Ask anyone who’s tried to purchase a home in the last few months, and they’ll tell you horror stories about record high prices and bidding wars that either leave them empty handed or paying well above asking price.

With a housing market that’s been red hot for close to a year now, people are beginning to wonder how long the frenzy can last. The number of Google searches asking “when is the housing market going to crash”.

we remember well today, the way home prices rose and rose in the early 2000s, only to crash spectacularly in 2007 and 2008, bringing the rest of the economy down with them. But do rising home prices necessarily mean a bubble? And does a housing bubble necessarily have to end in a crash? What makes this housing market different? Could there be a ‘crash’? What about those who may have overpaid for a home?

There are occasional discussions about the eminence of a real estate bubble in Egyptian real estate market. However, generalizing this concept requires scrutiny, especially in light of strong indicators demonstrating the resilience of this market and its ability to confront challenges.

Real estate experts respond to the possibility of a real estate bubble forming in the Egyptian real estate market. 

Tarek Eid, CEO of Arabian Investment House Holding—the real estate division of Arabian Kuwaiti Group – stated that the Egyptian real estate market enjoys strong and sustainable demand, supported by high population growth rates and the cultural significance of property ownership, which is seen as a means of financial security. Moreover, major government projects, such as New Administrative Capital, have contributed to increasing the diversity of available real estate offerings.

• Genuine Demand, Not Speculation

Regarding the idea of a real estate bubble, Eid pointed out that most properties are purchased for personal use rather than speculation, which enhances market stability. Additionally, the government has imposed regulations on real estate development companies to curb speculation, while mortgage financing system allows for property purchases without creating a bubble.

Eid said, “Despite this, the market faces real challenges, including rising prices that impact purchasing power, a shortage of affordable housing for lower-income groups, and the need to develop real estate products that align with changing consumer demands. Egypt’s real estate market has demonstrated resilience in adapting to economic challenges such as currency devaluation and rising inflation. Companies have responded by offering payment facilitation and developing new marketing strategies, which have helped them continue to grow.”

He further added that the sector has seen significant developments with the emergence of innovative products, such as smart-space residential units designed to meet the needs of younger buyers. There has also been an increased demand for fully finished units, as buyers prefer ready-to-move-in properties without the hassle of additional finishing work.

Furthermore, the introduction of hotel-residential properties is a notable innovation that offers a promising investment opportunity by combining residential features with hotel services. This option has become attractive to investors due to the rising tourist demand and shortage of serviced units. 

• Property Investment Yields High Returns

Mohamed Taher, Chairman of Nile Developments and a member of the New Cairo and New Administrative Capital Developers Association, has refuted the possibility of a real estate bubble in Egypt.

Taher stated that such claims, often made by non-specialists, are unfounded. Property market in Egypt has never experienced a decline in prices historically; instead, it has proven to be a safe haven for preserving wealth and generating substantial returns despite various economic disruptions.

He dismissed the notion of a potential market collapse or recession as a myth, pointed out that those who chose projects wisely and signed contracts for units four years ago, even when there were concerns about a potential downturn, have seen significant returns. For instance, those who invested in 2020 have achieved gains exceeding 500% by 2024. The same trend will continue, offering similar opportunities for substantial returns over the next four years.

He added that prices are expected to hike significantly in the near future due to government measures already announced, such as increases in fuel prices, which will subsequently drive up the cost of steel, building materials, land, marketing, and sales. Therefore, the most successful investors in 2028 will be those who contract for carefully selected units in 2024, as this is considered an optimal time for real estate investment.

Taher also criticized the idea that properties are being sold at prices close to bank interest rates, calling it inaccurate. He explained that real estate companies operate within standard margins and consider such pricing as temporary, absorbing differences in capital costs.

He highlighted that a 32% discount by real estate companies would raise the price per square meter from EGP 80,000 to EGP 180,000, and high market competition prevents such drastic price increases.

Furthermore, Taher identified key reasons a client might lose money, including choosing the wrong project or developer. Partnering with a weak company or one that has not adequately studied the market or project can result in project failure or subpar execution, leading to insufficient returns.

A well-chosen property remains a key to sustainable wealth and stability. It appreciates over time, generates monthly income, and lays the foundation for a secure and prosperous future, he concluded.

• No investment risk

Mohamed Ghobashy, Chairman of Scope Developments, affirmed that real estate continues to be the most reliable investment option, a fact proven over the years.

Ghobashy explained that clients purchase property at a fixed price and pay for it over eight years, unlike gold, which is subject to speculation that drives its price above global levels and requires immediate payment rather than installments like real estate. These factors make real estate investment more secure and stable.

He added that clients face no risks from purchasing units due to financing shortages or price increases, as the developer absorbs any price hikes. Developers can protect themselves from price fluctuations by selling in stages according to execution needs and obligations, while retaining 20% of the land or unsold units to secure against risks or inflation spikes.

Ghobashy also noted that over the past twenty years, property prices have increased at least sevenfold every ten years.

Regarding the discussion of a potential real estate bubble in the Egyptian market, it’s important to clarify that such a bubble does not exist. A real estate bubble occurs when there is unreal demand leading to inflated prices followed by a collapse, which is not the case in Egypt. Here, the demand is genuine, construction costs are real, and pricing is based more on costs than on demand. The market remains balanced without extraordinary profits, distinguishing it from markets like the US and Dubai.

Future price predictions suggest that demand will continue to rise due to population growth, coupled with a shortage of available land and increased migration from older to newer areas for improved living standards. Demand will persist as it exceeds supply, with heightened interest from Arabs in new areas this year, along with a rise in the number of expatriates, driving up rental prices and supporting the need for residential purchases, Ghobashy disclosed.

“Additionally, laws allowing for Egyptian citizenship through real estate purchases will further increase demand, suggesting continued market growth. Real estate remains a secure way for Egyptians to safeguard their savings against inflation, both in the short and long term, being more accessible and stable compared to gold or the dollar,” he said. “Real estate investment is typically medium to long-term. If a buyer intends to purchase and resell within a short period, the resale may not be profitable, meaning the buyer may not achieve the desired returns. Thus, the issue is not with the guaranteed profitability of real estate over the years, but rather with individual investors seeking quick gains, which does not align with the nature of the real estate market.”

Mohamed Mostafa El Kady, a member of the Construction and Real Estate Development Committee at Egyptian Businessmen’s Association, stated that predictions of a real estate bubble in Egypt are inaccurate and not based on realistic economic data.

El Kady emphasized that a reduction in bank interest rates, as some suggest, will not lead to a similar drop in housing prices, noting that numerous factors affect real estate prices beyond just interest rates.

He explained that most real estate developers in Egypt do not rely on bank loans for financing their projects. Instead, they primarily depend on payments from buyers to fund the construction process. Developers collect these payments in stages, which are used to cover construction costs and pay for land installments until the residential units are delivered, typically within three to four years. Therefore, the anticipated impact of reduced bank interest rates is limited to the installments due after the project’s completion.