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Slowdown expected in luxury real estate sales due to high competition - Daily News Egypt

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Slowdown expected in luxury real estate sales due to high competition

Expectations contradict the 25% increase in prices since last year, affected by high demand

By Mohamed Ahmed

There are a number of indicators that the real estate sales cycle in the luxurious projects will slow down in the next period, according to a report issued by Pharos Holding for Financial Investments.

The report relied on Emaar Misr’s decision to extend payment periods to seven years, instead of three to four years, while the different categories of the housing units witnessed price increases of about 25% over a year.

The report argues that the consumers’ purchasing power is no longer able to absorb the launch of new real estate projects, compared to the previous three years, in light of the high number of projects launched in the market during the previous years, especially in Cairo.

Real estate marketing experts and investors are almost in consensus on some aspects of the report, in particular with regards to the increasing competition between real estate companies to attract the customers, who suffer a lack of liquidity.

Change in marketing policies

Chairman of the Engineering Consultants Group (ECG) Amr Alouba said major changes have taken place in the real estate companies’ marketing policies regarding the targeted customer segments over the last three years.

Alouba explained that real estate companies shifted their marketing to target citizens with above-average income after the 25 January Revolution. This strategy came as a result of high-income consumer purchasing units in luxury projects at a high rate, to the extent that the market became saturated. This category of consumers’ main goal behind purchasing such units was investing.

According to a recent report issued by Colliers International, specialised in the field of real estate consultancy services, the offered housing units in the Egyptian market during 2014 exceeded 5.2m units. The prices of the apartments and villas increased by 27% and 64% respectively in the period 2013-2015.

The demand on rental apartments also increased by about 14%, compared to a decline of 4% on rental villas during the same period.

“The real demand now lies in the middle-income category; it is a targeted category for both the private and public sectors,” said Alouba.

Alouba believes this shift explains the adjustment that real estate companies have made on the payment programmes, whereby instalments periods have been extended to seven years to suit middle-income consumers’ abilities.

The Ministry of Housing has offered the Dar Misr Project for Medium-Income Housing for citizens in several cities, such as New Cairo, Shorouk, Obour City, 6th of October City, and Sheikh Zayed, in addition to other cities in southern and northern Egypt. The ministry has allocated a payment option through the real estate financing system over 15 years.

Demand still strong

President of B2B for investment and real estate marketing, Nehad Adel, believes there is no tangible evidence regarding the possibilities of a decline in the volume of demand on luxurious housing units on the short term.

He explained that real estate companies has already resorted to extending the payment period for instalment programmes due to the strong competition on the one hand, and on the other hand due to the decline in the liquidity available with the customers.

According to Adel, the new instalment programmes will not harm the real estate companies in any way, as most of the companies stipulate that at least 60% of the unit’s price must have been received at the time of delivery. Thereby, they guarantee the collection of the land and construction values, in addition to part of the profit.

This applies to Emaar Misr’s payment programme, which stipulates the payment of no less than 70% of the unit’s price at the delivery time.

Adel further questioned the existence of indicators for the decline in demand, when prices have increased by 25% on average in a year.

Continuing investment appetite

For his part, Ayman Abu Hend, Direct Investment Manager at the American Cartel Capital and regional partner at US investment company Graviton, ruled out the likelihood that the sector will witness a recession in sales volume in the foreseeable future.

Abu Hend believes that there are two kinds of the luxury real estate projects: the first is made up of housing units in Cairo, which is witnessing a significant increase in the volume of the supply as a result of the intense expansion in building projects by companies. On the other hand, demand has not increased at the same rate as supply.

“This has resulted in increasing the level of competition between the real estate companies. The competition is now limited to offering facilitations in the payment period; however, they did not reach decreasing the prices,” Abu Hend said.

According to Abu Hend, the second category of real estate projects is the luxury units in the North Coast resorts, which have been seeing exceptional demand, leading to increasing prices.

Abu Hend believes that there still are new opportunities for investment in the real estate sector, whether for real estate companies or investment companies that own real estate companies. In his opinion, this can be attributed to the overall lack of housing units available in the Egyptian market.

Based on the current real estate trends, Colliers International released a report that revealed an overall shortage in housing units, indicating the need for over 500,000 new units by 2020.


Topics: Sales

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