EGP float opens a new page for real estate developers: The real estate sector is preparing to move on from a difficult period marred by fluctuating prices of essential inputs and difficulties pricing units, with the government’s decision to liberalize the exchange rate causing an immediate shift in investment prospects and the overall outlook of the market moving forward, industry insiders told Enterprise.

But despite recent challenges, top developers doubled their sales in 2023: The country’s top 20 real estate developers saw their sales more than double in 2023 to over EGP 700 bn as investors flocked to the real estate market to hedge against a weakening EGP, Cairo-based consulting firm The Board Consulting said last month in its annual real estate report. However, “the sales volumes did not experience the same level of appreciation,” the consultancy’s chairman Ahmed Nazmy said.

The stability of production input prices represents a “new beginning” for developers, the chairman of steel distributor El Massia, Khaled El Degwy, told us. Around 75% of the sector’s main inputs in the building process depend on imports and are therefore greatly affected by changes in the USD’s exchange rate in the local market, El Degwy adds. Building materials being priced according to the official exchange rate and the absence of the parallel market will give the real estate sector more stability in the coming period, El Degwy continued, saying that he rules out any price increases caused by the instability of the exchange rate and fluctuations in the prices of building materials moving forward. Beta Egypt Chairman Alaa Fikry was similarly hopeful about the sector’s future, telling us that the sector is on the verge of unprecedented investment inflows and a rise in the rate of demand from both local and foreign investors.

The market is currently in a state of calm, but the sector is expecting it to be followed by a boom in sales, New Cairo Developers Association chair Mohamed El Bostany tells us. Setting fair prices on units will solidify that stability even further, El Bostany adds, saying that setting price averages for units by area will attract more liquidity to the sector and ensure that units are being priced according to feasibility studies, especially with the stability of the exchange rate and expectations of more foreign currency liquidity.

A SOFT REBOOT FOR THE CONSTRUCTION INDUSTRY-

Big growth projections for Egypt’s construction sector: Fitch Solutions sees Egypt’s construction sector growing by 7.5% y-o-y in the current fiscal year and by 7.9% for the next fiscal year, outperforming the sector’s growth rates in other in the MENA region countries until 2033, it said in its Egypt Infrastructure Report.

Contractors in the construction sector are re-evaluating their business models following the government’s recent cuts to public spending and the decision to push back any new projects until at least 30 June 2024, Egyptian Federation of Construction and Building Contractors head Mohamed Sami Saad tells us.

Remember: The government’s recent decision to cut public spending has been particularly difficult for the construction industry, which had already been suffering through a liquidity crisis triggered by the devaluation of the EGP, in addition to pricing difficulties and raw material shortages, Saad previously told Enterprise. The government also pledged to dish out some EGP 40 bn in compensation to contractors who have suffered losses on state projects due to macroeconomic headwinds.

All roads lead to the Gulf: The sector has mostly been immersed in the local market for the last eight years due to an unprecedented volume of work in infrastructure — plenty of which came from state-sponsored projects, Saad said. Now, regional expansion will provide an alternative path for the construction industry, as it begins to shift its attention to countries in the Gulf and others. Gulf markets in particular provide a large and stable destination for Egyptian contractors, and many companies are also looking towards Libya, Iraq, and some markets in Africa, Saad continued.

Saudi companies are offering more to Egyptian firms, but business has been hindered due to the letters of guarantee being denominated in SAR, Saad explained. However, the federation will soon meet with the Central Bank of Egypt to work on a solution, Saad said, adding that an alternative guarantee mechanism could also be agreed on to facilitate the entry of Egyptian companies into the kingdom.

But, financing is a problem for both the real estate and construction sectors: The high financing rates, coupled with the increase in interest rates, are currently among the biggest obstacles for both markets, Fikry told us. However, given the recent positive developments, Fikry expects the coming period to witness huge investments in the real estate sector. Meanwhile, Saad said that he is looking into submitting a request to the cabinet to maintain the current interest rate on corporate loans without any changes.

Your top infrastructure stories for the week:

  • Chinese state-owned construction giant could establish a medical city in the new capital, which would house 18 specialized clinics, research centers, labs, and a blood bank. China State Construction Engineering Corporation will also build a residential area and hotel to cater for medical tourism.
  • Two new recycled plastic factories courtesy of BariQ: Intro Group’s recycling company BariQ is setting up two recycled plastic factories in Sixth of October this year with combined investments of USD 30 mn.
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