Trend Analysis: Devaluating Currency vs. Real Estate Boom

Trend Analysis: Devaluating Currency vs. Real Estate Boom

By Heba Eid

Egypt’s real estate market, described by many as rock solid, may not necessarily need a boost, yet the Egyptian pound’s (EGP) recent devaluation did exactly that. Since the 2011 revolution, the economic decline has caused foreign reserves to dwindle to an all-time low, which has disturbed the economic, political, and social climate. Adding insult to injury, tourism suffered a major hit last year, dramatically affecting one of the country’s key sources of foreign currency. As a major importer of commodities, the dollar shortage fuelled inflation, led imported goods to pile up at the ports, and disrupted businesses that rely on imported raw materials for production. These developments have allowed the black market to flourish, with the dollar reportedly crossing EGP 12.

In a move designed to reinvigorate a slowing economy and the depleted foreign reserves, and to subdue the growth of the black market, the Central Bank of Egypt (CBE) downgraded the EGP value by 14% against the US dollar – the largest devaluation since 2003. The monumental devaluation has been applauded by many economists and bankers, who view it as a step in the right direction. Many Egyptians, however, are apprehensive of how the devaluation will affect the prices of everyday goods and most importantly, their savings.

A Surge in Property Sales

A weaker local currency has curtailed sales and market growth, which means that the average consumer can afford less, and thus becomes more selective in purchasing habits. The real estate sector, contrary to the norm, has seen a real rise in sales.

The real estate market was remarkably resilient while other industries stumbled in the wake of the 2011 and 2013 revolutions. The stability of the property market is due in part to the trend amongst Egyptians to convert their cash to assets of the rock and mortar kind.

Around 45% of investors in Egypt favor investments in real estate compared to investments in shares, gold, or bank certificates, said Ahmed Al Masoudi, the CEO of AqarMap, in an interview with Daily News Egypt. In times where the economic landscape is unstable, Egyptians tend to hedge against inflation and a weakened currency by investing in real estate.

“The investment culture in the domestic market classifies real estate and land investments as the safest investment sectors nowadays; most Egyptians consider investing in real estate, better than the stock market or buying gold under the globally and locally volatile prices,” Tarek Shoukry, Chairman of Arabia Group said, commenting on the trend.

Shoukry added that the recent decline in the price of the Egyptian pound against the dollar has encouraged Egyptians to change the foreign currency in their possession, and use the price difference to invest in housing units, since they are assured that the real estate market prices will not decline compared to other sectors, and that prices will actually continue to increase.

Ayman Sami, Country Head of Jones Lang Lasalle (JLL), explained to The National that prices of residential units have been increasing annually by 5% to 15%.

With the demand for residential units outstripping supply, potential buyers from Cairo’s young and growing population, and the projected growth of the market as a whole, investment in real estate is a sound decision compared to other forms of investment.

Following the CBE’s announcement of the change in exchange rate, the EGX 30 Real Estate Index has risen by 22.6% according to Bloomberg.  Within 48 hours of the release of Palm Valley project in west Cairo, all of the 108 units offered by Palm Hills Development were sold, raising EGP 491 million. In late May, an iconic image circulated social media of hundreds of people crowding in front of Mountain View’s offices for a chance to reserve a unit in their latest project iCity. The reason for the significant interest in the project is believed to be due to its relatively lower price compared to neighboring areas in New Cairo, where prices for range between 10,000 to 20,000 per square meter, while iCity is priced at EGP 8,000 per square meter, according to the Chairperson of Themar for Real Estate, Maged Abdel Fadeel, who addressed the topic in an interview with Daily News Egypt.

Prior to the EGP’s devaluation, last year speculation of a weak currency caused a surge in property sales. Examples include Palm Hills Development’s rise in property sales by 69% and Talaat Moustafa Group’s revenue increasing by 17%. Similarly, Emaar Misr for Development’s 2015 revenue reached EGP 8.6 billion, an increase of 21.2% compared to that of 2014, according to Amwal ElGhad.

Infograph - Egypt economy currency devaluation

EGP Depreciation and Foreign Investment

The decision to devaluate the local currency is viewed as part of the government’s larger scheme to attract foreign investors. Structural reforms, state incentives, and government proposed infrastructure spending are part of a grand plan to boost a rather stagnant economy.

Currency devaluation is nothing new to the global market – the Chinese Yuan, the Euro, and the Japanese Yen all saw a weakening of currency in an attempt to stimulate their economies and boost exports.

The rise in the price of the U.S. dollar against the local currency may be one of the positive upsides that are expected to attract foreign investors to the real estate market, said Mohamed Saif Al Nasr, Head of the Central Department of Buildings in the Urban Communities Authority.  He added that foreign investment in Egypt will appeal to investors, cost-wise, provided the cost of construction is not overly impacted by the EGP’s devaluation.

Government support and noticeable reforms alongside currency devaluation have been reliable indicators to investors of the government’s commitment to ease any obstacles for investment.

It is not surprising that Egypt has seen an influx of projects and investments launched  following the CBE’s announcement.

The United Arab Emirates (UAE) real estate developer, Capital Group Properties, has launched a major residential property in Egypt: Alburouj project. The project’s investment is estimated at EGP 40 billion, and it will create 30,000 housing units between Suez and the Ismailia Desert Road.

Another project was recently launched by the Saudi Egyptian Construction Company (SECON). Riyadh-SECON will be built in New Cairo, with investment worth 3 billion, covering an area of 68 acres.

Saudi Arabia and Egypt signed about EGP 222 Billion ($25 billion) worth of agreements during Saudi King Salman bin Abdul Aziz Al Saud’s visit to Cairo in April, according to Al Ahram. This move demonstrates the confidence regained by investors.

In May, the Kuwait Fund for Arab Economic Development (KFAED), agreed on a KWD 100 million loan to Egypt to finance the construction of five seawater desalination plants in South Sinai, according to Daily News Egypt.

In Egypt, the shockwaves of the weaker currency and inflation are felt by businesses as well as the average Egyptian. The silver lining, though, is reflected in the performance of the real estate market, with locals safeguarding their money by investing in property. Developers are noticing this trend and encouraging it by competing through incentives, more relaxed installment plans, and huge promotional campaigns.  The instigation of multiple large-scale real estate plans also indicates that the devaluation has positively impacted foreign interest in Egyptian projects.


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