No one can deny that repercussions of the global crisis in all parts of the world and in all aspects of daily life, including real estate market, which will be affected after the recent decisions of Central Bank of Egypt’s (CBE) to raise the interest rate, which will have repercussions on the real estate sector.
Nevertheless, real estate developers confirmed that the real estate sector real estate sector remains the safest and most stable haven for Egyptians comparing to other aspects of investment, whether gold, EGX stocks, or foreign exchange.
Daker Abdellah, Vice-President of the Arab Union for Urban Communities, and member of the Real Estate Investment Division of the Federation of Egyptian Chambers of Commerce, said that the CBE’s increasing basic interest rates by 2% aims to maintain value of the Egyptian pound against foreign currencies, reduce inflation, and support economy.
The CBE decided to raise its interest rates by 200 basis points in its meeting last Thursday in response to the rising inflation.
Abdellah stated that property prices may be affected in the case of new savings certificates issued by banks with high interest rates. He highlighted that raising interest rates alone will not affect real estate prices, due to the CBE’s mortgage finance initiative, which adopts a 3% rate. Besides, prices of construction materials such as steel, scrap, aluminium, and others are declining significantly during the last period with expectations of a continued decline globally during the coming period.
He further elaborated that global markets recently witnessed a decrease in price of iron ore by 10% to reach $154 per tonne, and scrap price decreased by 14% to $484 per tonne, which in turn was reflected on Egyptian market.
He pointed out that the recent decline in steel prices in Egypt was not quickly reflected in its prices to consumers, because steel traders, when prices spike, raise the price of a tonne in Egypt immediately. Meanwhile, in the case of a global decline, the effect does not appear immediately on the pretext of the presence of steel stocks at high prices, and therefore it must be disposed of first and then sold at new price in new contracts.
The decline in steel prices locally would be reflected in an increase in the flow of construction and urban development in Egypt, as well as relative stability in real estate prices to a good extent, he explained.
Members of the Real Estate Investment Division called for the need to intensify campaigns of supervisory authorities on markets to control violators and impose control to guarantee selling commodities to consumers at its natural price without exaggeration or hoarding of commodities.
Additionally, real estate developers and experts confirmed that hiking interest rate will not be the main driver of price increases of property and recommended some solutions and mechanisms to get rid of the crisis of the valuation of dollar and Russian-Ukrainian war besides, high global inflation rate.
Meanwhile, Naguib Sawiris, Egyptian Tycoon, said that the CBC’s decision to raise overnight deposit and lending rates by 200 basis points, or 2%, is a correct and quick decision.
Sawiris noted in a TV statement that global repercussions of the Russia-Ukraine war greatly affected the real estate market by decreasing sales, saying that real estate prices witnessed an increase ranging from 15% to 20%; because of high prices of steel and cement.
He stressed the importance of replacing imported materials from abroad with local materials with little foreign component due to the difficulty of obtaining dollars at the moment, added that he increased his investment in gold, whose price increased by an average of 30% to 40%, while the value of the euro and bitcoin dropped.
Moataz Shalaby, the CCO of Menassat Developments said that investing in banking saving certificates ensures profitability for individuals reaches 18% over a year, but studies that have been conducted during the past twenty years have shown that profitability rate in property investment is usually 15-20% of the property price annually.
However, the advantage in the property is that real investment rate reaches 60 and 70% annually because customer takes an increase over the total unit price, but in fact, he did not pay the total unit price, but only down payment. For example, if customer own EGP 5m and has invested only EGP 1m in two properties as a down payment and the rest EGP 4m has been invested in bank deposit. The profit of the two properties will be equal to the profit of the bank deposit in only one year, Shalaby elaborated.
He further noted, “The experience said that property market has never stagnated or collapsed, with evidence that there at one time the interest rate on deposits and bank certificates amounted to 20%, however, the purchase of real estate continued. This proved that its profits match to the current circumstances such as inflation, while investing in deposits and certificates may be unsatisfactory profit to its owner because profits may not be commensurate with inflation rate.
Yehia Salama, CEO of A2Z Real Estate Marketing, called on the government and the House of Representatives’ Housing Committee to put in place incentive mechanisms to export real estate abroad.
Salama explained that the government must currently motivate non-Egyptian customers to invest in real estate, by granting some privileges such as exemption from taxes or granting him residence on the land of Egypt for a certain period.
He highlighted that it is necessary to have major exhibitions under the auspices of the state as well represented in its embassies and consulates abroad besides commercial representation offices outside Egypt in partnership with companies organizing major exhibitions. Furthermore, facilities and incentives must be activated for foreigners to purchase units such as fixed-term residence or nationality.
Additionally, currencies should be fixed when buying Egypt’s property and safe exit from them when selling, he disclosed.
Meanwhile, Abdel Hamid Al-Wazir, head of Arabesque Development and head of the Support and Follow-up Committee of the New Cairo Developers Association, explained that prices of iron and cement hiked significantly, which making some companies stop sales and other companies offering their units according to safe price to provide liquidity to enter into new projects.
Al-Wazir added that companies resorted to increasing their prices according to the fair price policy, which is the main driver for the continuation of real estate companies during the coming period.
He disclosed that real estate prices have increased by 20% during the last period, expected to reach 40% in light of the continuing repercussions of the Russian-Ukrainian war, pointed out that the most appropriate time to buy a property at the present time, due to increase in investment value of property year on year.
Some clients invest in bank investment certificates as an alternative to real estate, but it is better to invest in real estate, due to its combination of profitability and safety.
Ahmed Shehata, a real estate expert, said that the CBC’s decision to hike interest rates was expected in light of global economic conditions and the direction of the US Federal Reserve to raise interest rates and ensuing repercussions on global markets.
Shehata commented: “The decision’s impact on real estate market will not be negative, especially after the banks confirmed that they would not issue new savings certificates with high returns similar to offering 18% savings certificates as well as real estate sector remains the safest and most stable haven for Egyptians comparing to other aspects of investment, whether gold, EGX stocks, or foreign exchange.”