meanwhile, Amer Group said this week that it was ready to return land for its third phase of the Porto Marina Golf project in the north coast of Egypt, providing it was reimbursed the purchase price.

Similarly, the investment firm headed by Saudi billionaire Prince Alwaleed bin Talal, which purchased desert land in the mega-agriculture Toshka project in upper Egypt, said recently it would return 75 percent of the 100,000 feddans (roughly 103,800 acres) it bought as a "gift" to Egypt. The company, which had been branded with the same iron of having bought land for next to nothing, earlier offered to return as much as 90 percent of the land, as long as it was reimbursed.

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Adel Abdel-Moneim, a 25-year-old plumber, recalls fixing some leaking pipes in a villa in one of the gated compounds built by the developers. The rainforest shower head alone cost more than he could hope to make in six months.

After fixing the leak, he said the owners quibbled over the 120 pounds ($20) he wanted to charge them.

For him, it's poetic justice that several former officials and businessmen are locked up in Cairo's notorious Tora prison, along with Mubarak's two sons.

"They robbed the country and left us living like animals," he says.

But the problems go far beyond the companies, others say.

"You're trying to provide services for 20 million people in a place that can only support half that," says Wael Ziada, head of research at the Cairo-based Mideast investment bank EFG-Hermes. "Anyway you slice it or dice it, it's impossible."

SODIC, which has sold most of its Allegria homes, has steered clear of the low-income housing market because it's a high-volume, low-return endeavor with little wiggle room for error. Others have similarly focused on the upper income strata because of the high returns.

The housing ministry recently announced plans to build a million affordable homes in 22 cities across the country. To meet that goal, real estate consultancy Jones Long LaSalle estimates 550 homes will need to be completed every day for five years.

For millions in Egypt, even securing government-built housing has proven difficult. During the Mubarak era, the complaint was corruption, with apartments built under the Mubarak Youth Housing program said to often be allocated to those close to the NDP.

In the days after Mubarak's ouster, thousands in various Egyptian cities squatted in unfinished government-built apartments, in a frantic bid to finally claim a home they believed had been off limits because of nepotism or price or both.

Other projects were built so far from Cairo that it was impractical for young people to move there, unless they had jobs in those areas. Under a flawed plan embraced for years, the norm was to build housing first and then worry later about building commercial districts to create jobs.

Compounding the problem is the issue of home financing.

Egypt around six years ago passed a mortgage law, but it has yet to make a dent in the market. Home financing through the country's 36 approved lenders, however, has hit only about 4.4 billion pounds (about $740 million), less than 1 percent of GDP. Bank loan to deposit ratios stand at about 50 percent, indicating an unwillingness by institutions to loosen the purse strings. Interest rates for mortgages, meanwhile, are at about 13 percent.

"The problems we face aren't the product of today," Prince Sami Mohammed, a 20-year-old business student, said as his friends nodded in agreement. "They're problems from 30 or 40 years ago and the solution won't come in a day or a year."

So what is the solution?

The first task is to develop the economy and restructure social and economic institutions, says EFG-Hermes' Ziada, including bolstering the private sector. But it will be hard for authorities to take steps that are not popular with a newly-vociferous public.

"I think the authorities, themselves ... are in a very difficult place," said SODIC's Badrawi. "When you have a minister that's looking at his last two predecessors that are locked up, you can't expect him really to take any brave decisions."

In any case, it's unclear how long Egyptians are willing to wait to see results.

Plumber Abdel-Moneim says he wants to see the government's efforts directed at recouping the billions of dollars believed to have been pilfered by officials and their supporters over the years. The people deserve the money and the land back, he says.

"This was never a poor country," says Abdel-Moneim. "It was just one full of poor people."


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