Ups and downs in real estate

Ups and downs in real estate

Roger Pettingell Sarasota Real Estate

Egypt’s real-estate market saw several challenges in the first half of the year, including increases in the prices of raw materials, the Russia-Ukraine war, spiking inflation, and the further depreciation of the local currency.

Ayman Sami, country head of JLL, a UK real-estate services company, said many people were buying real estate to protect their capital against inflation and the appreciation of the dollar against the Egyptian pound.

He expected some real-estate companies to experience losses or a drop in profits because they had not anticipated the rise in the prices of building materials or the inflation that has hit the global market.

Some real-estate companies were postponing projects after these had been announced in order to re-evaluate sale prices, he said, forecasting that real-estate sales would decrease in the second half of the year if inflation surges further and the pound loses more value against the dollar.

High-interest bank certificates are also strong competitors to real estate. A few months ago, the National Bank of Egypt and Banque Misr launched deposit certificates at an interest rate of 18 per cent. The move, albeit temporary, proved very popular with consumers.

A JLL report for the second quarter of the year says that in order to cope with the rising prices of building materials and generate more cash, some real-estate developers have increased the price of units, while others have put off projects until economic conditions stabilise and purchasing power picks up.

“Real-estate projects offered for sale in the second quarter of the year were less than in the first quarter,” Sami said.

Some of the companies that have postponed projects want to recalculate costs and re-price units based on the increases in the prices of building materials, said Ali Adel, a real-estate analyst with Beltone, an investment bank.

Tarek Shoukri, head of the Real Estate Development Chamber at the Federation of Egyptian Industries, said the first half of the year had seen an increase in sales because people want to protect their money against rising inflation, with the real-estate market being considered a safe haven.

Some real-estate developers have endured losses because they had maintained their prices unchanged while costs were rising, he added.

Alaa Fekri, a member of the Real Estate Investment Division and a developer, said the purchasing power of many consumers had decreased with rising inflation. When combined with increases in the prices of building materials, this had meant that some real-estate units had surged in price by 30 per cent over the past six months, he said.

He added that the state raised the prices of social-housing units last week from LE350,000 to LE450,000.

On 20 July, the cabinet approved an increase in the maximum price of units for limited-income segments to LE450,000 for fully-finished units comprising three rooms and a reception area and to LE400,000 for fully-finished units of two rooms and reception.

Units addressed to middle-income groups and 150 square metres in area have seen their prices increase from LE1.4 million to LE1.7 million.

If they persist, the increases in the prices of building materials will affect people’s purchasing power, Fekri noted. Adel said that real-estate company sales did not regress in the first half of the year, but that this was bound to change, perhaps in the first half of next year, due to rising costs.

The Ministry of Housing has granted real-estate developers implementing projects in the new cities a six-month grace period at the companies’ request in order to make up for the slump in demand following the spread of Covid-19, rising world inflation, and the Russia-Ukraine war.

These factors have resulted in an increase in the price or even the non-availability of building materials.

However, Fekri said the grace period would not solve the problems experienced by investors, particularly as they were still obligated to implement projects by a certain date if they had bought the land from the state at market value.

The JLL report said no new real-estate projects were being implemented in the second half of 2022, with the total size of units offered in Cairo currently standing at 2.9 million square metres.

Earlier estimates had put the total size of units at 220,000 square metres in the second half of the year.

Sami said that due to limitations on imports, many leading suppliers had sold fewer goods. This had reflected on their ability to pay increases in rent, with the majority only paying a one per cent increase on rented shops.

More people have been turning out at food outlets, the rent of which increased by 16 per cent, the same percentage by which the pound has depreciated, Shoukri said.

According to the JLL report, the workspace sector delivered more than 80,000 square metres in the second quarter of the year. The total workspace offered in Cairo recorded 1.8 million square metres, and some 170,000 square metres are expected to be delivered in the second half of the year.

However, there have been a limited number of sales operations due to uncertainty looming over economic conditions.

The current global crises and remote working have resulted in a slowdown in the administrative sector, Sami stated, saying rents at workspaces were expected to increase by three per cent in the second half of the year.

*A version of this article appears in print in the 28 July, 2022 edition of Al-Ahram Weekly.

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