The Central Bank of Egypt (CBE) recently issued a package of decisions that included raising the interest rate by 2% for the first time in five months and liberalising the exchange rate of the EGP according to supply and demand and a flexible exchange system.
These decisions had a direct impact on the Egyptian economy, especially the real estate sector, which contributed about 60% of the country’s GDP in 2021.
The decision will, of course, affect the sector; due to these changes, some developers may resort to changing their sales or marketing plans or resorting to new ways to adjust their products to meet customer requirements.
Real estate market experts believe that some companies have to change their marketing and construction plans and search for new solutions to suit the needs of customers.
They noted that companies with a strong business precedent and contracts with strong management companies that have a great precedent in managing large projects will survive and manage to bypass the fluctuations in currency.
They also said that developers and investors have to innovate attractive marketing plans for customers to ensure that they pay instalments without overburdening them financially, while reconciling units’ spaces to suit new customers’ needs and their financial capabilities to pay.
Moreover, they unanimously agreed that companies that prepared their studies in advance included a price variation clause, taking into account that any increases or liberalisation of the currency rate may affect delivery times and affect the confidence of potential customers.
Country manager of Business Concierge Ashraf Diaa said that Egypt’s real estate market has been stagnant for four months ago or since the beginning of the summer season, adding that the current economic issues have affected everything in the industry, noting that even exhibitions couldn’t achieve their targets.
He also disclosed that customers purchasing power has not yet been affected by the 25% depreciation of the EGP, however, there are some alternative opportunities that could be seized in the current period to make use of currency fluctuations.
He explained that clients who would like to buy units to accommodate or invest in should buy units as soon as possible to maintain or even increase the value of their assets.
“Any good business developer will find a way to fit the needs and purchasing power of customers as well as adjust their project budgets to meet the current financial capabilities of their clients,” Diaa elaborated.
“Developers have to revise and readjust their feasibility studies to attract more clients and meet their needs according to financial capacities of potential clients.”
“Companies who have a problem in executing construction works or fulfilling their commitments to deliver might have to merge with other companies to resolve their issues. Furthermore, they may have to follow a very tough payment plan to be able to develop and deliver according to planned timetables,” he added.
For his part, CCO of ADC Developments Ahmed Samir Al-Desouky said that real estate development companies must provide new solutions to reassure customers and provide guarantees regarding commitment to development and delivery.
“Developers should seek the assistance of strong management and operating companies with strong capabilities and a strong precedent to carry out their obligations and ensure the preservation of the project even after its delivery,” Al-Desouky said.
“Moreover, projects must present a new and innovative product that differs from existing products and its surroundings in order to attract the largest base of customers, for example, changing spaces and the shape of units.”
He also expects an increase in real estate prices by 10 to 15%, and therefore companies should provide attractive payment and installment plans to customers, give some exceptions in payment, or provide exceptional and new offers in some cases, in addition to providing some advantages to short-term payment systems.
With regard to the financing aspect or corporate lending, Al-Desouky commented that banks will play a major role in supporting real estate development companies during the current and future period by providing a number of financing solutions to real estate development companies to ensure their ability to execute constructions, expand investment, and maintain the activity of local real estate market.
He concluded that “the effect of liberalisation would become more obvious by early next year.”
Meanwhile, Founder and CEO of Criteria Design Group Hesham Helal stated that credible real estate investors should have previously prepared the ‘safety factor’ in their feasibility studies before launching the project, adding that these studies should take into account some changes in the value of currency or even an increase in construction cost, such as the increase in prices of building materials and others.
Helal also believes that some clients will have to waive some of their requirements and conditions in residential and other real estate units in order to suit their financial capabilities.
Furthermore, he called on developers to use value engineering, as it has become a necessity imposed by the liberalisation of the exchange rate, devaluation of the EGP, and the increase in the cost of raw materials, adding that value engineering contributes to reducing non-essential costs in a simplified manner while raising the quality of projects and increasing their life spans.
Value engineering is a systematic, organised approach to providing necessary functions in a project at the lowest cost. It promotes the substitution of materials and methods with less expensive alternatives without sacrificing functionality and is focused solely on the functions of various components and materials rather than their physical attributes, Helal elaborated.