CAIRO: The past several years have seen a steady outflow of Cairo’s families to spacious villas in new satellite cities, and with the recent move of several major public and private sector operations to New Cairo, it is clear that the city’s suburbs are now the place to be for business as well.
Egyptian and foreign contractors have jumped in to provide ample supply for the seemingly endless demand.
With this year’s Euromoney Conference underway, the time has come to take stock of Cairo’s booming real estate business and ask the perennial question: how long can this go on?
“What we are seeing in Cairo’s real estate today is the result of the fact that demand is still higher than supply for property, and so prices for land and construction have not had the chance to peak and stabilize as they have in cities like Dubai, said Nermine El Shoukry, property consultant at SODIC. While the continuing boom, even in the face of a major world financial crisis, may be a simple product of supply and demand economics, there are plenty of other factors working both for and against the industry at present.
First, there is the question of the rising costs and inflation that have been plaguing Egypt’s economy of late. Indeed, according to the Euromoney Conference website, inflation and sustaining high growth are the major obstacles facing the Egyptian economy, real estate sector included.
According to Hala Bassiouni, managing director of Egyptian Finance Housing Company, a second phenomenon that is negatively impacting Cairo’s real estate market is the mismatch between what consumers are demanding and what contractors are building.
“Construction companies overestimated the demand for high-priced villas and built too many before realizing that most of the demand nowadays for property in New Cairo is coming from middle class families looking for reasonably priced apartments or townhouses. Now they are going to have to readjust their plans so they don’t get stuck with high-priced units that no one wants to buy, she said.
On the other hand, the increasing involvement of banks in the mortgage industry has allowed more Egyptians to purchase their own homes.
Investment Minister Mahmoud Mohieldin stated recently that growth of the Egyptian banking sector has directly contributed to Cairo’s real estate boom, a trend that should continue if mortgage rates remain stable.
Bassiouni, whose company has helped to pioneer Egypt’s mortgage industry, emphasized the importance of the country’s growing mortgage market.
“The development of mortgage finance is crucial, as it will allow the real estate industry to continue to flourish and also provide a viable way for people to become homeowners.
But what about the current financial crisis?
Oddly, it hasn’t seemed to impact the real estate market’s vitality, and may even be helping it thrive. In a country where many people prefer concrete investment overstock market speculation, current problems have helped to reinforce the cultural preference for fixed assets.
“It seems counterintuitive, but actually when the stock market goes down and people lose money, they are eager for a stable investment and for many people this means buying real estate. So the industry has not been negatively impacted at all, except in terms of people’s purchasing power, observed El Shoukry.
Bassiouni added that in Egypt, where people often prefer fixed assets, the potential for a market crash is much less than in the United States or Europe. In Egypt, rather than crash, markets will “hibernate for a certain period before picking up and stabilizing when conditions improve.
While real estate speculators will be hit hard in such a situation, normal homeowners will not experience a crisis due to stagnant real estate prices during a recession. At the same time, new investors continue to enter Cairo’s market to take advantage of rising prices and stable demand.
As to the question of whether the current real estate boom is sustainable, experts agree that prices cannot keep going up indefinitely.
“Eventually prices will peak and stabilize as supply adjusts to demand. This doesn’t mean that people won’t keep buying – because they will – just that prices cannot increase forever, said Bassiouni.
Shoukry agreed, emphasizing the cyclical nature of real estate markets all over the world. “Every country has its cycle and prices are constantly rising, dropping, and restabilizing. Egypt is no different, she said.
With cultural investment principles and an expanding banking sector bolstering the expansion of the real estate market in Egypt, it seems that purchasing property in New Cairo should be a good investment for many years to come. And while price increases and rampant inflation top the agenda, Cairo’s booming real estate market seems prepared to remain healthy for the foreseeable future.
