A deal between UAE-based firm Arabtec and the Egyptian military to build a million housing units has been suspended, Chief of Staff of the Armed Forces’ Engineering Authority Major General Kamel al-Wazeer told Al-Masry Al-Youm newspaper.
Arabtec has not confirmed the announcement.
“Any investor who wants to enter the Egyptian market should bring his money from abroad and not from Egyptian banks, and should use Egyptian labor and raw materials. Those conditions have not been met, so the project has been temporarily suspended,” Wazeer said.
The Arabtec deal was originally announced in March 2014, with a total project value of US$40 billion, or around LE280 billion at the time. Construction was supposed to begin before the end of 2014.
According to the original agreement, the Egyptian military was to donate 160 million square meters of land, mostly on the outskirts of Cairo, and finances for both construction and mortgages to come from “Egyptian and foreign banks.”
However, by October 2014, the terms of financing had been changed, with Arabtec given sole responsibility for seeking project funding from abroad.
Egyptian authorities also changed tack about providing the land for free. Instead of the military donating the land, Egypt wanted to sell it to Arabtec, via the Ministry of Housing and the New Urban Communities Authority.
According to an October statement by Arabtec, the company agreed to give the New Urban Communities Authority housing units and public services’ buildings in exchange for the land.
However, analysts noted that giving up housing units would inevitably cut into Arabtec’s profits, pushing the company to raise prices. The project had already been criticized for being priced out of the reach of most Egyptians, despite the military promoting it as a low-income housing scheme.
Back-of-the-envelope calculations suggest that with an LE280 billion project value, divided by a million units and taking into account utilities and infrastructure, the homes produced would likely cost around LE200,000. With Arabtec obliged to hand over a share of the housing, the sale price of the remaining units could have been pushed up by an additional LE50,000, analysts estimated.
In November, Arabtec officials said that reaching a deal with the government had required “intensive negotiations and meetings.” Work was supposed to commence before the end of 2014, but the company could only say it “hoped” to commence construction before the year ended.
In January 2015, UAE officials still said the construction would commence this quarter, and a delegation from Arabtec came to Egypt mid-February to finalize the deal.
If the project fails, it will join a long-line of disappointing mass housing schemes promoted by Egyptian officials, the most recent of which was a megaproject announced in 2011 that was supposed to deliver a million units within five years. As of January 2014, fewer than 3,000 units had been delivered.