To Build or Buy: Prospects for Future Homeowners

To Build or Buy: Prospects for Future Homeowners

People looking for their own property face an elemental choice of either buying or building a home.  Both options bring along their own advantages and disadvantages of various kinds: From the amenities of a pre-existing home to the prices of both alternatives, this article aims to provide an overview of this important topic.

While most homeowners tend to go down the buying route, both alternatives offer their own set of advantages and disadvantages, whereby certain pitfalls exist, which can be avoided in both cases, if the correct factors are taken into consideration.

The Easy Way: Buying a Home

While there are advantages to both options, the route of buying a home instead of building one on your own can largely be labelled as the easier alternative. While the long process of building a home offers more options to tailor a place exactly to one’s needs, it is also much more complex. To buy a property is a rather straightforward procedure; however, this varies greatly depending on which property is being bought. Most of the issues revolve around preventing fraud or legal hurdles. When buying off plan, one needs to have an eye on the developer and possible investigations by the state authorities into these developers.

Buyers should also be aware of significant delays in the past on the part of some master plan developments, as well as certain developers not living up to the promised quality in their properties. The fact that payment installments must often be paid up front puts the buyer in the weaker spot, so having an eye on the reputation of the developer as well as on the way the payments are being handled is key for buyers looking to avoid unpleasant surprises.

When buying, it is also imperative to make sure the property in question is properly registered with the Real Estate Registration Office — an essential pre-requisite for any purchase. However, most properties in Egypt are not registered and the registration process can take up to four months, with legal and registration fees amounting to around 6% of the property value.

Aside from the buying process itself, buying a property yields certain advantages. First, it is likely one will end up paying less for an existing unit than for going through the whole procedure of building one’s own property. It can also be hard to find available plots of land in high-demand areas. This, of course, can also work to the advantage of those buyers looking for a in a more secluded area with few available buildings but lots of open spaces — however, even such empty spaces can over the course of time become crowded.

Another advantage for buying an existing property is the relatively low risk involved, aside from the possibility of fraud. Buying established properties helps to avoid the hurdles faced by those seeking to build their properties, including the attempt to determine land prices, building materials, fees for one or more contractors, as well as taxes and registration fees, all of which may change over time. Prices also differ greatly between different neighborhoods and regions. The average price per square meter in areas such as Haram, Helwan and 10th of Ramadan City ranges between EGP 2,000 and 3,000, while land prices in upscale districts such as Zamalek can reach up to EGP 13,700 per square meter, according to AqarMap.

Tailoring to Your Needs: Building

Building one’s own property, compared to buying, involves several additional steps: First, it is preferable, as with buying, to involve a lawyer at all times when signing contracts. One should begin by actually calculating the budget for the whole project, which may sound simple, but is a rather important step, since many first-time homebuilders tend to underestimate the costs and fail to leave some reserves in the case of rising prices or miscalculations.

Next up would be looking for a plot of land which is affordable, in a desirable location you like and where one might be able to get a sense as to how the area will develop over the next few years to avoid a loss of value on the future property. Provided a plot of land suiting the buyer’s requirements is found, the next step is the actual building process. This either involves hiring a single contractor – whether it be an an architect organizing the process or a building company offering the whole package – or hiring several depending on how much control the homebuyer wishes to maintain over the process.

The next issue on the list is the legal and structural framework Egypt provides for citizens willing to build or buy. Looking at Egypt’s legal framework, this involves – for buying as well as building – the registration process of property. In buying this refers to the building you are actually buying while in building the registration revolves around the land plot itself. It is also very important to mind the time it might take for the registration process to commence in order for it to not mess up your planning, especially on a building project.

Concerning the structure of the Egyptian real estate market, it offers a broad variety of options in terms of buying various kinds of property, as well as building individually or buying off plan. Recently, the market opened up a lot for foreign investors due to improvements in the legal framework. This means a lot of companies, primarily from the Gulf, burst onto the market, offering especially master plan developments on a large scale. Recently there have also been developments in the mortgage market in Egypt which means there is yet another way opening up for financing land or property purchases.

The Market Situation

Whenever one is considering buying or building a home, having an eye on the real estate market and the direction in which it moves is absolutely imperative.

The current depreciation of the Egyptian pound and imminent devaluation should theoretically make the market more attractive to foreign investment. The major downside for the real estate market, and for builders in particular, is that prices for materials, which often have to be imported, are rising steeply. While of course not all materials are imports, many relevant inputs for the production of building materials are imported, such as fuels to produce cement and refine iron, which are increasingly, including natural gas and coal.

Increasing prices are easy to consider and calculate, but since building projects can take time until completion, it is not actually the current prices that should be considered, unless there are contracts in place that clearly determine the costs of the project. Another downside of this issue is that contractors might be tempted to resort to using cheaper materials to make up for the rising prices, which in turn negatively affects the buyer.

When discussing the market, another key element is the supply and demand ratio. While this may seem to be a straightforward issue with regard to the Egyptian housing market, considering an estimated housing gap of approximately 3 mn units, it is important to keep in mind that this does not exclude the possibility of oversupply in certain segments of the market. Higher-priced segments of the market may witness some oversupply in the short to medium term, while this is a less likely scenario for low to mid income housing due to a much larger unmet demand, according to Colliers International.

Thus, in light of the depreciation of the Egyptian pound, the current situation is poised for more foreign investment, while domestic investors can still resort to investing in real estate as a hedge against inflation, according to another report by Colliers International about the Cairo market.

As such, whether a future homeowner chooses to build or buy, there are a number of factors, both within the buying or building process as well as in the market as a whole, that will either make or break the decision. Though it comes down to a matter of preference, it is important to weigh up all options against each other in order to make an informed decision.


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