Experts: Building Materials Price Instability Threatens Real Estate Investors

Experts: Building Materials Price Instability Threatens Real Estate Investors
Construction worker pouring concrete into steel rebar frame

Translation: Wael Hossam

Instability in building materials prices is a threat to investors in the real estate sector, experts say. The outbreak of the Russian-Ukrainian war in February 2022 and the resulting disruption of supply chains worldwide put pressure on input prices, pushing inflation rates to record levels. This has affected the Egyptian real estate sector, which has witnessed an exacerbation in the prices of building materials since the beginning of 2023.

The prices of building materials, like other commodities that depend on imports for their inputs, have jumped more than double in a period of a year, placing more burdens on developers. These obligations raise fears of investor reluctance and stagnation of strategic activity, which are on the list of investment priorities of the state.

The available production capacity of rebar in Egypt amounts to 15 mn tons, according to a report by the Export Council for Building Materials, Refractory & Metallurgy Industries (ECBM). In comparison, the actual consumption is 7.5 mn tons, and the export volume of Egyptian iron reached $1.412 bn in 2022, a decrease of 21%.

To develop solutions that may contribute to avoiding these negative repercussions and continue the sector’s leadership and growth, Invest-Gate surveyed the opinions of some real estate experts to discuss the causes of the crisis.

Osama Ragab, Executive Director of the chamber, states that developers are currently unable to price units due to the recent volatility in the prices of building materials in the market.

Ragab adds that iron, an essential input in the real estate industry, sees a price increase on a daily basis, and the hikes affected all raw materials that entered the industry.

The crisis is not limited to high prices, but the sector faced a scarcity in their availability at some periods, he notes.

Ragab clarifies that the real estate sector is going through a crisis in the current period represented by the continuous rise in cost, causing developers to lose the ability to price the units.

This may push the sector into some stagnation, as the developer will not accept selling the units bearing the cost losses resulting from the failure and the rise in prices alone, so unit prices may go up for customers, the top official reveals.

Fathallah Fawzy, Vice-President of the Egyptian Businessmen Association, states that the rise in the prices of building materials and inflation rates affected all real estate products.

The cost has increased by nearly double since last December, which, in turn, will be reflected in the units with a gradual increase that may reduce its intensity and stabilize prices by the end of this year, Fawzy explains.

Ahmed El-Zeini, Head of the Building Materials Division at the Cairo Chamber of Commerce, says that the crisis of rising building materials prices began at the beginning of 2023, and there was confusion in the market regarding developers, real estate, and building materials.

In a related context, Mahmoud El-Adl, Chairman of MBG Development, indicates that iron and cement constitute about 60 to 65% of the real estate industry, and their prices doubled by nearly 150%.

This will cast a shadow over the industry when the largest segment of consumers may not bear those prices, leading investors to refrain from purchasing real estate, which constitutes a need for the majority in society, El-Adl elaborates.

El-Adl indicates that operational pressures increased on real estate development companies. Since they had previously contracted for units about two years ago, the cost per sqm was EGP 10,000, but it has exceeded EGP 12,000.

Suggestions to Avoid Repercussions

Real estate experts emphasize that the crisis of turmoil in the prices of building materials has the greatest impact on the real estate sector. Industry sales were affected, and the crisis requires the concerted efforts of many agencies from the state and the private sector to carry out greater control over the prices of building materials. Many units were not priced to ensure proper movement of the industry.

El-Adl calls on the state to unite to reduce the prices of these raw materials in various ways to limit their repercussions, which affect about 90% of the real estate development sector companies, adding that developers shall bear the full cost or reduce the availability rate when the unit is delivered.

In addition, El-Adl also suggests the formation of a committee of senior industrialists and the state to help small developers affected by that crisis so that one would not stumble.

The committee’s aim is to support the continuation of activity by postponing taxes and accelerating infrastructure projects to create an attractive investment climate, he maintains.

To conclude, real estate experts stress the need for solidarity between industrialists from the public and private sectors. They suggest intensifying efforts to put in place rapid mechanisms to maintain the continuity of real estate activity growth.


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