CAIRO: As property prices have skyrocketed in Egypt - mainly driven by hikes in construction material - it is new homeowners that will pay the price, argue experts during the Euromoney Conference. "Prices have gone up but to an extent that is not abnormal for developers. We are prepared for it, and the easiest [way-out] is to pass costs to investors, said Sameh Muhtadi, CEO of Emaar Egypt. "We expect further price escalation and therefore more increases of property prices in the future. Recent statistics show that property prices in Egypt have surged between 75-100 percent over the last year and a half. Construction costs have risen 30 percent since January, pressured by continued hikes in raw material prices, namely steel rebars and cement. In the period beginning 2006 till last February, property prices spiked to LE 4,000 per square meter, up from LE 2,500. In recent months, prices have jumped as high as LE 7-8,000 per square meter. Meanwhile, experts put costs of building a square meter of "low-cost housing units today at an average of LE1,500, compared to LE1,000 in December. From an investor's perspective, such hikes could present an impediment to buying real estate. However, from a developer's perspective, these hikes are only a reasonable adjustment in light of a booming demand. "Property prices were stagnant for almost seven years, which [jeopardized] the entire real estate market in Egypt, Muhtadi stated. "The current increase - ten percent annually - is reasonable and is in line with prices in other international markets. He added that increases in property prices would not mitigate growth in the real estate market, which will continue to strengthen. Maher Maksoud, CEO and managing director of SODIC, reiterated the same statements, adding that: "It is true that prices have gone up, but a huge number of buyers can still afford it.It is logical to pass some of the property price increases on to clients just to keep our profit margin. However, he said it has to be done up to a certain level so as not to drive investors away. The panel sparked controversy between the two developers and banking expert Fatma Lotfy, deputy chairman of Bank of Alexandria, who argued that ongoing hikes in property prices were not affordable by the majority of Egyptians. "Saying that prices are affordable, that is a too-stretched statement. You can't generalize this statement on the whole Egyptian market. Obviously these two gentlemen are talking about upscale consumers, she said. On this note, SODIC's Maksoud pointed to banks that remain reserved in offering mortgage finance schemes to developers, a practice that could help contain prices. The financing community, he said, needs to take into account developers' rising costs, from raw material to infrastructure development costs, if they still want to see growth in real estate and mortgage finance markets. "We maybe targeting the upscale end of the market, but it's because we have real demand from that segment, he said. "There is also strong demand on middle-income housing, but it is illogical to have this demand and very low liquidity given to us from banks. Why not have 15 percent of bank liquidity earmarked towards mortgages granted to developers, Maksoud suggested. "This will allow developers to build lands and allow the government to sell more lands. Lotfy explained that some banks lend real estate developers under the umbrella of project finance and not mortgage finance to avoid double finance. However, she again put developers on the hot seat saying their profit margins were increasing tremendously. "When lending costs increase in banks - as is the case today due to inflation - they increase by one or two percent. Meanwhile, the percentage of increases in real estate prices has jumped 100-200 percent. According to Maksoud, elevated costs of construction raw material has weighed on the entire property market. Developers, he clarified, are trapped in a situation whereby contractors refuse to sign contracts that extend over a three-four month period because of relentless upsurges in costs. Muddying the water were the rising costs of labor, which are expected to intensify over the next few months. Despite such hurdles, developers said they continued to enjoy an extremely promising real estate sector in Egypt. "Still with these increases, property costs in Egypt are still relatively cheap compared to other countries.. It's an adjustment, and we are not going to see radical changes, Maksoud stated. "But it's middle-income housing that is going to be the edge going forward.. It is middle-income housing that is going to be the most lucrative. Unlike luxury housing, middle-income housing uses land more efficiently as well as allows developers to sell more residential units. Muhtadi pointed out that Emaar Egypt is currently eyeing middle-income segments and is looking into diversifying its projects to appeal to them. However, both developers stressed that luxury and upscale housing were still in demand in Egypt. "Will there be an oversupply? It's possible. That's why developers need to be smart enough to develop their projects and target different segments of society, Maksoud said. He added that one way to open up potential for middle and lower housing markets in Egypt is through offering bigger and longer-term loans to developers with fixed income rates, a step that would unleash huge demand for this housing segment.
