Flotation led to 40% price hike in real estate units’ prices

Shaimaa Al-Aees
10 Min Read

Head of MENA for Real Estate Development Consultancy, Fathallah Fawzy told Daily News Egypt that the cost of construction has increased since the floating of the Egyptian pound in November last year by 80% to 90%.

Fawzy predicted that real estate prices will hike in the first quarter of next year by up to 30%.

Fawzi said that the increase in real estate prices since the flotation so far has reached between 30 and 40%.

Fawzi added, “the only way to control the increase in prices is to reduce the price of land provided by the state to developers and companies, as well as increasing supply of land in light of the increasing prices of steel and cement.”

Regional Director at Colliers International Middle East and North Africa Ian Albert said that 12 months have passed since the pound flotation, and we are still in the phase of settling down. Property prices match the inflation.

Albert pointed out that since the pound flotation, prices increased by 30%, noting that for the next year, property prices would increase only by 15-22% because average inflation should decrease to 20%.

ARDIC for Real Estate Development and Investments CEO, Ashraf Dowidar said that another gradual increase in real estate prices will be witnessed in the coming period, by up to 15% before the end of this year.

Dowidar predicts that prices will continue to rise during the coming year, especially as land selling prices increase.

The decision to float the pound, led to higher prices for building materials and construction costs of projects, by up to about 50% of the cost of the project, according to Dowidar.

“The more stable the price of the pound against the dollar, the more control over selling land price, the clearer and more stable the vision in all economic sectors, so that companies can calculate the cost of implementing projects and pricing units.” Dowidar Said. “I expect another 15% increase in prices of real estate units. After the flotation and increase in interest rate, the company raised its prices by 35%. The increase in our prices will reach 50% by the end of 2017”.

Amin Serag, the CEO of Hyde Park Properties for Development pointed out that the real-estate market has faced unprecedented challenges during recent years, especially following the devaluation of the Egyptian pound, which subsequently affected prices across all sectors, including raw materials. “However, despite the fluctuated economy and its ups and downs, as well as all the recent market changes, the value of the real estate has proven to be very stable over the years and the demand for housing in Egypt remains huge, as it is mainly fueled by the fast-growing population and the constant increase in newlyweds looking for a new home as well as being a safe investment wallet,” Serag noted.

Senior Vice President and North Africa Regional Manager at Hill International, Waleed Abdel Fattah told Daily News Egypt that the high cost of construction process increased by about 30% in different projects since the flotation and this prompted all contractors to demand the payment of compensation of differences in prices.

Abdel Fattah pointed out that the increase in the cost of implementation is about 30% due to the fact that the projects are a mixture of foreign and domestic components.

From his part, Beta Egypt for Urban Development chairperson Alaa Fikry said that the company has increased units prices by around 35%, expecting prices to increase again before the end of the current year, due to the rise in prices of steel and cement.

Further, Managing Director of SODIC Maged Sherif said that the construction prices increased by 35-40% after the devaluation of the pound. However, the Egyptian real estate market is still going forward with opportunities for local and foreign investors.

Concept Real Estate Group chairperson Ehab Abou El Magd said that since the flotation of the Egyptian pound, his company increased prices by 25%. However, since the beginning of the current year, the company has increased prices by 20-22%.

He expects unit prices to increase again by 10% by the beginning of November.

Raw materials of infrastructure increased by 300% since the acquisition of the land in 2015. Moreover, steel and cement prices also increased by 200%, according to Abou El Magd.

Ahmed Shalaby, Tatweer Misr’s managing director said that the problem with the Egyptian model today is that when the flotation took place, along with the introduction of the value-added tax, and also in the presence of all the changes in the market, this led to an increase in the cost of construction. Therefore, the developers are facing a challenge with regards not only to the units sold before the flotation, but also the units they are currently building due to the increased cost of building materials.

The flotation encouraged foreigners, expats to buy units 

Ahmed Sabbour managing director of Al Ahly for Real Estate Development noted that the trend to export the local property abroad [selling property to foreigners and expats] became quite possible and increased after the flotation. Adding that it needs to be further regulated and that the efforts to organize and participate in real estate exhibitions abroad should be intensified, especially in the Gulf countries, in order to benefit from the currency devaluation and to fulfil the wishes of many Egyptian citizens to own units in their country.

Capital Group Properties (CGP) chief projects officer and member of the Real Estate Development Chamber of the Federation of Egyptian Industries, Amgad Hassanein, said that the flotation of the Egyptian pound could spur foreign and Egyptian expat purchases of domestic real estate.

Hassanein added that in light of the US dollar appreciation against the pound, the Egyptian real estate market has become a very attractive investment option, adding that for $100,000, which is approximately EGP 1.5m, a person could purchase a luxury apartment in the most exclusive areas in Cairo.

Ayman Sami, JLL’s Egypt director noted that after the EGP flotation, unit prices decreased by 50% if calculated in dollars, however, local prices increased by 30%. This explains the increase in demand by foreigners. Currently, real estate prices decreased by 35% to 45% in US dollar terms.

“For example in central Cairo, rents per square metre decreased by 5.7%, but there were no shifts in West Cairo and New Cairo. I think the decrease is due to some attempts to stabilise rent prices, such as putting limits on the dollar value, as well as other ways, such as extending payment periods,” Sami explained. ” However, some developers and tenants are in the stage of negotiations and the vision may be clear in the second quarter report. Due to the high value of the dollar, some tenants redirected their demand from grade A to grade B. Furthermore, some clients tended to buy buildings to equip administrative offices in these buildings.

Depreciation of the Egyptian local currency led many Saudis to buy housing units at attractive prices starting at 300,000 riyals ($ 80,000), which is a good opportunity to own a property in Egypt, especially those who like to spend their holidays, according to Saudi Gazette.

Saudis purchases are not only in Cairo but also extended to other areas such as Ain Sokhna, Noth Coast and Sharm El-Sheikh.

Flotation increased projects’ implementation cost

The cost of carrying out Zizinia El Mostakbal project has increased from EGP 1.2bn to EGP 3bn after the pound flotation, according to Ashraf Dowidar, CEO of ARDIC for Real Estate and Development.

While, Marketing Director of Al Dau Development Bahaa Hefzallah noted that before the flotation, the company’s investment in the two projects was roughly EGP 2bn. After the government liberalised the exchange rate of the Egyptian pound in early November, the cost of construction materials increased; therefore, the investment cost of the project’s implementation increased by 40% to 50%.

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