Spotlight on Egypt’s Real Estate Market Post-Pandemic

Spotlight on Egypt’s Real Estate Market Post-Pandemic
Conceptual paper house on washingline – 3d render

Amid many economic and political shocks that Egypt has witnessed in the last decade, the real estate sector has proven to be one of the most resilient sectors.

The Real Estate sector has been on the rise in terms of investments and contribution to gross domestic product (GDP) as it is a relatively safe investment and the demand is always increasing. This is until the COVID-19 crisis hits our world, it has affected the savings of many middle-class families and led others to lose their jobs, which in turn had a negative impact on their savings and their properties.

Has the sector been affected by the pandemic?

As the Egyptian economy experiences a slowdown because of the pandemic, several factors have combined to create a stable outlook for its traditionally resilient real-estate sector.

Real estate experts expected that some real-estate companies might exit the market as they bought land plots with very high prices and sold homes under market prices and with extended payment plans.

They said that the real estate market as a whole would “self-correct” and shift because of the length of the real-estate cycle. Egypt’s real-estate sector is “a resilient one”, with very strong underlying fundamentals and real drivers for demand, a recent report by JLL said.

Like other regional markets, it is still too soon to tell the exact impact COVID-19 will have on the Egyptian real estate sector. However, we know that few areas of the sector may be affected more than others.

The negative impacts on retail are obvious in the short term, but the longer-term impacts are less obvious. It is conceivable that after the virus runs its course, the retail sector will snap back, and the effect on future retail and entertainment-related development will be minor in the long run.

“Sales have been affected negatively in terms of sales and investments during H1 2020 due to the pandemic. Accordingly, investors resorted to saving their cash rather than risking their money,” Ahmed Moaty, executive director at VI Markets Egypt, comments.

In response to COVID-19, many developers are rapidly rethinking their visions for the future of the real estate environment. Projects under construction are being re-designed and floor plans are being redrawn.

Strong fundamentals to support a speedy recovery

Moaty adds that the Egyptian government announced a series of widely welcomed economic measures after the pandemic to help protect the economy against the negative repercussions of the coronavirus.

The Central Bank of Egypt (CBE) launched an economic package worth EGP 100 bn to fund a comprehensive coronavirus strategy, EGP 50 bn to fund real estate development for the middle-class through banks, and EGP 20 bn from the Central Bank to fund the stock market.

CBE’s announcements such as a cut in interest rates likely to positively affect the real estate sector in the long run, as the decrease in lending rate and accordingly financing cost will encourage investors to shift to the real estate sector due to the likely increase in real estate valuation and lead to better mortgage terms. Additionally, the decline in the stock exchange coupled with the decrease in interest rate will make the real estate sector a more attractive investment option.

Sector performance post-pandemic

JLL noted that Cairo has the bigger stock of units in Egypt, merely 135 residential units were delivered in the first quarter (Q1) of 2020, keeping the total residential stock almost unchanged at 159,000 units as mentioned above. Around 58,000 units were completed over the remaining 9 months of the year.

A large amount of future supply under construction in East Cairo has put downward pressure on sale prices over the quarter. Meanwhile, the shortage of supply on the 6th of October makes it the better performer in Q1 2020.

JLL also revealed that Egypt’s residential market witnessed the completion of almost 6,000 units during the first half (H1) of 2021, bringing the total stock to 218,000 units. Around 15,000 units are expected to be delivered in H2 of the running year. While the majority of future supply consists of large mixed-use developments, some developers have recently opted to launch small-scale, smaller-unit projects in a bid to manage cash-flows and reduce financial burdens. Other developers are offering extended payment terms that could now go up to 15 years in efforts to increase demand.

Cairo’s residential market saw the completion of around 4,000 units during the first three months of 2021, bringing the total residential stock to around 212,000 units.

“The market saw the positive performance as some projects were exceeding beyond the market performance during Q1 2021. This positive overview was attributed to the increase in demand for newer gated communities, which are now becoming more mature and livable,” Moaty notes.

Moaty points out that Egypt’s real estate market witnessed a gradual improvement, especially with launching new projects in new cities including the NAC, New Alamein, and Ain Sokhna.

Experts’ overview for 2021

Some analysts may argue that the rebound in real estate sales is expected to be driven by several basic factors, the most important of which is the gradual decline in the third wave of the novel coronavirus pandemic.

Moaty says that the Egyptian real estate market witnessed a boom in sales during Q2 2021 on the back of high demand for units of various types.

He expects that the real estate market would witness higher sales volume in H2 2021, especially for real estate projects in new cities.

On the other hand, Egyptians living abroad started to inject more investments into the real estate sector. Also, Arab and foreign investors tend to pump investments in the Egyptian market, especially in the NAC, North Coast, New Alamein, and Ain Sokhna.

Moaty states that real estate companies, including newly established ones, are expected to achieve higher profits by the end of 2021. The market will also witness the competition between large corporates and the newly established ones, which will help starting companies in attracting more investments.

Furthermore, the real estate sector will witness higher sales over the coming years, not only in 2021 and in 2021, as the government is allocating more incentives for this sector, allowing investors to acquire land plots and offering more facilities for them.

Moaty explains that many factors could catalyst the market to rebound such as mortgage finance programs, long-term mortgage loans, reducing taxes, and easing licensing procedures, among others. This in turn would encourage real estate developers to inject more investments in the sector and rethink the prices to be balanced with the new financing programs.

President Abd El Fattah El Sisi’s directive not to promote unfinished projects with less than a 30% completion rate will bolster the real estate sector and will be a boon for all parties, clients, developers, and the state.

Under the presidential directive, the developer will study spending priorities and may decide to withhold some items, such as advertisement costs, so as to reach construction targets, he concludes.


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