By Abdel-Azim Osman, CooingEstate.com
The resale market has frozen – but sales of new units are stronger than ever. Here’s why.
On November 3rd, 2016, the Central Bank of Egypt took the brave decision of floating the Egyptian Pound. Over the past two months the pound has slipped from its 8.88 peg to the USD to almost 20 EGP to the USD (55% loss in value). So what has happened to the real estate market since then?
In EGP terms, the prices of real estate have shot up. Within a week or two after the devaluation, most real estate developers had increased their prices by 15 to 20%. For example, both SODIC and Somabay increased their prices by 20%. Many Egyptians rushed towards buying new sale properties at the new prices. With relaxed payment terms of 5-7 years, people started buying properties in anticipation of more price increases. The result was that many of the top developers’ new launches sold out within days. With the currency being so uncertain, many consider real estate a safe place to put their savings. And relaxed payment terms allow people to lock in prices now for several years.
On the other hand, the resale market took a completely different turn. Property owners realized that if they kept their same pre-floatation prices, then they had just lost 55% of their value in dollar terms. What followed was complete chaos.
Many property owners asked for double the amount they were asking for pre-floatation, and others calculated the price of their houses in dollar terms at the pre-flotation peg and relisted their properties at that dollar price. Buyers won’t pay that much, since their savings and incomes have not increased accordingly.
This mismatch in expectations between sellers and buyers has made the market illiquid, and transactions have dried up. Of course there are exceptions and some high value properties have managed to maintain their price in dollar terms.
The biggest problem with Egypt’s real estate resale market is that it is still under developed and most sellers ask for their money upfront. During times of volatility, buyers shy away from paying large amounts. So it became very difficult for buyers to accept paying large upfront amounts for resale properties. Instead, they moved towards buying new sale properties with relaxed payment terms.
So what next?
If one measures the market in Egyptian pounds, the prices have generally went up and the devaluation has benefited the real estate market. If measured in foreign currency, the market has gone down but not in proportion to the Egyptian pound devaluation.
In the short term, we expect the prices of the real estate market to continue to increase to make up for the increase of the USD and resulting inflation. However, in dollar terms the prices of real estate properties have significantly decreased and they will not return to pre-flotation levels. The resale market will take a few months to stabilize but will eventually increase by percentages comparable to the new sale market.
We often get asked if now is a good time to buy. That depends on several factors – whether your goal is investment or consumption, what your income and savings look like, and many other factors. Generally, an investment in a new unit in the right compound can always be a safe bet, but a real estate consultant can always help you think through your priorities.