Following the EGP flotation in November 2016, and amid a series of economic reforms, many experts agree that the real estate sector is in the midst of a slowdown, driven mainly by the low purchasing power. Invest-Gate sits with some of the market gurus, in an attempt to explore the factors undermining the buying power, while seeking effective solutions across the board.
Rooya Group Chairman & CEO Hisham Shoukri
Reason:
There is an incompatibility between clients’ willingness to buy and their actual ability to do. The current high cost of living means less net returns available once all household necessities are paid for, leaving little for savings – usually used to layout for assets such as real estate. From the developers’ end, higher-cost inputs, represented in pricey construction materials and soaring land prices as a result of the currency devaluation, are hindering their ability to provide more eased offerings for lower- and middle-class home seekers, catering to those falling out of the upper segment.
Way Out:
Real estate companies should continue offering smaller housing units. Another solution is to put forth more effective mortgage finance initiatives. Meanwhile, the government should set out a plan to provide plots at lower prices such as those put forth through public-private partnerships (PPPs), which reduce the financial burden on developers. Another recommendation is that the state should consider fixating land costs for three consecutive years, for example.
Mena Group Founder Fathallah Fawzy
Reason:
Buyers’ low-income levels, especially after the EGP flotation, as opposed to overpriced units amid increasing land costs.
Way Out:
The government should launch initiatives to support local consumer purchasing power. The Central Bank of Egypt (CBE) had already announced its plans to reintroduce subsidized mortgages worth EGP 50 bn for middle-income individuals, with preferential interest rates starting at 8% to prospective homeowners and unit prices of up to EGP 3 mn. I expect this initiative to boost the market in the coming period. Additionally, the state’s recent proposal to involve the private sector in social housing projects may support potential buyers’ current purchasing power, yet negotiations are still underway on the agreement terms and other related specifications. I anticipate we will start to see this step effective by early 2020.
Tatweer Misr President & CEO Ahmed Shalaby
Reason:
The equivocal slowdown in buying power is due to the inevitable economic changes and reforms, which have been taking place in Egypt as a step toward stability and restoring investors’ confidence in the country.
Way Out:
The optimal solution is the effectual collaboration between mortgage finance funds and real estate developers, on the back of the mortgage loans’ standing as the most efficient solution for the declining purchasing power. Low-interest rates and extended repayment periods are key factors to any effective mortgage finance initiative.
Iwan Developments CEO Waleed Mokhtar
Reason:
Seasonality is partially contributing to the fluctuations in potential investors’ purchasing power across different periods of the year. It causes their buying ability to decline in particular seasons, albeit the buying power remains constant at other times.
Way Out:
Developers should come up with innovative solutions in terms of offering a diverse range of products, in terms of types, sizes, and designs, while providing extended payment plans.
Read more: Consumer Purchasing Power: Headwinds & Way Out
Find this collective interview on pages no. 24,25 at Invest-Gate’s October issue. Also, register now at Invest-Gate’s “Means of Attracting Future Real Estate Investments” Roundtable and catch a deeper glimpse into the current purchasing power’s challenges and opportunities.