{"id":546317,"date":"2022-05-11T03:57:53","date_gmt":"2022-05-11T03:57:53","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/hardhats\/what-are-egypts-real-estate-developers-doing-to-reduce-the-fallout-from-inflation-and-the-devaluation\/"},"modified":"2022-05-11T03:57:53","modified_gmt":"2022-05-11T03:57:53","slug":"what-are-egypts-real-estate-developers-doing-to-reduce-the-fallout-from-inflation-and-the-devaluation","status":"publish","type":"hardhat","link":"https:\/\/enterpriseam.com\/egypt\/hardhats\/what-are-egypts-real-estate-developers-doing-to-reduce-the-fallout-from-inflation-and-the-devaluation\/","title":{"rendered":"What are Egypt\u2019s real estate developers doing to reduce the fallout from inflation and the devaluation?"},"content":{"rendered":"

<\/a> What are Egypt\u2019s real estate developers doing to mitigate the fallout from inflation <\/strong>and the devaluation? <\/strong>Egypt\u2019s real estate sector is being substantially impacted by soaring raw material price increases from the war in Ukraine, along with the recent interest rate hike and EGP devaluation, several leading players told us recently<\/a>. Today, we look at what the industry is doing to mitigate the short-term impact of cost increases, how consumers could be affected, and whether we should expect delays in project deliverability.<\/p>\n

Real estate companies have been holding talks with the government to explore ways of tempering the short-term fallout from price hikes, <\/strong>say sources. \u201cA lot of meetings were held with government officials,\u201d Redcon Construction Chairman Tarek ElGamal tells Enterprise. The government has since been seriously considering giving time extensions on projects and perhaps temporarily removing the interest on land payments, he adds.<\/p>\n

They\u2019re also holding talks with each other: <\/strong>Many conversations are taking place between developers \u2014 especially those in joint development partnerships, MNHD CEO Abdallah Sallam tells us. \u201cEveryone\u2019s talking about the effects of the current economic challenges on consumer prices, and how big of a hike they\u2019re willing to take, as well as construction costs and how to protect margins. Everyone\u2019s testing the market.\u201d<\/p>\n

Some steps, including repricing, are already underway: <\/strong>Renegotiating the cost of raw material procurement with suppliers and repricing company inventory can offset recent cost increases, ORA Developers CEO Haitham Mohamed tells Enterprise. ORA has sold 20% of its total inventory, meaning it can amend the prices it sells the remaining 80% for, he adds. O West applied a 10% pricing increase on its units at the beginning of April, and will likely apply more price increases throughout the year, CEO Tarek Kamel tells Enterprise. MNHD is in strategic talks with construction companies or contractors \u2014 both on controlling the cost of construction and innovating with the terms of payment \u2014 says Sallam.<\/p>\n

While some players aim to cut costs and diversify their product mix strategically: <\/strong>Limiting the hit to profit margins isn\u2019t just about repricing, notes Sallam. \u201cWe also need to look at cash flow management and financing, and be more efficient with our hiring and corporate expenses,\u201d he adds. \u201cSometimes, in moments of crisis, it\u2019s actually the time to spend a bit more in particular areas \u2014 which is exactly what we\u2019re doing.\u201d MNHD is accelerating a strategic plan that involves reviewing its product mix, potentially introducing new, higher-margin products, and making use of value engineering<\/a> to cut costs effectively, Sallam says.<\/p>\n

How will all this affect consumers? A possible average price increase in the real estate market of 30% in 2022:<\/strong> \u201cInitially, before the war and the change in the FX rate, we expected a price increase of 10-15% in the market this year,\u201d says Kamel. \u201cBut now I think it will be around 30%,\u201d he adds.<\/p>\n

Despite these challenges, developers are committed to their deadlines: <\/strong>\u201cWe hope this situation doesn\u2019t affect our schedule for deliveries \u2014 as quick delivery will help mitigate cost risks,\u201d says Sallam. MNHD is about to award a new construction phase to a contractor, and everyone\u2019s still committed, he adds. O West is also fully committed to its contractual delivery dates, and should start delivering by the end of 1Q 2023, says Kamel. ORA, meanwhile, is even hoping to deliver ahead of schedule, says Mohamed. \u201cWith the impact from inflation and the devaluation, once we sell, we engage contractors and fix the prices. If you work faster, you can minimize the hits of inflation and devaluation by delivering as soon as possible,\u201d he adds.<\/p>\n

It\u2019s difficult to predict when the current market volatility might stabilize,<\/strong> sources note. The recent price spike was very sudden, notes ElGamal. \u201cIt\u2019s not like the one that started in 2005 when the market was overheated, which took three years to peak. This one happened in days, and it\u2019s not easy to predict how long it will last,\u201d he adds. Sallam expects more clarity in the coming quarter: \u201cThings will be clearer, whether this is a global crisis, or whether our market will stay resilient, adapt to the new measures and keep its momentum.\u201d<\/p>\n

But overall, there\u2019s still optimism about the future of the real estate sector: <\/strong>\u201cEgyptians always find safe haven in real estate, and trust the sector as a place to grow their investments,\u201d says Sallam. \u201cLooking at the macroeconomics of the industry, I don't see it slowing down anytime soon. Supply falls very short of the real demand in this country. And when it comes to the housing industry, we're talking about a crucial product,\u201d he adds.<\/p>\n

Could the issuance of proposed government regulations dampen that enthusiasm? <\/strong>Proposed new government regulations<\/a> that could potentially prohibit developers from selling units in a development until they\u2019ve completed<\/a> 30% of the project \u2014 which have not been implemented \u2014 could face pushback from the industry, notes a legal expert speaking on condition of anonymity. Though the aim of the regulation would be to protect buyers and the market from bubbles and large-scale fraud, it would also punish financially solvent developers that operate legally and ethically, the expert adds.<\/p>\n

Real estate players we spoke to agree the sector would benefit from some form of regulation: <\/strong>\u201cI think government intervention when it comes to the real estate market is well needed at this point in time,\u201d notes Kamel. \u201cIn the last few years, the market attracted many entities that aren\u2019t necessarily up to the right operational standard,\u201d he adds. It\u2019s the role of the government to put regulations in place to protect both developers and customers, and the intention behind these proposed regulations is good, says Sallam.<\/p>\n

But some would prefer less dramatic measures: <\/strong>These particular regulations could constitute one more challenge for a market already facing its fair share of challenges, Sallam notes. \u201cI\u2019m confident the government will cooperate with developers to introduce practical measures that regulate the market without stifling it,\u201d he adds.<\/p>\n

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