Change of course on real estate

Ahmed Abdel-Hafez, Thursday 2 May 2024

Al-Ahram Weekly investigates the reasons behind the recent waning demand in Egypt’s real-estate market.

Change of course on real estate


Demand for real estate has gone down in Egypt since late February following the announcement of the Ras Al-Hekma deal and the state’s receipt of the first tranche of the associated payment.

The move has resulted in relative stability in the market and a decline in the prices of some properties.

Observers differ on the reasons for the current decline in demand. Tarek Bahaa, director of MENA Real Estate Development Consulting, said that the surge in real-estate demand until the end of 2023 was primarily driven by a desire to hedge against a currency depreciation by investing in property.

This trend was supported by the incentives offered by real-estate developers to buyers, he said, including reduced down payments and extended payment periods. With the pound stabilising following this year’s flotation, demand for real estate has waned.

Marketing Director of the Trust Real Estate Marketing Company Adel Ghoneim said that the current decrease in demand stems from customers’ anticipation of potential price reductions.

However, he said that such reductions are unlikely, especially as the peak sales season in the real-estate sector typically takes place during the summer months beginning in late May.

This period coincides with the onset of Egyptian expatriate vacations in Egypt and the highest sales season overall.

According to Bahaa, pricing strategies until the end of January relied on long-term hedging policies and elevated risk rates. Consequently, prices had surged by as much as 70 per cent over the course of the year, he said.

This had necessitated a re-evaluation of pricing practices in the market and a return to normal rates of increase. This shift was happening now, he said, adding that the market would now witness less than average growth rates.

Osama Saadeddin, director of the Real Estate Development Chamber of the Federation of Egyptian Industries, said the Chamber had convened a meeting after the stabilisation of the exchange rate of the pound in the banks.

The meeting had tackled ways for the real-estate sector to maintain its edge and adapt to changes in the market. It had also reviewed pricing mechanisms and profit margins, he said.

It had concluded with a decision to initiate a comprehensive market study in the second quarter of 2024, taking into account variables starting with the exchange rate as well as the prices of building materials to facilitate the pricing of new projects slated to start in the third quarter of the year, Saadeddin said.

For projects in which one or more phases have already been completed in the period which saw higher demand and thus higher prices, subsequent phases will be offered at the same high prices but with more advantages, such as extended payment periods, fully finished units, complimentary memberships to project-affiliated clubs, or a share in garage areas, he added.

Reducing prices in the real-estate sector is challenging, Saadeddin said. Price reductions risk tarnishing the reputation of the market and jeopardising its status as a store of value in the Arab region and North Africa.

This could lead to the collapse of the sector, he warned.

Mohamed Samir, a real-estate finance expert, said that the current state of the market necessitated abolishing the decree issued in 2008 during the then real-estate bubble. The decree prohibited providing mortgages for properties still under construction.

Expanding the supply of mortgages is the sole solution to sustain the real-estate market, particularly in the light of consecutive price hikes in recent years as a result of increased investment to hedge against possible currency devaluations, he said.

The banks have funds amounting to up to LE450 billion to finance mortgages, with this figure increasing annually in accordance with Central Bank of Egypt (CBE) directives mandating the allocation of a portion of the banks’ portfolios to real-estate financing.

“These funds should be gradually pumped into the market to narrow the gap between soaring real-estate prices and customers’ purchasing power,” Samir said.

* A version of this article appears in print in the 2 May, 2024 edition of Al-Ahram Weekly

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