EGYP­TIANS IN­VEST THEIR DOL­LARS INTO REAL ES­TATE, PUSH­ING PRICES UP 40% SINCE FLOTA­TION

DE­MAND KEEPS GROW­ING DE­SPITE UN­JUS­TI­FIED PRICE HIKES, SAYS HEAD OF BUILD­ING MA­TE­RI­ALS DI­VI­SION

The Daily News Egypt - - Front Page - By Shaimaa Al-Aees

THE LARGE PRICE IN­CREASES CAR­RIED OUT BY REAL ES­TATE COM­PA­NIES ARE UN­JUS­TI­FIED AND LARGE COM­PARED TO THE IN­CREASE IN PRICES OF BUILD­ING MA­TE­RI­ALS

THE EGYP­TIAN ECON­OMY FACES A CHAL­LENGE, NAMELY THE EX­CHANGE RATE AND RE­COV­ER­ING THE VALUE OF THE POUND

MOST REAL ES­TATE DEVEL­OP­ERS CLAIM THAT THE IN­CREASE IN PRICES IS DUE TO THE 100% IN­CREASE IN THE PRICE OF RAW MA­TE­RI­ALS AF­TER THE EGYP­TIAN POUND FLOTA­TION.

THE CEN­TRAL BANK OF EGYPT (CBE) HAD DE­CIDED IN EARLY NOVEMBERTO LIB­ER­ALISE THE EX­CHANGE RATE, WHEN THE DOL­LAR VALUE REACHED EGP 19. THERE­FORE, THE DEVEL­OP­ERS SEE THAT BIG JUMP IN DOL­LAR VALUE AF­FECTED THE COST OF RAW MA­TE­RI­ALS FOR THE CON­STRUC­TION PROCESS. COM­PA­NIES RAISED THE PRICES BE­TWEEN 15% AND 40%.

THE MA­JOR­ITY OF EGYP­TIANS ARE CHOOS­ING TO BUY PROP­ERTY AS A SAFE HAVEN AGAINST THE LARGE CHANGES IN THE VALUE OF THE EGYP­TIAN POUND, WHICH PROMPTED MANY COM­PA­NIES TO RAISE PRICES TO STIM­U­LATE CLIENTS TO BUY AT THE MO­MENT, IN AD­DI­TION TO CON­VINC­ING THEM THAT THE VALUE OF REAL ES­TATE IN­CREASES WITH THE HIGH PRICES.

A RE­CENT STUDY CON­DUCTED BY YOUGOV RE­VEALED THAT THE TREND OF 48% OF RE­SPON­DENTS WANTED TO IN­VEST IN REAL ES­TATE AF­TER THE POUND’S FLOTA­TION.

Tom Rhodes, ex­hi­bi­tion di­rec­tor of Ci­tyscape Egypt, said that real es­tate devel­op­ers have raised their prices by rates rang­ing be­tween 25 and 30%,fol­low­ing the de­ci­sion to float the Egyp­tian pound last Novem­ber.

Emad Al-Ma­soudi, the chief ex­ec­u­tive of the on­line por­tal Aqarmap, told Daily News Egypt that real es­tate prices rose dur­ing the last three months of 2016 by 16% to 35% dur­ing the year, while prop­erty prices in the pre­vi­ous year rose by 13%.

At the same time ,real es­tate prices dur­ing the first three months of the cur­rent year saw a monthly in­crease of 5%,record­ing a 15% in­crease dur­ing the to­tal three months. This in­crease is an ad­verse re­ac­tion to high in­fla­tion.

Al-Ma­soudi added that it is cer­tainly a cor­rec­tive case to ad­just mar­ket prices to match the dol­lar.

At the Ci­tyscape Egypt Con­fer­ence held in March, he said that real es­tate prices rose by 9% dur­ing one month af­ter the float­ing of the pound and rose again by 5% at the be­gin­ning of the cur­rent year, and then again by about 35% dur­ing the first quar­ter of the cur­rent year. He ex­pected that prices would con­tinue to rise to 50%, but not more than that.

Ashraf Dowidar, CEO of ARDIC for Real Es­tate Devel­op­ment, told Daily News Egypt that the com­pany raised its prices by 25%, adding that this in­crease came as a re­sult of the con­tracts signed with con­trac­tors at the time of hav­ing the price of the dol­lar at EGP 7,but that when the com­pany opened the door of book­ing units, the dol­lar reached EGP 12, up about 70%; and in the cur­rent pe­riod af­ter the flota­tion, the dol­lar value reached EGP 18 and the con­trac­tors are ask­ing for an ad­just­ment in the price.

There­fore, the cost of con­struc­tion in­creased by 100%, while the nat­u­ral in­crease in prices reached 40% to 50%.

“We are in­creas­ing with the ex­ten­sion of pay­ment to fa­cil­i­tate the process to the cus­tomer,” said Dowidar.

On the other hand ,Ashraf Sal­man, the chair­per­son and CEO of AUR Cap­i­tal and ex­ec­u­tive pres­i­dent of ARCO said that the com­pany did not in­crease its unit prices by more than 15% af­ter the flota­tion de­ci­sion, while main­tain­ing long-pay­ment pe­ri­ods set by the com­pany be­fore the flota­tion for up to 12 years.

Ashraf Diaa, the man­ag­ing di­rec­tor of ERA West As­so­ciates, said prices had risen twice, the first time be­fore the flota­tion and dol­lar ap­pre­ci­a­tion in March 2016 and the other time af­ter the flota­tion in Novem­ber. Be­fore the flota­tion, some com­pa­nies and devel­op­ers stopped their sales be­cause of re­cent in­creases in the price of the dol­lar and its un­avail­abil­ity to re­of­fer their pro­ject with higher prices, ac­cord­ing to the dol­lar value at that time.

ERA Com­mer­cial Real Es­tate Egypt is a full-fledged real es­tate firm, spe­cialised in pro­vid­ing com­mer­cial and res­i­den­tial real es­tate ser­vices in Egypt.

Diaa told Daily News Egypt that af­ter the flota­tion, price in­creases ranged be­tween 20% and 38%.

Diaa added that as a re­sult of eco­nomic cir­cum­stances and the pound de­pre­ci­a­tion, which fell af­ter the flota­tion, the buyer was forced to ac­cept the high­est prices and forced the de­vel­oper to set up fa­cil­i­ties such as a 10-year pay­ment pe­riod.For ex­am­ple, the La­vande pro­ject of ARCO gives a pay­ment pe­riod of 12 years.

“Some com­pa­nies re­sorted to de­creas­ing the down-pay­ment or re­move it al­to­gether and all the fa­cil­i­ties pro­vided by the com­pa­nies, be­cause the an­a­lyt­i­cal sit­u­a­tion of the mar­ket says that the prices of raw ma­te­ri­als are in­creas­ing and devel­op­ers can­not pro­vide more in­creases in unit prices so as not to lose cus­tomers. Ad­di­tion­ally, com­pa­nies do not want to post­pone their com­mit­ment to de­liver the units, as agreed on in con­tracts,” noted Diaa. “Real es­tate com­pa­nies ex­tend the pay­ment pe­riod while they si­mul­ta­ne­ously raise prices, so the cus­tomer does not feel the large in­crease in price.”

Diaa ad­vised to buy be­fore Ra­madan be­cause this month will see fur­ther in­creases in unit prices.

He pointed out that price in­creases by real es­tate com­pa­nies and devel­op­ers gave the op­por­tu­nity for small com­pa­nies to at­tract new cus­tomers and sell their projects in the same ar­eas as large real es­tate com­pa­nies and devel­op­ers.

Price in­creases led to the re­di­rect­ion of some 80% of cus­tomers as they switched to other com­pa­nies with more fa­cil­i­ties and lower prices or less spec­i­fi­ca­tions and less spa­ces.

Wadila De­vel­op­ments CEO Maged Helmy said that his com­pany raised its prices by not more than 10% fol­low­ing the ap­pre­ci­a­tion of the dol­lar and the floata­tion of the Egyp­tian pound, as a re­sult of the high prices of all build­ing ma­te­ri­als and the cost of im­ple­men­ta­tion of real es­tate units.

Helmy told Daily News Egypt that the com­pany raised prices less than the real in­creases in the cost of con­struc­tion, in or­der to not harm the cus­tomers and to meet the needs of a large tranche of those peo­ple.

He pointed out that the per­cent­age of the in­crease re­flects the strength of the fi­nan­cial po­si­tion of the com­pany and its com­mit­ment to cus­tomers.

Fur­ther­more, Beta Egypt for Ur­ban Devel­op­ment’s chair­per­son, Alaa Fekry, told Daily News Egypt the av­er­age price in­crease in the real es­tate sec­tor fol­low­ing the lib­er­al­i­sa­tion of the ex­change rate ranges from 20% to 30%, and Beta Egypt main­tains prices of some units of its projects and raises the prices of other units by only about 10%.

He added that there are high rises in the prices of build­ing ma­te­ri­als, which re­sulted from the rise of the dol­lar value. For ex­am­ple, the price of concrete in­creased by 70% and alu­minum by 80%, and the av­er­age rise in the cost of con­struc­tion of the me­tre is es­ti­mated at 65%.

On his side, the Saudi-Egyp­tian Con­struc­tion Com­pany (SECON) CEO Dar­wish Has­sanin said the cost of car­ry­ing out the com­pany’s projects in­creased by 20-25% fol­low­ing the rise in the prices of con­struc­tion in­puts.The com­pany has raised the prices of units of new projects to cover the bur­den of these in­creases in costs.

He noted that the Egyp­tian econ­omy faces a chal­lenge, namely the ex­change rate and re­cov­er­ing the value of the pound, point­ing out that if the flota­tion of the Egyp­tian pound is purely a bank de­ci­sion, it re­quires some eco­nomic mea­sures to en­sure the re­turn of the pound’s value, in­clud­ing in­creas­ing re­sources of for­eign cur­rency, through in­creas­ing ex­ports, pro­vid­ing for­eign cur­rency through the re­duc­tion of im­ports, and es­tab­lish­ing al­ter­na­tive in­dus­tries and crops in Egypt.

While the head of the Build­ing Ma­te­ri­als Di­vi­sion at the Fed­er­a­tion of Egyp­tian Cham­bers of Com­merce (FEDCOC), Ahmed Al-Zainy, told Daily News Egypt that the in­crease in prices of lo­cal build­ing ma­te­ri­als, such as sand and ce­ment, ranged from 2% to 20%; im­ported ma­te­ri­als in­creased by 30% af­ter flota­tion, al­though they reached 50% to 60% in the sec­ond half of 2016;and con­struc­tion brick prices in­creased by only 20%.

Al-Zainy added that the large price in­creases car­ried out by real es­tate com­pa­nies are un­jus­ti­fied and large com­pared to the in­crease in prices of build­ing ma­te­ri­als.

How­ever, Daker Ab­del­lah, mem­ber of the board of di­rec­tors of the Egyp­tian Fed­er­a­tion for Con­struc­tion and Build­ing Con­trac­tors (EFCBC), said that the cri­sis of build­ing ma­te­rial surges ex­tended to road projects, which were af­fected sig­nif­i­cantly by the rise of raw ma­te­ri­als, the most im­por­tant of which is bi­tu­men (used for road sur­fac­ing and roof­ing), which rep­re­sents more than 75% of the value of the bud­get of road con­struc­tion.The price of a tonne of bi­tu­men in­creased by 133.5% af­ter the pound flota­tion, where its new price now stands at about EGP 6,070 per tonne in­stead of EGP 2600 be­fore the flota­tion. This rep­re­sents a new bur­den on con­struc­tion com­pa­nies. Fur­ther­more, the in­creases re­duced work­ing cap­i­tal of small and medium en­ter­prises be­cause they can­not af­ford those in­creases that be­gan since March 2016 and the lib­er­al­i­sa­tion of the ex­change rate in Novem­ber 2016.

“The road works rep­re­sent about 20% of the cost of car­ry­ing out res­i­den­tial projects, so the in­crease in this cost will en­force devel­op­ers to raise the prices of hous­ing units and to load the bur­den on the cit­i­zen in the end,” said Ab­del­lah.

He warned of the tum­bling of some real es­tate com­pa­nies in the com­ing pe­riod, es­pe­cially small ones, fol­low­ing the re­cent changes that are rep­re­sented in dol­lar ap­pre­ci­a­tion and its im­pact on the prices of build­ing ma­te­ri­als and the cost of car­ry­ing out hous­ing units, in ad­di­tion to high wages and the ap­pli­ca­tion of VAT and other chal­lenges that con­trib­uted to rais­ing the cost of im­ple­men­ta­tion.

ARDIC raised its prices by 25% be­cause the con­tracts signed at the time had the US dol­lar at EGP 7

Ashraf Sal­man

Ashraf Dowidar

Maged Helmy

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