Recent developments and shifts in real estate market
Last November, the central bank of Egypt has decided to lift the restriction on the exchange rates allowing the Egyptian pound to float freely, depreciating its value by nearly half and resulting in a brief shock in the real estate market and chaos everywhere else.
This decision came as a direct result of the shortage of the US dollar. The landscape of tourism in Egypt has suffered dearly after the bombing of the Russian airplane in Oct 2015 by the Islamic State jihadist group. The collapsing tourism in addition to the decline in oil prices were major contributors to this currency issue, so the Egyptian government had no alternative than to appeal to the International Monetary Fund for a $12 billion loan in hopes to stabilize the economy. A loan which came with a number of key demands that included the devaluation of the Egyptian currency.
Few weeks after the devaluation, the real estate prices jumped up, most real estate developers increased their prices by 15 to 20%. At this point, a further increase in prices was highly anticipated, which pushed many people to invest in real estate taking advantage of the relaxed payment terms. Many believe that this sudden disrupt in the market resulted in a 30% increase in real estate sales last year.
All these factors collaborated into generating a substantial demand for real estate and creating a very promising investment opportunities in the near future. There are so many factors to consider when thinking about investing in real estate in Egypt, the following is a brief glance at each of them.
Investment and value
Real estate value has proven itself to be very stable over the years, despite the fluctuated economy especially after 2011 revolution, the value rises but never falls. Most of Egypt’s seasoned domestic investors choose to push their cash into real estate since it’s one of the safest options for investment regardless of the downturn of the past few years.
It is also anticipated that the prices will continue to jump to make up for the recent loss in value caused by the recent currency devaluation, as the demand continues to rise containing any future setbacks of the market.
The Egyptian real estate customer prefers not to take loans and to pay with cash, preferably in installments, also it has been reported by the American Chamber of Commerce that mortgage penetration rate stopped at 0.84 % of GDP in 2013. Both of those facts are major contributors to the stability of the housing market in Egypt and a safeguard against any potential bubble.
Despite all recent market changes, the demand for housing in Egypt remains huge, and it is mainly fueled by the fast-growing population of more than 90 Bn and with nearly 900,000 marriages happening every year and those newly-wed couples looking to move into their own new homes and invest in property for the future. This is considered a major contributor to the increased demand at all income levels. Also, upward mobile families are always looking to upgrade from small apartments to bigger ones and from big apartments to villas. New business owners and entrepreneurs are looking for prestigious offices and plants for their business.
Last April, at Cityscape Egypt, the country’s largest real estate exhibition, witnessed a record-breaking attendance. Most of the exhibitors represented there sold out their projects on the day, many of them were new launches. This is a clear indicator of how steady the real estate market is in Egypt and that the country is crammed with investment opportunities.
Industry experts indicate that private developers provide the market with about 20,000 units per year to cover the rising demand, but that supply still comes up short. Colliers predicts that almost 90,000 to 100,000 units will be needed per year by 2020 to fill the gap.
More than half the Cairenes are able to afford units in the $26,000-to-$35,000 range. While most private developers are offering units above this price range, the government is trying to provide more affordable housing through partnerships with the private sector.
Extended payment plans and payment facilities are key to assuring fast selling units across all price ranges.
The second home market
According to a white paper recently published by Colliers International, a global provider of commercial real estate services, the second home market is really booming in Egypt, which is mainly dependent on Egyptian nationals, as foreign investors represent only 2% of the market.
As most Egyptians prefer to stay in their own homes during vacations rather than renting a unit or staying at a hotel, they tend to look to invest in a second home specifically alongside the north coast, the Red Sea and South Sinai, focusing on their return on investment as a primary concern.
As the demand for the second home market increased lately, so did the supply. Real estate developers are racing to find the next hotspot, building fancy units there, and offering them back to the market with extended payment plans.
You can find that investing in a second home is a win-win opportunity. You and your friends can enjoy the rent-free vacation house on your vacations, and the rest of the year, you will be able to relax and enjoy the rent outcome while the resale price escalates. To avoid any potential headaches, maybe you should invest in a trusted realtor or a loyal property manager to handle your estate.
This new trend has been spotted lately among some of Egypt’s skilled brokers. What they do basically is that they book a property and pay the down payment, taking advantage of the relaxed payment terms, and then, probably after most of the nearby units are sold, they resell the property to another buyer and charge him for the down payment plus a commission. The contract is transferred between the real estate developer and the new buyer.
This simple affair guarantees them a decent chunk of profit in a relatively short time and with minimal effort.
Location, location, location
When selecting the best property to invest in, it is important to consider the location of this property. When it comes to real estate investment, location is vital. Trust me, no matter how fancy and modern your property, it will always lose against a bad location. Even the location of a home within a neighborhood is a large contributor to its value.
What makes a location so important is the fact that it can’t be changed. The condition, the price and even the size of a home can change, but not the location. You need to consider nearby facilities and schools, safety, and transportation availability.
Furthermore, It’s clear that the buyer’s decision-making process is highly influenced by common views, people will buy what other people think is cool. This fundamental fact is the explanation for the influence of strong communities on the value of properties.
A neighborhood where people share certain lifestyle preferences will attract more people who endorse this lifestyle and will eventually yield a significant increase in value. Besides the abundance of facilities and quality services, a community is the number one reason for the recent increase in demand for closed compounds units. This kind of gated communities or compounds offers higher levels of security which has been a pressing concern for most Egyptian families, expatriates in particular.