Thinking of owning property abroad? James Exelby uncovers the attractions of buying in Egypt’s Sharm El Sheikh resort – and points out any pitfalls
Twenty years ago, it was little more than an isolated military outpost on the southern tip of the Sinai peninsula, with a couple of hotels for divers and a youth hostel with running water for one hour in the morning and one hour at night (your correspondent stayed there). Sharm El Sheikh’s golden beaches, magnificent coral reefs and accompanying marine life, with their dramatic mountain backdrop, were one of the world’s best kept secrets.
All that is now just a distant memory. Sharm, as it’s often known, has become a year-round destination, boasting several dozen luxury resorts, casinos, nightclubs, international restaurant chains, golf courses and Egypt’s second busiest airport (after Cairo). The warm, dry climate and year-round blue skies make it especially popular with European winter sun-seekers.
Egypt’s head of state, Hosni Mubarak, has also taken a personal interest in the development of his “City of Peace”, which was returned to Egypt soon after he became president, 25 years ago. He has hosted world leaders at numerous regional peace summits in Sharm and his son, Gamal, recently celebrated his marriage in the Four Seasons hotel.
Looking to capitalise on both its natural and man-made attractions, Egypt’s business-friendly government is targeting residential tourists: foreign buyers with money to invest. The properties on offer range from bargain-basement studios to multi-million dollar villas.
Some people are buying to live here for part of the year, some for rental income, others in the hope of capital gains in a country with no capital gains tax. Most properties are currently being sold “off-plan” – before the buildings are finished – but there is also a growing resale market.
Who’s buying
Italians were the first to fall for Sharm’s charms in the 1990s, but bomb attacks in July 2005 appear to have put off new buyers from Italy and Italian visitor numbers are down. Their place has been taken, to a large extent, by British, German, Dutch and Russian tourists, and the British are now the biggest single nationality among buyers.
Former British prime minister – and now Middle East peace envoy – Tony Blair’s return family holiday in December 2005 was much appreciated by the local tourist industry. Many real estate agents now quote prices in sterling rather than Egyptian pounds, although some resorts, such as Eurosharm, quote in euros.
Lee Ward, of Pioneer Property, a UK-owned Sharm estate agent, says – apart from the Brits – several Scandinavians have also bought, as well as Russians, who tend to go either for the smaller, cheaper units or the top-end villas. Another agent says that, three or four times a year, he has Russian clients arrive on private jets with bulging briefcases to pay cash for million-dollar villas.
While nationals from Arabian Gulf countries often rent properties and have been expressing an interest in buying, their money has so far been spent on large stakes in hotel complexes rather than individual properties. Their private jets, though, are a common sight at the airport, which, in May, was upgraded to handle eight million passengers per year.
Where to look
Sharm city is spread along 40 kilometres of coast and divided into several distinct areas. There are very few beach-front properties for sale because the land has been allocated to hotels, but sea views are available – for a price – and resort complexes usually have communal pools and, often, access to a private beach.
Hadaba, on the cliff above “Old” Sharm, is where many of the first buyers put their money. One established resort with an active resale property market is Delta Sharm, which has around 1,600 units in a low-rise (two-storey) complex, which is 75 per cent landscaped and 25 per cent buildings. Hadaba is also where you’ll find Il Mercato Mall, offshoot of the Italian Renaissance-inspired Dubai original, as well as the youth hostel, still there and now with water available 24 hours per day.
Na’ama Bay, Sharm’s buzzing nightlife hub, is mostly zoned for commercial and hotel use, although there are more opportunities to buy on the other side of Peace Road, the city’s main north-south highway. Many of the newer developments are located in Nabq, north of the airport, and bordering the Nabq Protected Area. Other areas popular with foreign buyers are the Tower Hill resort, Montazah, Ras Nasrani and Shark’s Bay.
Mohamed Ali, of SSQ Investment and Real Estate, estimates around 4,000 non-Egyptians have bought property in Sharm. Golf courses are a major draw, he says: four out of 10 buyers list the sport as a hobby.
selling agents. For larger, two- or three-bedroom apartments – average size 100sqm – expect to pay between $800 to $1,600 per square metre, depending on the location.
If your dream home in the sun is a villa with private pool, then prices start at around $400,000 in Nabq and keep rising. Buyers should expect to pay another $1,000 to $1,500 in legal fees.
Many agents offer guaranteed returns of around nine per cent (in local currency terms) for those planning to let. Sharm rents are among the highest in Egypt, with studios in Hadaba going for $250-$350 a month and two-bed units for $500 or more. A six-bedroom villa in Tower (where Tony Blair and his family stayed this summer) is currently being advertised at $6,500 a month.
Buyer beware
Experienced Sharm hands suggest buyers should stick with a developer with a good track record. The Egyptian economy has had its share of boom-and-bust cycles over the years, with bankrupt construction tycoons fleeing the country, leaving behind half-finished buildings and disgruntled investors.
Resort management competency is also a consideration, as is the political situation, both regionally and domestically. While Egypt has enjoyed regime stability, there is concern that the succession of President Mubarak (who is 80 next year) is not clearly marked.
Then there is the local law. In 2005, a prime ministerial decree stipulated that non-Egyptians could hold property in the city of Sharm El Sheikh only on 99-year renewable leaseholds, rather than on a freehold basis, as previously. This introduced an unwelcome element of uncertainty because, under Egyptian law, a lease reverts to the freeholder on the death of the leaseholder, unless otherwise agreed. (In many foreign jurisdictions, a lease passes automatically to the deceased leaseholder’s heirs.)
The legal status of freehold properties bought by non-Egyptians before 2005 is also in doubt, although they continue to be re-sold as freeholds, despite the decree. These doubts, in turn, make land registration difficult. The Egyptian government has said it is looking to resolve the problem.
There are calls for the government to regulate the property market, in which estate agents receive commission from both buyer and seller, and local lawyers often act for buyer, seller and agent in situations where conflicts of interest are inevitable. The lack of effective and recognised professional bodies also needs addressing.
Finally, there is the question of future price movements. Agents point to 15-20 per cent capital growth in the past couple of years, but, with a large number of newly built properties coming onto the market in the next two years, supply may exceed demand. One agent estimates there are 35 resorts, with perhaps 500 units each, currently under construction. The lack of a mortgage market in Egypt is also restricting demand for property and Sharm remains vulnerable to the effect of a terrorist attack.
If you’re looking for a quick profit, you may be disappointed. But if you’re looking for somewhere warm, with long-term potential and a cost of living significantly lower than most equivalent resorts, Sharm El Sheikh might just be the place for you.
BRIDGE STIRS TROUBLED WATER
Rather than linking two nations, a bridge caused deep misunderstanding in Sharm El Sheikh this year.
In May, a Saudi newspaper reported that King Abdullah would lay the cornerstone of a US$3billion causeway across the straits of Tiran, linking the Kingdom of Saudi Arabia and Egypt, and expected to take three years to build. Within days, however, Egyptian President Hosni Mubarak declared that Egypt had not agreed to the plan and that such a bridge would “ruin Sharm El Sheikh”.
Observers speculated feverishly on the cause of this diplomatic incident. Some thought security is at the heart of it, others that it was a question of regional prestige and influence. For the foreseeable future, it seems, Saudi visitors to Sharm will have to rely on sea or air transport.
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