Real estate prices continue to rise

Ahmed Abdel-Hafez, Tuesday 21 Nov 2023

The real estate market’s upward trajectory shows no signs of abating anytime soon, experts tell Ahmed Abdel-Hafez

Despite selling fewer units, Egypt s real estate companies have reported substantial return
Despite selling fewer units, Egypt s real estate companies have reported substantial return

 

Real estate prices in Egypt have increased by 30 to 70 per cent this year, several developers and analysts reported this week, adding that the hikes come on top of similar surges last year when some properties surged in price by up to 100 per cent in fewer than 18 months.

Despite the relatively small number of units sold since the beginning of the year, Egypt’s real estate companies have reported substantial returns. These can be attributed to the increase in unit prices rather than an increase in the number of units sold.

The upward trajectory in prices shows no signs of abating, experts say, even in the final quarter of the year traditionally characterised by low demand.

Mohamed Rashed, a member of the Board of the Real Estate Development Chamber, said that the surging prices in Egypt’s real estate market have maintained an upward trajectory since the inception of the global inflation crisis in 2020.

The price increases can be attributed to various factors, including demand, general inflation, and the rising cost of building materials.

“Some 359,000 to 400,000 residential units are constructed annually by both the government and private developers. Demand exceeds a million units annually across all housing segments,” Rashed said.

The devaluation of the pound has contributed to the increased demand for residential units as a store of value, surpassing the appeal of saving certificates and bonds. Real estate is regarded as a reliable asset, and it can generate higher returns than other investments through rentals.

In recent years, the demand for commercial and administrative units has outstripped that of residential properties, primarily due to their ability to enhance the value of the investment concerned coupled with the higher returns they can yield.

The Real Estate Development Chamber has initiated negotiations with various government agencies in recent years in order to secure a 10 per cent increase in the areas allocated for buildings as compared to landscaping and between-building corridors in real estate projects.

This adjustment is meant to increase the number of units offered within each project and to hedge against rises in building material costs during construction phases as an alternative to post-contract price increases for clients.

Some projects have obtained approvals to raise building heights, achieving the same objective by expanding the number of units in a project to offset increased building expenses.

The decline in sales during the third and fourth quarters of the year is typical in the Egyptian real estate market. Sales tend to increase starting at the end of the second quarter of the year and extending into the third quarter, irrespective of the overall demand throughout the year.

Amro Saber El-Sisi CEO of Trust company for Training and Consulting, a consultancy firm, suggested that the real estate market tends to slow down with the advent of winter and New Year’s celebrations, reaching its peak during the second and third quarters of each year.

The surge is driven by increased demand from Egyptian expatriates and clients from the Gulf countries who traditionally visit Egypt during their summer vacations. Their interest in Egyptian real estate is heightened when interest and exchange rates rise, El Sisi said.

The past six months have seen an exceptional increase in activity, with an influx of Sudanese buyers and demand for rentals following the unrest in Sudan.

The decline in demand during the last quarter of the year is due to a surge in the supply of units that are still under construction and are being offered for resale, with the aim of capitalising on price differences, El Sisi added.

However, Tarek Bahaa, CEO of Mena for Realestate Development consultancy and a member of the Egyptian Businessmen’s Association, also anticipates positive sales in the final quarter of 2023.

His optimism is rooted in data from Egyptian Stock Exchange reports on the 20 largest real estate development companies indicating that they achieved sales approaching LE450 billion in the first nine months of 2023, or twice the figure in 2022.

Bahaa said that “evaluating the market solely on the number of units sold is a flawed approach that doesn’t accurately represent the market’s size. This is because it includes a wide range of offerings, from studio units of 50 square metres to spacious villas. This makes it challenging to compare the demand for smaller spaces with that of villas.”

He supported his view by saying that the last quarter of the year is showing promising prospects and the leading real estate companies are introducing new projects for which there remains a high level of demand.

Egypt’s leading real estate development companies cannot afford to halt the sales of ongoing projects that have additional phases because this would negatively impact their liquidity, Bahaa said.

The present global and local price instability has compelled developers to be more flexible in their pricing strategies. In some cases, they have reviewed and adjusted prices on a monthly basis, as opposed to their traditional quarterly or annual reviews, he added.


* A version of this article appears in print in the 23 November, 2023 edition of Al-Ahram Weekly

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