By: Tamer Amr

Driving along the main roads across Cairo and its suburbs, one cannot miss how dominant real estate billboards are scattered everywhere you turn. While each project is from a different developer, yet all promise a luxurious and stress-free life away from Cairo’s dismal traffic gridlocks in some well-heeled outskirt neighborhoods.

According to Prime Minister’s Press Advisor Hany Younis, the government has 20 cities planned out to house 30 mn residents, he said during a TV interview in September. Sixteen are under construction, led by the New Administrative Capital (NAC), New Alamein, and New Mansoura cities, he added.

However, rising prices of properties continue to deem them unaffordable for some investors. Experts are divided on whether this market would still be profitable for speculators in 2019 or not. Hence, Invest-Gate delves into the Egyptian real estate sector, aiming to determine if it is a worthwhile investment or not.

Prices in Flux

Throughout 2019, prices are expected to soar once again amid further subsidy reductions and a possible second devaluation of the EGP, given the dollar’s recent appreciation against all other emerging market currencies, which is yet to be reflected on the local currency.

Mohamed El Bostany, a member of the Real Estate Investment Division in the Federation Egyptian Industries, expects prices to surge by 10% in 2019, while Tarek Shoukri, chairman of Arabia Group for Real Estate Investment, estimates that unit prices are set for a 10-15% hike.

Chairman of Imex Real Estate Yehia Abdel Aziz sees property prices going up by 25% in the same period, noting that the slowly-growing salaries are considered the heart of the problem.

“It doesn’t matter how high prices are, just as long as they are affordable. And, under the current circumstances, they are not,” he elucidates.

Meanwhile, Noha Sobhy, a real estate broker in Sheikh Zayed that only sells units in gated complexes, is highly doubting the feasibility of such large-scale developments in the foreseeable future.

“Buyers were shocked at how little they will get for their money, and thus, deciding not to buy … I sold in 2018 a fraction of what I did before the flotation of the Egyptian pound, back when prices made more sense,” she explains.


Casting a Dark Shadow

Some experts on edge anticipate that the sector may well go into “stagflation,” whereby prices will continue to swell despite declining sales.

Wael El Nahas, a political economist at Cairo University, says:

“We have been seeing signs of stagflation throughout 2018. The signs we are witnessing right now, with prices continuing to soar in existing and new developments, indicate that this phenomenon will likely become more apparent in 2019.”

“Those who buy such units are mostly speculators and traders betting that this market will never lose money, as is historically proven, [and] this is not sustainable. They will have to either settle for lower prices or accept that their wealth is increasing on paper only.”

For that matter, Ayman Sami, JLL’s country head of Egypt, who is predicting that the drop in sales will be limited to second-hand units, notes:

“I don’t think that many can fork well over EGP 1 mn for a 100-square-meter apartment in one go. Alternatively, it is highly unlikely that those, who decide to sell their units, would accept installments since they are just individuals not corporations that can manage payments over years.”


Too Many Options

For other experts, the main worry is the huge number of new developments advertised in well-trodden areas such as the North Coast as well as new cities such as NAC.

Tarek Maghazy, CEO of Beta Egypt for Urban Development, elaborates:

“This [huge number of options] makes buyers fragmented, especially traders and speculators who want to invest in the place that will appreciate the fastest. They would likely postpone their decisions in hope of a more promising development.”

Read more: Egypt’s Real Estate Forecast in 2019

Walid Abdel Salam, an individual trader who is looking to buy a property in NAC or Mostakbal City, says:

“As an individual speculator, I don’t have EGP 20 mn to put into property in several locations. I have taken a loan of EGP 2 mn and with what I have I can either buy two 100-square-meter studio apartments or one medium-sized apartment. I am still trying to assess which is a better option and where would be the best location.”


Betting on Potential, Nevertheless

Despite the seemingly gloomy outlook, some are betting that the Egyptian culture will perhaps keep speculators happy, especially as the huge hikes in real estate prices have not yet matched the rates by which prices of other goods have increased since the EGP flotation.

Ahmed Abdel Fattah, head of business development for Aqarmap, an Egypt- and Saudi Arabia-based online real estate marketplace, reckons:

“Mathematically, annual price hikes in 2018 and those expected in 2019 are lower than inflation as well as the pound’s devaluation in the past two years. In many ways, real estate is still undervalued.”

Another factor that supports raising real estate profit-making for speculators is that potential buyers are constantly in a state of mind that they should buy today because tomorrow’s prices will likely be higher. This resulted in government and private sector developers raising unit prices by noticeable margins with each new development.

Ahmed Imbaby, chairman of Meamar Mecca for Real Estate Investment, tells Invest-Gate:

“This is a common strategy that private developers and traders use. It works because the Egyptian market is highly affected by rumors. If buyers expect higher prices, they will buy sooner rather than later. This increases prices on the ground. It’s a self-fulfilling prophecy.”

Statistically speaking, marriages in Egypt topped over 912,000 people in 2017, according to a report published by the Central Agency for Public Mobilization and Statistics (CAPMAS) in mid-2018, and Sobhy, the real estate broker, says that almost all of them will be looking for residential units to live in, while an Oxford Business Group report published in late May, estimated that the actual demand for residential units was around 500,000 units in 2017, with almost 80,000 units already delivered.


Winds of Change

Despite the conflicting outlooks for 2019, there are fears that if prices continue to leap amid slight hikes in incomes, the real estate market will eventually slow down significantly in the long run.

Sobhy believes that demand for property built by small, relatively unknown, developers will go down drastically in 2019, as bigger companies take up better locations and have more exposure and a better reputation in the public eye.

For Meamar Mecca’s Imbaby, what is really worrying is that more people are now buying properties they couldn’t have even afforded pre-float, thanks to long-term installment payment plans orchestrated by developers.

However, this is enticing developers to further raise prices safe in the knowledge that since no one will buy units outright, some massive surges in the final prices would equate to reasonable hikes in the monthly installment payment.

Maged Faisal, a contractor who has two residential buildings in 6th of October City, says, “We are already seeing that the local market is filling up with speculators buying property in new cities. They are hoping that in a few years their values would increase as the government focuses on attracting people and companies to these new settlements, the biggest opportunity right now is the new capital.”

Besides, within these new cities, Faisal sees that the best opportunities would likely be in apartments below 120 square meters, which suit white-collar upper-middle as well as middle-income families. “These are the people, who will likely have big enough budgets to stretch to buy better homes in a few years,” according to Faisal.

To read the full article, check out pages no. 24-26 at our January issue.