Reduced consumer confidence on the back of the novel coronavirus (COVID-19) pandemic has led to a decline in real estate sector sales figures. The decline comes as consumers have generally adopted a “wait and see” strategy due to the ongoing global health crisis.
With most sectors reporting a decline in figures for the first quarter (Q1) of 2020, real estate companies have seen their sales targets for 2020 become increasingly difficult to achieve.
Abu Bakr Imam, Head of Research at Sigma Capital, believes that the pandemic has caused real estate company sales to be limited to residential units.
This excludes commercial sales or land sales, as these two latter segments are concluded in the event that an organisation wants to expand. Given the widespread and large-scale economic impacts of the coronavirus, this would be an unexpected scenario, Imam added.
Since the global implications of the coronavirus became truly apparent in March, many clients decided to postpone the decision to purchase new units. This had a knock-on effect on sales and deliveries of units, as customers preferred to stay at home rather than receive their contracted units. With customer interest and purchasing power depressed, as the economy took a hit, real estate companies reported slumps in their revenues and profits.
Imam added that despite the economy being affected by the current crisis, it is anticipated that Egypt’s real estate sector will see a strong return following the crisis. He noted that it is important for the real estate market to adopt new methods of marketing their products, to revitalise the sector.
Pharos Research expects that real estate sector sales will decrease by 60%-70% year-on-year (y-o-y) in 2020, due to the coronavirus pandemic.
As a result, it expects sales prices to rise by 5% starting from 2022 after a period of fixed prices, with costs set to rise by 10% annually starting in 2021. Pharos Research also predicts that companies will introduce a schedule of instalments that extends to eight years.
Regarding the collection of dues, default rates are expected to increase in the current year, an effect of the global pandemic that has already been demonstrated in first quarter (Q1) results. Construction has also begun to slow in 2020, leading to a decrease in unit delivery rates, revenue, and profits.
Earlier in July, a number of real estate companies announced the results of their Q1 of 2020 operations. Most have witnessed an uneven decline in profits and revenues, while a number of them achieved a decrease in real estate sales.
Although the year kicked off to a strong start with companies confirming strong performances across all operating sectors during January and February, this fell apart in March due to the unprecedented conditions caused by the coronavirus.