Amwal Al Ghad English - 2016-06-21 10:21:36
Investors clamour for real estate in face of Egypt’s weak currency and struggling economy
When an Egyptian real estate developer recently launched the first phase of a residential project in Cairo, thousands of people thronged the streets outside the sales office.
As customers jostled with each other to reserve units, boisterous arguments erupted, triggering a commotion that garnered national headlines. The chaotic scenes outside the offices of developer Mountain View were the latest indication of Egyptians’ surging interest in real estate as they seek to offset risk from the country’s plummeting currency.
The Egyptian pound has slumped 13 per cent against the US dollar since March, when Cairo devalued the currency in a bid to relieve a crippling dollar shortage. Inflation has since risen to more than 12 per cent — its highest level in seven years — while the lacklustre economy has struggled against a backdrop of fragile investor confidence and terrorist attacks that have hurt the important tourism sector.
The consequence is affluent Egyptians increasingly seeking security in bricks and mortar, fuelling a boom in the undersupplied real estate market — one of the few sectors performing well.
Mountain View estimates that in just one day, demand for units at the $3.6bn development in east Cairo was at least five times more than the 1,000 new homes under construction.
With the stock exchange volatile and expectation that the pound will slide further, analysts say property is viewed as almost the only safe repository of value. Real estate prices have been rising by about 20 per cent annually in parts of Cairo, experts say.
Khaled Bahig, chief executive of Coldwell Banker Egypt, a real estate broker, believes fears over the weakening pound account for about half of a 30 per cent rise in real estate sales this year.
“If you also consider that developers offer up to eight-year payment plans, then real estate can be considered to provide the best return,” he says. “Now with the dollar issue, it has come to top the list [of attractive investments].”
A dollar shortage started to be felt last summer and was exacerbated following the downing in October of a Russian plane which had taken off from the Egyptian resort of Sharm el-Sheikh. The attack, claimed by Isis jihadis, has devastated Egypt’s tourism industry, a vital source of foreign exchange, adding to the country’s economic woes.
Tarek Abdel Rahman, joint chief executive at Palm Hills Developments, said investors accounted for up to a quarter of his company’s sales over the past 18 months. “It started in 2015 with the currency crisis,” said Mr Abdel Rahman. “Last year we had a record year and this one too is shaping up to be another record year.”
Palm Hills booked 62 per cent more reservations for housing units in the first quarter of 2016 compared with the same period last year.
TMG, the country’s biggest developer, reported a year-on-year 25 per cent increase in contracted sales for the first quarter.
Hany Genena, head of research at Beltone Financial, an investment bank, said: “We are seeing extremely impressive results in the first quarter. Those working in real estate sales say there is a direct correlation with inflation. Some people are buying now because they are afraid they won’t be able to afford to buy for their kids in the future.”
However, he cautioned that despite the strong performance of real estate groups, companies’ share prices are on average 50 per cent below fair value because equity investors are worried “they will be caught at the peak of the tide”.
“They are still anxious that despite strong sales up to date, there could be a point when companies will launch new projects but there will be no buyers because affordability is becoming a key concern,” he said. More»