Egypt’s 38% currency devaluation in March is undoubtedly cooling the country’s real estate market. According to a top developer, that is exactly what the property market needs.
“There was a bit of frenzy going on before the pound’s devaluation,” said Mohamed Amer, CEO of El Gouna, an upscale community project that is part of the Orascom Development network. “Some of the buying activity was understandable because property is seen as a store of value. Even then, there was an unusual type of surge happening earlier, and something Egypt’s real estate sector would have found hard to sustain.”
The devaluation move went into effect in March, but investors in the North African market had long anticipated it. Some of them may have been surprised by the actual extent of the devaluation, which was 38%.
It’s still early days from the government’s move, and various sectors are still filtering the effects from it. As for property, “We are back to ‘normal’ supply and demand,” said Amer. “What I mean by that is demand is still quite strong. There is nothing like a total absence of demand.
“The current situation provides clarity for developers – in our case, prior to the devaluation, our cost base was not very clear amidst all that speculation. Also, it was difficult when it came to importing raw materials for the projects. We had situations where raw material prices were changing almost on a daily basis.
“What we are seeing now is a whole lot of stability.”
Amer’s sentiments are consistent with what other developers and real estate sources have said about Egypt’s real estate situation following the currency value changes. Recently, a top official at Aldar, a major shareholder in Egyptian luxury developer SODIC, stated that hedging was being done on both the project and sales sides to account for the devaluation.
On the demand side, recent Egyptian property launches have attracted buyers from the Egyptian diaspora, the GCC and other Middle Eastern economies, and a growing number of first-time European investors.
Helping set the pricing
Amer says that setting property prices has become easier and more transparent once the devaluation clocked in. “Earlier, when pricing real estate, you had to assume a certain level of inflation and other contingencies, and those levels were pretty high,” he added. “It’s gone back to normal now and reflected in the final price for the property buyer.
“So, even if there is a drop in investor activity post-devaluation, it’s going to be temporary. When that demand returns, it’s going to be real demand that shows up.”
Orascom Development has been attempting to gauge demand by holding a recent roadshow in the UAE before moving on to Saudi Arabia and other markets. There’s also a trip to the United States. Aside from El Gouna, it includes O West and Makadi Heights.
“At El Gouna, 40 percent of our residents to date are non-Egyptians,” said Amer. “There is a lot of demand for Egyptian properties from GCC nationals. We see it happening in the North Coast projects, and also seeing demand shift towards first homes in Cairo and also in the Red Sea.”
On whether the developer would consider delaying new launches until the market dynamics become more clear, Amer said: “Not so. We are planning a big launch soon, and it will be one of the biggest we have had. The plans related to new developments remain the same, whatever the situation on the devaluation.
“The fundamental demand for property investments in Egypt remains intact. That means we are not going to make any changes to our plans.”
