The real estate market underwent drastic changes following the decision to liberalise the exchange rate of the Egyptian pound in November 2016, the most prominent of which was the high cost of implementation and hence the hikes in prices by between 30% and 50%, a high rate that raised fears among developers in the market. However, the strength of demand and flexibility of payment methods have maintained a significant continuation of the real estate market’s operations.
The government’s recent decision to increase fuel prices, for the fourth time in two years, raised fears about the impact of the spike on costs of implementation, which may lead to a halt in the movement of sales during the coming period, as market experts and stakeholders said they expect an increase of 25-30% as a result of the decision. Thus, they demanded the need to gradually raise unit prices and innovate new mechanisms that support customers and maintain the flow of the market.
Sherif Ragheb, CEO of Grand Plaza for Real Estate and Touristic Investment, said that the recent price increases in general and the recent increase in fuel prices have a significant impact on costs of implementation and labour, which in turn affect unit pricing.
Ragheb said he expects developers may increase unit prices by a rate of 10-15% during the second half of the current year.
He pointed out that these increases must be carried out gradually and carefully to maintain customers’ willingness to buy, especially with their inability to bear any new financial burdens because of the lack of movement of purchasing power at the same rate of price increases. Further, he forecasted the possibility of decrease in demand in the real estate market during the coming period.
Meanwhile, the head of the Real Estate Investment Division at the Federation of the Egyptian Chambers of Commerce (FEDCOC), Mamdouh Badr El-Din, noted that increases are certain, but cannot be calculated now. In general, he said, there was an increase in the costs of transportation and labour, which wills add additional costs to unit prices.
A member of the board of directors of the Egyptian Federation for Construction and Building Contractors (EFCBC), Daker Abdellah, predicted that the real estate market will witness an increase of 25-30% in prices following the government’s decision to increase fuel prices.
Abdellah noted that unrealistic price increases are expected and are not in line with the real increase in costs resulting from the increase in fuel prices, due to the lack of market controls and the desire of a number of producers, traders, and real estate developers to make great gains.
Elite Real Estate Consultancy Managing Director Ali Gaber predicated that the increase will not exceed 20%, which should be reached gradually to maintain customers’ purchasing power and the volume of demand on projects.
Gaber said that if more increases occur, the market may witness a recession, especially given greater increases in construction material costs, giving an example of brick prices increasing by 45% after the fuel price hikes, predicting more increases in the costs of cement, labour, and advisory offices.
Ahmed Selim, chairperson and CEO of Brickzey Property Management, said that the increase in fuel prices was predicted and was not the first time the market witnessed such increase, adding that the effects of spikes in fuel prices on the real estate market appear about a month or two after the decision.
Selim noted that the natural increase is about 15%, affirming that the real increase on unit costs after fuel price increases should not exceed 3-5% on every unit.
He pointed out that the market has the ability to absorb such an increase due to the high demand and facilities provided by developers, denying any recession or bubble could occur in the sector.
He reaffirmed that developers have not requested the halting of marketing for their units and there have been no new alerts to increase prices, adding that the Egyptian real estate market can absorb the increases.
Ashraf Diaa, managing director of ERA West Associates, said that unit price increases were expected, whether fuel prices hiked or not, but he expected the increases may reach 25%.
For his part, Marseilia Group Chairperson Sherif Heliw said that the average natural price increases in the market range between 15% and 20%, which cannot be predicted by increasing the rate of price increases in the case of cutting fuel subsidies, pointing out that the market cannot afford more price increases.
Heliw added the rate of fuel price increases will be the same as the real estate unit increases, noting that any increase will be fully borne by the client.
Meanwhile, Ahmad Zaini, head of the Building Materials Division at the Cairo Chamber of Commerce, said that new increases in petrol and diesel prices will lead to slight increases in the prices of building materials.
Real estate prices will rise by at least 20%, as a result of the increase in fuel and electricity prices, according to Tarek Shoukry, chairperson of Arabia Holding and head of the Real Estate Development Chamber at the Federation of Egyptian Industries.
Shoukry added that increases in property prices are always associated with costs, noting, “the private sector is controlled by the industry’s input, such as construction materials, transportation, and labour. If there is a change in these inputs, the price of real estate will be immediately affected.”