After a period of volatility following the floatation of the Egyptian pound late last year, Egypt's real estate market is attracting investment inflows as it benefits from the positive side of the floatation. The pound has now stabilised at LE18.2 per dollar, compared to LE8.8 before the floatation. Though floating the pound meant doubling real estate prices for many people, prices halved for those working abroad or who are paid in dollars. “This has prompted people with dollar savings to invest in real estate because it is considered a safe investment and savings in dollars are no longer that attractive,” Bassem Al-Shorbany, vice president of Tabark developments, a real estate company, told Al-Ahram Weekly. He said that dollar holders had been investing in real estate out of fears of deterioration in the value of the dollar. In its 2017 first quarter Cairo Real Estate Market Overview, real estate advisory firm Jones Lang LaSalle (JLL) said the stabilisation of the pound was a positive sign for a real estate industry that has attracted foreign investment inflows on the back of economic optimism. But the floatation has also had negative impacts on the sector, mainly a drastic increase in real estate project construction costs on the back of a hike in the prices of building materials by 20 to 100 per cent, Al-Shorbany said. This has prompted companies to increase prices of units at the beginning of 2017 by 20 per cent, with the expectation of a similar hike in the coming period with the increase reaching 40 per cent by the end of the year, he said. Al-Shorbany added that prices were prone to more increases should the dollar continue to strengthen against the pound, “though the real value of the dollar should not exceed LE15”, he said. This will inevitably increase prices for the end consumer, but Al-Shorbany said that developers could mitigate this through reducing profit margins to five per cent. The JLL report said developers were not able to pass on the whole increase in construction costs to the end consumer and margins had therefore been reduced. It added that in the residential market developers were introducing more efficient payment plans, increasing density, and reducing unit sizes in response to the negative impact of higher construction costs as input prices increased. Despite the increased prices, the report said that local demand for residential units continued to be strong and was expected to remain steady. It said that residential rentals had remained stable across the market, primarily targeted to expatriates with contract values in foreign currencies, adding that there had been increased demand for rental properties from locals waiting for their own units to be delivered. “Although the exchange rate is generally capped below the market rate, this has allowed landlords to curb the full effect of the currency floatation”, the report said. Underlying domestic demand always remain strong in Egypt due to the population base, said Ian Albert, regional director at Colliers International MENA, a global leader in real estate advisory services. “Aside from domestic demand, which has been dampened by the devaluation, we identify that for second homes, 98 per cent of the market is purchased by Egyptians,” Albert told the Weekly via e-mail. The floatation of the pound has also caused difficulties for many real estate developers concerning contracts signed for off-plan properties before the pound's floatation. Albert said that projects under construction have seen a significant increase in costs, especially for those imported construction components. He said that the issue is that with units sold off plan at pre-devaluation lower rates, there is a mismatch between the lower purchase price and the increased construction costs, adding that it is too early to see how this will be resolved. Al-Shorbany said that some companies had been impacted negatively by this situation, but his company had been able to mitigate this with few losses. “Due to our close follow-up of the issue, we were able to contain the problem quickly, and the company incurred only a small loss that did not exceed 15 to 20 per cent in each unit sold off-plan,” Al-Shorbany said. The JLL report said that contractual revisions had also occurred across the real estate sector that had alleviated the negative effects of increased activity costs on market participants. “Following the increase in unit prices in pound terms, many developers are now offering more lenient and attractive payment plans to alleviate the effect of the decrease in purchasing power,” the report said. The office space market was the sector most negatively impacted by the floatation, as most contracts are quoted in dollars and rentals therefore effectively doubled following the currency floatation. The report said that many occupiers had responded by seeking to consolidate their real estate holdings, while landlords were responding to the revised market conditions by capping dollar rates, offering leases quoted in pounds, or coming up with short-term incentives to stimulate demand. The biggest beneficiary from the floatation was the hotel and tourism industry, as Egypt has become a more affordable destination for international tourists. JLL said that demand was expected to pick up significantly, as security issues are being addressed, more tourism promotion campaigns are taking place, and travel bans have been removed. The report said that occupancy rates had increased significantly year-on-year to reach 69 per cent to January 2017, due to the pick-up in tourism activity on the back of government efforts to enhance airport security as well as the development of inbound tourism from neighbouring Arab countries. Tour operator Thomas Cook told Reuters recently that there were signs of a recovery in travel to Egypt. It said that after a tough year in 2016, early signs showed that customers were beginning to come back to the country. Though increased costs and uncertainties resulting from the devaluation of the pound late last year have negatively impacted most sectors of the real estate market during 2016, it seems that these are now benefiting from the situation and trying to mitigate any negative impacts. Egypt's real estate sector has historically thrived in tough times, driven by solid demand and strong fundamentals. This was demonstrated in this year's edition of the real estate exhibition Cityscape Egypt held from 31 March to 3 April in Cairo. The four-day exhibition had over 90 exhibitors and attracted a record number of visitors, according to a press statement. The statement said that the sixth edition of the exhibition had seen a significant increase in the number of visitors compared to the previous year, as well as a big turnout on promotional offers and discounts on real estate units that would in turn help boost the market.
