Real estate developers halt property sales as building materials’ costs soar

Shaimaa Al-Aees
7 Min Read

Many real estate marketers have received messages from development companies to halt selling of their residential units until further notice. There is severe confusion in Egypt’s real estate market as prices of building materials soar due to the Russian-Ukrainian war and the devaluation of Egyptian currency.

The Central Bank of Egypt (CBE) clarified in a statement that the Russian-Ukrainian conflict led to an increase of domestic inflationary pressures, consequently, the Monetary Policy Committee decided to increase the key policy rates by 100 basis points.

Tarek Shoukry, Chairperson of Real Estate Development Chamber at Federation of Egyptian Industries, attributed the price hike of real estate during the last period to higher cost of construction materials, pointing out, “steel prices spiked by around 40% and cement by about 50%.”

He added that all finishing materials have increased in proportion to the convergence of steel and cement. The cost of construction has also increased, and it has become imperative for any developer who will commit to the construction process to put these new burdens in his financial accounts.

Shoukry further noted that raising the basic interest rates also affected real estate prices, due to the impact of the dollar’s price on many imported things, such as aluminum and other materials, which affect the cost increase.

He elaborated, “There is no room for price adjustment and re-pricing according to the new situation. Some developers have stopped selling until the situation stabilises, and others have re-pricing according to their vision.

Moreover, the Real Estate Development Chamber and Real Estate Investment Division submitted a unified memorandum to the Cabinet containing five demands to counter effects of the Russian-Ukrainian war on prices of building materials based on the continuous cooperation between the government and real estate development entities in Egypt in working to support the market.

He added that Chamber and the Division submitted a memorandum to Prime Minister Mostafa Madbouly, which includes 5 main initial demands that enable real estate companies to confront the supply crisis and high global prices and its effects on the sector locally in cooperation with the government that is making all its efforts to maintain strength of real estate market.

The demands include, granting a period of 3 months for all real estate projects in order to give real estate companies an opportunity to assess the situation and its effects on them, and to organize the next step in this important stage. In addition to, demanding coordination with the Minister of Industry and Trade to abolish dumping duties on iron so that there is no suspicion of monopoly and a rise in prices greater than external data and global increases.

The chamber and the division called on the CBE to activate mortgage financing initiatives by simplifying procedures, reducing time and creating the will of those in charge of banks to activate this initiative to bridge the gap between purchasing power of customers and selling prices, in order to maintain sales.

Additionally, the chamber called for creating a monitoring mechanism by the government to estimate real price of building materials and necessary increases on them without interference in supply and demand, and without exploitation or monopoly.

Over and above, the list of demands also included holding meetings with ministries and authorities concerned with these demands, namely the CBE, Ministry of Housing, Utilities and Urban Communities, and Ministry of Industry and Trade.

Ahmed El-Shennawy, a member of the Construction Committee of the Egyptian Businessmen Association, expected property prices to increase between 15-20% after the CBE’s measures to raise interest rates due to repercussions of the war between Russia and Ukraine, which caused a wave of global economic turmoil that had its effects on prices globally, and therefore building materials prices.

El-Shennawy stressed that the CBE’s decision and consequent spikes in exchange rate of the dollar and the issuance of certificates with a return of 18% represent a major challenge for the real estate development industry.

He explained that real estate development companies are facing a liquidity crisis after raising the interest rate, and the real estate market is expected to witness price increases ranging between 15-20% during the current period as a result of the rise in building materials prices and the dollar exchange rate.

“Real estate companies will have to give up part of their profit margin in order to maintain property market active and national companies should cooperate with the state in supporting national economy and maintaining real estate development industry because of its great economic importance, as it contributes approximately 25% of the GDP and socially serves approximately 100 craftsmanship,” he noted.

He called on the state to tighten control over markets and fight monopoly in commodities and speculation in prices, which leads to an increase in prices in a way that is not commensurate with the logical increase.

Furthermore, he stressed the need to make bold facilities on mortgage financing procedures to reduce burdens on real estate development companies, as well as provide facilities to real estate developers by facilitating bank financing procedures for all serious companies of various sizes. He also suggested increasing payment periods for land from 7 to 10 years.

El-Shennawy suggested the need to move towards vertical expansion in new qualified cities in terms of infrastructure and permission from all the competent authorities, so as to meet high construction costs and reduce burdens and costs on companies, and thus reduce price of units on customers as one of solutions to face high prices.

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