In the wake of the Central Bank of Egypt’s(CBE) foreign exchange rate unification five months ago, the real estate market, particularly in Greater Cairo, is anticipated to see reduced demand in the short and medium term, according to insights from key developers shared with Business Monthly.
In March, the CBE decided to allow the local currency to be determined by supply and demand, in line with its commitment to the International Monetary Fund (IMF) for a flexible exchange rate regime. Since then, the Egyptian pound has depreciated by over 60% against the US dollar, and the gap between the official and parallel market rates, which had reached 100% before the devaluation, has nearly closed.
“The unification of the exchange rate has already led to a slowdown in demand for housing units, as real estate is traditionally a safe haven for Egyptians seeking to hedge against inflation and exchange rate fluctuations,” Mohamed Abdalla, Chairman of Coldwell Banker Egypt, told Business Monthly.
Abdalla explained that the alignment of the exchange rates has made real estate less attractive to investors, particularly since developers are pricing units according to the US dollar rate. With the exchange rates now nearly equal, customers have turned to alternative investments such as certificates of deposit (CDs) and gold.
Residential demand
The Cairo residential sector showed resilience and a strong start in the first quarter (Q1) of 2024, with construction and handovers progressing at full speed, according to a July report by JLL. This performance was recorded before the CBEs unification of the exchange rate.
During this period, the report noted that over 7,000 units were completed, mainly within masterplan developments, contributing to a total stock of approximately 276,000 units. The report also projected around 24,000 units to be delivered throughout the rest of 2024. “JLL Research observed an average year-on-year increase of 83% in sale prices in 6th October, while rental prices rose by 42%. In New Cairo, average sale prices increased by 95% year-on-year, with average rents rising by 43%,” the report stated.
According to the report, Egypt set a new record in 2023 by welcoming nearly 15 million visitors, surpassing the previous high set in 2010. The report forecasts that this positive trend will continue into 2024, buoyed by a new initiative involving a substantial EGP 50 billion investment to enhance the tourism sector. Launched in 2024, this initiative provides loans and special incentives to encourage greater private sector involvement. It is part of the government’s plan to expand the country’s hotel capacity by nearly 250,000 rooms and attract 30 million visitors by 2028.
“Developers are now pricing units based on the inflation rate rather than the US dollar, which is expected to boost demand in the sector going forward,” Abdalla told Business Monthly.
How to attract investors?
Meanwhile, Tarek El Gamal, Chairman of REDCON Construction, noted that the recent devaluation of the Egyptian pound against the US dollar, coupled with increased remittance inflows from Egyptians abroad, has created a state of clarity and stability in the market. This environment is anticipated to encourage customers to invest with greater confidence.
“We can’t yet predict the demand trend in the sector,” El Gamal said. “However, the third quarter of the year, spanning from July to September, is typically the strongest for the real estate sector in Egypt due to the influx of tourists from around the world, particularly from the Gulf countries.”
El Gamal also emphasized the need for government support through the expansion of real estate investment trusts (REITs) and the establishment of specialized free zones for the real estate sector, similar to the Ras El-Hekma model.
REITs offer an attractive investment model by providing diversification and incentives for investors. According to Andersen Global, REITs, unlike traditional real estate investments which can be illiquid, are traded on the Egyptian Exchange, offering better liquidity. They also allow for portfolio diversification across various real estate assets and come with tax incentives due to the high volume of assets they manage.
El Gamal believes that adopting the REIT model will enhance the government’s efforts to export real estate to international markets, positively impacting the state’s budget and the country’s GDP growth.
He also noted, “The Ras El-Hekma development project will positively affect Egypt’s real estate market by promoting the North Coast as a key Mediterranean destination for European summer vacations.”
In February, Egypt secured a $35 billion deal with the UAE to develop the Ras El-Hekma coastal zone, marking the largest foreign direct investment (FDI) deal in the country’s history.
