Egypt's real estate sector is an attractive long-term prospect in an acutely undersupplied market, Deutsche Bank said in an initiation-of-coverage note.

The bank report placed high-end builder Six of October Development and Investment (Sodic) top among three main property developers.

While warning of regulatory risk and of limits to mid-market affordability due to minimal access to mortgages, Deutsche said a growing population and undersupply would widen the housing shortfall to 11 per cent of demand by 2014 from 5 per cent now.

Deutsche said high-end builder Sodic - has a strong balance sheet, a flexible model, minimal land liabilities and a quality landbank that has been highly discounted by the market.

'Sodic's intrinsic value comes from its small but prime landbank entirely in Cairo,' the Deutsche analysts wrote.

Deutsche started 'hold' recommendations on Palm Hills Developments, with a target price of 5.90 pounds, and Talaat Moustafa Group, with a target price of 7.8 pounds.

It sees Palm Hills as the most leveraged and risky of its peers but with healthy backlog supporting revenues for at least four years. Its cheaply acquired and diversified landbank should support project development for seven to ten years.

Deutsche said regulatory risk was a short-term concern for the industry, referring specifically to Talaat Moustafa's main Madinaty project.

In June, a court revoked the land purchase from a housing ministry body. That body, the New Urban Communities Authority, has appealed and both the company and government say the ruling will not affect building.

Talaat Moustafa, Egypt's largest listed developer, is a strong story, but the likelihood of a negative outcome of the court case was 50 per cent. Without that risk, its sum-of-parts valuation was 10.70 pounds, Deutsche said.-Reuters