While the global business press forecast double-digit real estate price falls in Dubai, industry insiders in Egypt see prices going the other way, with the local business press awash with news of an incoming 20% rise in prices. Whether these price rises will materialize or not, developers are already halting sales until they can work out a fair pricing structure and the impact of the war becomes clearer, industry insiders tell EnterpriseAM.

The price is right?

Predictions of an incoming 20% rise “cannot be considered exaggerated by any means,” but may instead be a “realistic and cautious estimate under current circumstances,” The Land Developers CEO and Eltayebi Real Estate Development Managing Director Omar El Tayebi tells us.

And a pre-existing slowdown in sales could limit developers’ ability to raise prices without triggering further stagnation, which may lead many developers to choose to absorb part of the cost increases to maintain sales momentum, New Cairo Developers Association Chairman Mohamed El Bostany tells us.

While increases are expected, determining the appropriate rise requires careful analysis to avoid negatively impacting the market, Real Estate Development Chamber Chairman Tarek Shoukry tells us. Developers will be cautious before deciding to increase prices due to the current “gap between prices and purchasing power,” which has been weighing on the market, Tatweer Misr CEO Ahmed Shalaby explained to us.

But some in the industry think real estate prices rising by a fifth may be an overestimation, with Shalaby arguing that “appropriate increases at this time should be limited and calculated, potentially ranging between 3% and 5%,” which should be seen as part of “natural annual increases linked to inflation, which typically range between 10% and 15%.” El Sayyad Group CEO Khaled El Sayyad similarly said that “talk of a 20% increase may be exaggerated at this time,” and argued that while construction costs, exchange rates, and financing are applying pressure, increases should be tied to actual cost developments rather than understood as a fixed, market-wide percentage.

What’s driving prices?

While the impacts of the war are still mostly unknown, price increases provide a “safety margin” for developers in case of “sudden and unexpected fluctuations in global supply chains,” El Tayebi adds. With developers already committed to delivering units, this measure is meant to help “ensure that construction operations do not halt and that final delivery dates are met.”

Project costs will feel the heat from the conflict in several ways, with spikes in the cost of steel and aluminum — driven by recent fuel price hikes adding to production and transport costs — pushing developers’ expenses higher, to the point where some aluminum manufacturers have suspended their own pricing, Shoukry tells us. Shalaby pointed to energy prices, and not the exchange rate, as the “real challenge” due to the knock-on impact of “increased costs for transporting raw materials, labor, and execution, in addition to its impact on the general cost of living.” El Sayyad also highlighted higher financing costs as an additional burden.

But forecasts can be wrong

It’s still too early to determine the scale of potential increases in property prices, Shoukry explained. The global rise in energy prices has disrupted confidence in future pricing, and developers should wait for a clearer reading of the market environment before announcing new rates, he added. While increases are expected, determining the appropriate percentage requires careful analysis to avoid negatively impacting the market, he explained.

If the war persists, companies that sold units at deep markdowns before the war to attract liquidity during construction may face severe financial pressure, Fathallah Fawzy, head of the Egyptian Businessmen Association’s Real Estate Investment Division, warned in comments to EnterpriseAM. The longer the war goes on, the more costs and, in turn, property prices are expected to increase, he added.

While rising costs will weigh on the entire sector, larger companies are likely to fare the turbulence better, and not face the risk of land withdrawal that smaller developers will. Developers’ ability to adhere to construction timelines and delivery schedules will largely depend on their financial strength and liquidity position, Shoukry similarly tells us.

But a quick end to the war is expected to result in a “a strong and accelerated V-shaped recovery,” as those who had deferred buying houses on account of the wartime uncertainty would immediately turn to the marker, according to El Tayebi. This uptick in interest will “inevitably lead to massive capital inflows, especially from Gulf and foreign investors who realize that real estate in Egypt is still valued below its true worth” compared to other nearby markets, he added.

“Should stability return quickly, the market is likely to return to its normal trajectory, especially since the genuine demand for real estate in Egypt remains strong,” Imkan Misr CEO Ahmed Aref said, pointing to the market’s fundamentals.

We’ve been in this situation before

The country’s real estate market has “absorbed similar and even larger increases in the past” because home buyers kept up demand in the belief that real estate remains a safe-haven asset and that “delaying a purchase decision today may mean bearing a much higher cost in the near future,” El Tayebi says.

Despite rising house prices, the EGP falling against the greenback could push some to return to real estate as home buyers look to the sector as a store of value during inflationary cycles, as they had done in previous economic squeezes, El Bostany says. “Previous experience indicates that real estate remains one of the most important savings and investment tools for Egyptians, especially during times of economic uncertainty,” Aref tells us.