Behind the Billboards: Egypt’s Real Estate Mirage

Behind the Billboards: Egypt’s Real Estate Mirage

A brief drive down Cairo’s busy Ring Road will have you believe you’re missing out on living in the safe exclusive, gated community of your dreams. The constant bombardment of promotional photos and catchy slogans is enough to fatigue even the strongest minds and convince you that you’re not living life to its fullest, greenest potential along with your peers. The reality, however, is very different. Beyond the eye-catching facade of perfect living displayed on billboards, you can also see the hundreds of skeletal megamansions up for sale in most major real estate developments, prompting the question: who are developers building these homes for in a country where the private legal minimum wage was raised to a painfully insufficient 6000 LE as recently as February?

Talks of an imminent real estate bubble, akin to the one that sparked the 2008 financial crisis, have plagued the Egyptian real estate market like an eerie specter, constantly warning of a day when this bubble will burst and a new wave of economic challenges will hit the country. A real estate bubble, in its simplest terms, is a rapid and unjustified increase in housing prices beyond their actual valuation levels that, once reaching unsustainable levels, eventually burst, causing prices to plummet and leaving homeowners and investors with properties that can no longer increase, or even retain, their purchase value. 

Statistics on the housing market in Egypt are largely incomplete beyond its valuation of an estimated 1.45 Trillion USD as of 2024, with residential real estate accounting for 1.05tn, but even with the lack of empirical data to quantify an accurate number for the size of the bubble, the inflationary pressure being exerted on the real estate market is a clear enough indicator. The topic of discussion should instead be the economic factors that could contribute to its burst, along with the state of the financial market that is further inflating the value of real estate in the country by limiting access to financing, either through high interest rates or collateral requests that are unrealistic to the realities of everyday Egyptians’ income levels, and wealth accumulation potential. This discussion is important because of the potential impact of inflationary pressures on one of the major pillars of Egypt’s economy, as the private real estate sector contributes massively to the Egyptian GDP, accounting for a substantial 5.13% to total GDP at the end of 2023. As it stands, the private real estate market is meeting the majority of demand for Egyptians’ housing needs, with private real estate developers managing to maintain and even increase profits despite decreasing local demand driven by the unaffordability of available units. 

Real estate prices rose by a steep 41.9%, during 2023, although adjusted for inflation, this figure amounts to a more modest 6.1%. However, the real impact of the currency devaluations in early 2022 and late 2023 and their subsequent effects on the real estate market have been vastly different for investors versus individuals simply trying to afford a family home. The early 2022 devaluation signaled to foreign investors an opportunity to acquire more property in Egypt that was now cheaper, driving demand and prices, which were already on the rise due to the devaluation, even further upwards. This trend continued in 2023, with developers achieving an almost 100% increase in the value of sales despite selling fewer units than in years prior, with comments from executives confirming profits were driven by investors acquiring second or third properties to curb the effects of inflation on their money, rather than meeting actual housing needs. 

Regardless, with record profits, Egyptian developers are continuing to invest in projects, locally and abroad, with the target of diversifying their portfolio, leaving the local real estate market with a growing gap in meeting the majority population’s demand for affordable housing. Government initiatives, like The National Housing Project, aim to bridge this gap in alignment with the United Nations’ Sustainable Development Goals by providing affordable housing to low-income families, as units are sold with only a 5% markup from the construction cost. These projects, operating in tandem with other government initiatives to provide financing options, have already benefited hundreds of thousands of low-income families, with the goal of providing one million families with affordable homes by 2024. The additional financing will also encourage private sector participation in these initiatives. However, given Egypt’s massive population, one must question whether these projects are a solution or merely a short-term mitigation method.

Another important factor to consider in Egypt’s heavy reliance on the buoyancy of the real estate sector is that it does not only include directly related industries, like construction, but also indirect ones, like plumbing, electrical, and other sectors involved with unit finalization and delivery, and which employ a substantial number of Egypt’s, specifically Cairo’s, blue-collar workers. This makes a burst in the housing bubble a trigger for a potential domino effect, leading to plummeting property values and diminished investor confidence, which accounts for a substantial value of private real estate sales, not to mention the subsequent catastrophic impact on employment rates in an already precarious and insecure grey sector. Unaddressed poverty levels have already risen amidst unprecedented inflation rates, making potential impacts of overreliance on real estate investments as a driver for growth on the livelihoods of people operating within Egypt’s “finishing” sectors particularly severe. 

Fostering the capture of detailed market information in the real estate sector will not only empower smarter urban planning projects but also enable consumers to navigate the complexities of the Egyptian market with clarity and foresight to potential economic shocks. By prioritizing sustainable growth over short-term gains through effective regulation, the state and real estate developers alike can play a pivotal role in addressing the pressing issues facing Egypt’s real estate market, ensuring its resilience and long-term viability for future generations.

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