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Real estate insiders say Egypt's market may see 'readjustment'
Published in Daily News Egypt on 23 - 11 - 2008

CAIRO: Global financial turmoil may be painful for the Egyptian economy, but top real estate executives as well as researchers said on Sunday it could also weed out property and bourse speculators looking for quick cash and help curb spiraling prices.
While few expect to escape unscathed from the worst financial crisis in 80 years, real estate executives told an American Chamber of Commerce conference demand on real estate in the country would continue to grow, albeit at a steadier rate than the giddy days of a booming property sector.
Housing Minister Ahmed El-Maghraby said, the "real estate market in Egypt is unique in its structure. Population will grow 20 million over the next 15 years, and that's the lowest estimate. This reflects positively on real estate in Egypt. We are talking about a secure market and not a market that needs effort to create demand.
The minister added that the Egyptian real estate market enjoys 99 percent real demand that is mostly cash-driven and does not rely on mortgages.
"Our real estate market is cash-based and is not overburdened with mortgages, which is a quality that is not present in most countries, Maghraby said.
Sameh Muhtadi, CEO of Dubai-based Emaar Misr, said, "Our assessment is that the market is still in its infancy stage. A lot of this talk about a slowdown is on paper only. The market is still [largely untapped], and we remain very confident in its potential.
"Still, there's going to be a correction. It's a natural phenomenon.. But if you compare the Egyptian market to the region, there's still room for growth in Egypt, he added.
In the United Arab Emirates, home to the region's glitzy real estate boom, the market is showing signs of collapse due to the global credit crisis, as prices fall sharply and buyers struggle to get mortgage loans.
According to news reports, Dubai's property sector suffered a series of blows this week after brokers confirmed a rise in distressed sales, a real estate guide downgraded its rating on residential property, and an Islamic lender suspended new loans.
Distressed sales of Dubai property are increasing as investors rush to offload homes under pressure from the global credit crisis, real estate agents said last week.
In Egypt, developers argue it's a different case altogether, as relatively higher growth rates, cooling property prices, and a steady population growth will cushion fallout of the global credit crisis.
"Over the next [couple of] years, we will see ease of a once-overshooting prices .but there is still very strong fundamental reasons to believe that demand will continue to grow, said Maher Maksoud, chairman of Sixth of October Development and Investment Company (SODIC) - Egypt's second largest property developer.
He cited strong demand from middle-income market segments as well as demand on office spaces. "Middle-income housing will be the biggest component of the market.. This is a segment that didn't exist before, but is now here to stay.
"I think that the [market] boom is real. The word boom scares people because it's like a bubble that could deflate, but what we are seeing now is a re-adjustment which was needed, he added.
Egypt prompted a real estate boom across when it opened up its property sector to Gulf and foreign investment almost two years ago. An economic-liberal Cabinet appointed in 2004 auctioned off vast land plots to real estate developers, which created a new construction wave of suburban-communities on the outskirts of the Arab world's most populous country.
A total of $53.4 billion investments have been poured into Egypt's real estate sector, with 67 percent of projects being built up by Gulf developers, based on data from Concord International Group.
As more extravagant developments have recently launched in Egypt, the buzz has attracted a growing number of cash-loaded buyers in need of homes and offices. A spin-off however fueled property prices which bloated to around seven-fold income rates of middle-income citizens.
"In Egypt, we have two types of real estate markets, said Suha Najjar, managing partner and head of research at Pharos Holding for Financial Investment. One, she explained, caters to luxury/high-end market segments that is facing crisis because of lack of fundamentals that support these prices coupled with an over-supply.
"The other type is the one addressing the 76 million people, the majority of which are in need of desperate need of adequate housing but are ignored by the market.
While the ongoing financial turmoil has seeped frisson of fear into Egypt's luxury building, middle/low-income housing is the segment that can drive growth. "Developers are reluctant to cater to this market segment because of lack of affordability, Najjar pointed out. "But now is the time to allocate resources and accept lower-margins to keep the wheel going.
Sherif Raafat, vice chairman of Concord International Investments, agreed, saying that higher interest rates plus rising housing prices are hurdles that stand in the face of lower-income housing.
"Combine the two, and you can't afford to buy houses, he said. "We have a social housing problem in Egypt.. We don't have [enough] developers addressing affordable housing. And that is the role of both the government as well as the private sector.
Battling inflation rates that hiked to 21.5 percent in the year to September piled pressure on the central bank to raise interest rates six times this year.
Even before the global crisis, analysts were warning property prices were overheating and inflation was becoming a political hot potato as food and oil prices soared. Some analysts argue developers have already begun to scale back or delay major expansion as credit lines close but slower growth means inflation in has also begun to show signs of cooling.
"Most of Egypt's inflation is due to external sources such as rises in international food costs and fuel, pointed out Patrick Gaffney, vice president of equity research at Egypt-based investment bank EFG-Hermes. "But prices of these commodities are declining internationally, so Egypt can benefit from these falls. In the next year, we expect inflation to gradually fall by 300 points which would create room for lower interest rates.
"A 13-14 percent mortgage rate will very unlikely drive demand unless interest rates go down significantly, he added.
In the face of uncomfortable ripple effects of the credit crisis, Gaffney expects property sales to be volatile. "Sales will probably trade volatility because people don't have any idea how these projects will be built or sold, despite the fact that companies' balance sheets are good, he said.


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