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Real estate developers await stability in prices of construction material following pound's flotation
Published in Daily News Egypt on 07 - 11 - 2016

On Thursday morning, the Central Bank of Egypt (CBE) floated the Egyptian pound, setting a guidance rate of EGP 13 against the US dollar. The CBE gave banks in the market their own agency in setting exchange rates through the inter banking system.
Flotation means that the currency's rate will ultimately be decided by the market's forces of supply and demand. As expected, the flotation has brought about an increase in the prices of some goods, commodities, and services.
Shortly after the CBE announced its decision, the prices of fuel and petroleum products increased by 30-47%. By extension, the prices of transportation increased by 50% after the increase in fuel prices.
The real estate sector is waiting for the wave of price increases to strike its market following the pound's flotation. This particularly comes into play with the anticipated increase in the cost of construction material prices.
However, no increases in real estate prices have been announced, but stakeholders are aware that the probability is inevitable.
Those working in the real estate market anticipate that prices of units will increase by 20-30%, particularly in new cities.
Real estate developers are expected to re-price their projects being offered up for sale, but in return the pound's flotation is also expected to create a better investment climate to attract new investments and increase demand.
Daily News Egypt talked to real estate developers to understand what the expected impact of the pound's flotation on the sector will be.
Flotation contributes to rebound in real estate sector
Saudi-Egyptian Construction Company (SECON) CEO Darwish Hassanein said that the liberalisation of the exchange rate was a wise step taken by the CBE that will contribute to the return of stability in the market. Hassanein also expects that the decision will put an end to speculation and eliminate the unofficial market, which was causing a host of problems.
The real estate sector will take time to fully stabilise, noted Hassanein, who said that after this period of stabilisation, the sector is expected to rebound.
Hassanein noted that the stability of the US dollar exchange rate will contribute to the stability of the prices of construction materials and the reduction of the recent increases, which resulted from the successive and variable increases in the dollar's value.
Hassanein pointed out that the real estate sector has lately proven its ability to resist economic changes and challenges, and also managed to acquire customers' confidence as a safe haven to preserve the value of the currency in the absence of a stable exchange rate.
He explained that the demand for real estate in the Egyptian market is not only for housing, but it is a long-term investment.
Chairperson of Arabia Group Tarek Shoukry agreed with Hassanein, saying that the effect of the flotation on the real estate sector will be positive and will create an attractive investment climate that brings stability to the market. However, in the case of the US dollar's availability, it will mean the unification of the exchange rate and elimination of the informal market.
Shoukry added that, in turn, property prices would increase in varying proportions after the devaluation of the pound and will impact the prices of construction materials, which are a key aspect of the cost and determine the final price of the product [units].
Good step that was long overdue
Member of the Egyptian Federation for Construction and Building Contractors (EFCBC) Daker Abdullah said that the CBE's decision to float the Egyptian pound is very late and long overdue amid demands by investors to liberalise the exchange rate to fortify the Egyptian economy.
Abdullah added that a delayed flotation led to an increase in the US dollar exchange rate value by 30% compared to its real price, which harmed the market and contributed to price increases.
"The construction sector is waiting for a reduction in the prices of construction and raw materials, which have seen major hikes in the past months due to the increase of the dollar's value, which in turn affected construction companies and the rates of implementation of the projects," Abdullah said. "The last four months have witnessed a significant reduction in rates of completion of various projects."
He expected a decline in the prices of building materials and the continuation of regular work in real estate projects as a result of the flotation and stability in value of foreign currencies.
Stability in real estate prices over next six months
Head of the Real Estate Investment Division at the Federation of the Egyptian Chambers of Commerce (FEDCOC), Mamdouh Badr El-Din, said that floating the Egyptian pound is a good step and would contribute to promoting the Egyptian economy towards stability and overcome the challenges and extraordinary conditions that influenced investment in recent months.
Badr El-Din explained that the real estate sector will be enveloped by a state of anticipation over the next six months until the stability of prices of construction materials, followed by an increase in the volume of investments directed to the real estate sector.
Therefore, he forecasted that the coming period will witness stability in real estate unit prices over the next six months.
He noted that real estate companies suspended offering new phases of their projects during recent months as a result of the instability of the US dollar and the difficulty of pricing real estate units, which will be sold in instalments to clients. Hence, the flotation will stablise the dollar's value and will contribute to the elimination of developers' concerns regarding offering new units.
Post-flotation price increases
Mahmoud Maghawry, a real estate developer, said that all construction materials prices increased during the last two days at a significant rate after the state's decision to float the pound, where the dollar reached more than EGP 15 in some Egyptian banks.
Maghawry expected that real estate prices would largely increase during the coming period by no less than 25%.
Ibrahim Awad, a real estate expert, expected that property prices would increase by 15% to 20% during the coming period after the CBE's decision to float the pound.
Awad noted that real estate prices will remain high, and the prices of units will record notable hikes in the coming period, pointing out that the pound's flotation is inevitable and the government has to take appropriate action to protect low-income citizens of the expected increases in commodity prices.
Real estate developers will wait for partial stability of dollar's value
Maghawry explained that most real estate companies will wait at least until the end of the current month before making a decision to increase the price of their products, waiting for partial stability of the foreign currency's value and thus the stability of construction material prices.
Ashraf Diaa, the organisational development and human resource director at ERA Commercial Egypt, noted that developers will wait to see whether clients would accept the increases in the price of units or if they will buy units at high prices.
Re-sale market affected by the flotation
Diaa said that real estate prices increased a month ago since the serve devaluation of the Egyptian pound, which affected the re-sale market.
Diaa explained that people who re-sell their units have no choice but to increase prices or stop selling and wait for the stability of the pound's value.
Most real estate developers increased their unit's prices and developers that didn't increase prices made use of that in their marketing campaigns.
He ruled out that the developers will increase prices because the flotation didn't devalue the Egyptian pound's value, nevertheless, it would lead to a stability in prices.
Flotation positive for the sector, but negative on Egyptians' purchasing power
Yahia Shawkat, co-founder of 10 Tooba, said the flotation of the Egyptian pound is positive for the sector's activities; however, it has a negative impact on Egyptians' purchasing power. Currently, there is confusion in the market for construction materials to the recent economic decisions.
Shawkat added that prices will definitely increase, but the aspect ratio will be determined after several weeks, according to how much the prices of construction materials change and their impact on property prices. Conversely, foreign real estate companies that operate in the Egyptian market will benefit from the flotation in transferring their profit in hard currency abroad, which boosts foreign investment in the sector.

Price increases in property units will push for more pressure on clients who wish to own housing units, because the value of their savings in local currency declined due to high prices.

In this way, the decision to float the pound affected housing seekers twice, once because of higher prices in all products, second due to the devaluation of their savings and the growing gap between their access to a housing unit and decline in their purchasing power, according to Shawkat.

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