Cairo – Concerns have escalated about the occurrence of a real estate bubble in Egypt, especially with real estate prices rising significantly recently, which may cause a sudden sharp decline in real estate prices after a period of rapid rise and relative stability.
The economic crisis that the country has witnessed since 2022 has created an increasing demand for real estate as a safe haven from the collapse of the local currency.
Even the economic breakthrough last February was reflected in the form of huge real estate investment through the “Ras El Hekma” area deal in Marsa Matrouh Governorate between Egypt and the UAE worth $35 billion, coinciding with the floating of the Egyptian pound again, which fueled those fears.
The construction sector – one of the largest productive sectors in Egypt – contributes about 18% of the gross domestic product, supported by population growth of about two million people annually.
Some research company reports indicate that the size of the Egyptian real estate market is about $50 billion (one dollar is equivalent to about 48.5 pounds), amid expectations that it will grow at an 8.3% compound annual rate, and reach about $76 billion during the expected period 2024-2029.
Some individual investors complained of their inability to resell their units that they had purchased at the height of the economic crisis in order to achieve gains or save their savings after a long series of collapses of the pound over the past two years.
A significant increase in prices due to the decline in the purchasing power of Egyptians
Economist and finance professor Medhat Nafie believes that the controversy over whether or not a real estate bubble in Egypt is due to the difference over the definition of a bubble. He said, “The real estate bubble in Egypt is linked to certain observations, which are a large increase in prices at large rates that are not justified by fundamentals such as people’s real wages, which do not increase at a rate of increase.” Real estate prices are the same.
He added to Al Jazeera Net that there is a kind of stagnation in the market due to the presence of a large number of closed residential units that are being used for purposes other than their primary purpose, which is housing, but rather their purpose is “storing value.”
He considered that the biggest justification for increasing prices is the collapse of the value of the pound against the dollar.
In light of the rise in prices, Nafea stressed that the purchasing power of Egyptians is weakening, causing an increase in supply (versus a decline in demand), “so I must expect that there will be a bubble.”
But Nafie wondered, “Is there an inevitability of an explosion, or can it be safely deflated?” He answered, “The bubble is not likely to explode any time soon because it is still being blown.”
To avoid the bursting of the real estate bubble, the economist believes that there must be a sustainable demand for real estate capable of absorbing the large amount of it available in the market.
He called for transferring part of the money invested in real estate to other productive sectors to reduce pressure on the real estate market, export real estate, and reduce the risk of a bubble forming.
Bubble or speculation?
Fathallah Fawzi, Vice President of the Egyptian Businessmen Association and Chairman of the Association’s Construction Committee, does not see any indications of a real estate bubble occurring in the future. He said, “The real estate market is active and demand is increasing. He sold during the first half of the current year 3 times what he sold during the first half of last year.”
He added in an interview with Al Jazeera Net, “This is an indication of demand, not stagnation, and there is no culture of mortgage financing.”
Fathallah Fawzi attributed the reason for raising the bubble issue to the occurrence of real estate speculation, that is, buying a residential unit with the aim of selling it after 6 months or a year and taking advantage of the rise in prices and the decline of the pound.
He continued that when stability returned to the market and prices stabilized, real estate speculators were exposed and unable to resell them in light of the presence of new projects and offers without a down payment.
Fawzi enumerated the reasons for the rise in real estate prices in:
- The increasing demand represented by population growth and the increased need for housing.
- Egyptians have turned to investing in real estate as one of the most important means of saving.
- Higher construction costs and inflation rates due to increased prices of raw materials and labor.
- The devaluation of the Egyptian pound makes real estate more attractive for saving savings.
- Expectations of real estate prices rising in the future.
Government position
For its part, the Egyptian government ruled out the possibility of a real estate bubble, noting that demand for real estate is still strong, especially in light of the continuing population increase and the need for more housing units.
In response to these concerns, Egyptian Housing Minister Sherif El-Sherbiny said, during a press conference earlier, that calm demand in some periods does not necessarily mean the presence of a bubble, indicating that real estate is one of the most important means of investment in Egypt.
El-Sherbiny explained that the rapid population growth at a rate of two million people annually requires the combined efforts of the public and private sectors to provide more than 200,000 housing units annually to meet the needs of citizens.
Real estate developers sold a value of 800 billion pounds ($16.5 billion) in 2023, compared to 476 billion pounds in 2022, an increase of 68%, according to a report by The Board Consulting, a real estate consultancy. 10 companies control a large share of the market.
The report also revealed that sales of these companies exceeded 649 billion pounds ($13.4 billion) in the first half of 2024, an increase of 319% over the first half of last year.
