Some real estate companies in Egypt resorted to using the “dollar” to hedge against the risks of rising costs after the deterioration of the pound and the rise in inflation. In contrast, others went to cancel some customers’ reservations and return their money to maintain profit margins, Invest-Gate reports.

The real estate sector represents about a fifth of the Egyptian GDP, and is witnessing steady growth, supported by an increase in the population of 2 Mn people annually, in addition to people moving from the countryside to the cities at a rate of 2% annually.

Egypt liberalized the price of its local currency 3 times from March 2022 until last January, which pushed the price of the EGP down against the dollar by about 25% during the first quarter of 2023, and by more than 95% since March of last year.

Youssef Al-Banna, equity research analyst at NAEEM Holding for Investment, says, ” the buying and selling process in the Egyptian market is currently characterized by a plodding pace, due to the increase in lending costs, and the impact of record inflation numbers on the purchasing power of customers, so some companies resorted to hedging against the currency’s decline and the increase in costs by pricing its units or pegging them to the dollar.” but in the end, they sold the units with EGP. He revealed that some real estate agents are priced at an exchange rate of 33 to 35 EGP per dollar.

The increase in food prices, and the depreciation of the pound against the dollar, led to an acceleration of inflation in Egypt during February to the highest level in more than 5 years, to record 31.9% in February, on an annual basis, while the core inflation rate, which excludes the prices of the most volatile commodities, jumped to 40.3. % from 31.2% in January, according to Central Bank data released Thursday, to reach its highest level ever.

Al-Banna indicates that the goal of real estate companies in linking pricing to the dollar is to maintain profit margins, since their contracts with companies that implement projects include conditions to compensate those companies if there is a shift in the exchange rate.

According to the real estate services company “JLL”, the year 2021 witnessed the completion of 19,000 housing units in Cairo, bringing the housing stock to 227,000 units, provided that an additional 29,000 units will be delivered in 2022, concentrated in projects west and east of Cairo.

Al-Banna highlights that real estate companies “set the price, and they know exactly the nature of the customer they are addressing, and the extent of his ability to pay or not.” He revealed that “some companies cancelled reservations and returned payment checks to customers because their profit margins were affected by the high cost in light of the currency’s decline and the exacerbation of inflation.”