Macroeconomic challenges are likely to sway the pace of activity in the Egypt real estate market this year.
Inflation is continuing to increase in the North African country. Annual urban headline inflation rates grew 21.3 percent in December 2022. During the month, annual core inflation rates increased 24.4 percent.
Local reports state the average annual headline inflation in Egypt increased by 18.7 percent in the fourth quarter of 2022.
Inflation is now running at a rate of about 21.3 percent. In February, Egypt’s central bank kept its overnight interest rates unchanged, stating steep rate increases over the past year would help to tame inflation.
Rates were raised 800 basis points (bps) during 2022, of which 500 bps were in Q4 2022.
The preemptive tightening policy response is aimed at anchoring inflation expectations this year. It could prove beneficial for the Egypt real estate market in 2023.
Rising inflation and currency devaluation led to year-on-year (YoY) construction material price hikes in Q3 2022. In some cases, the hikes even doubled prices or delayed construction project deliveries.
Sales transactions during the period, however, remained high. JLL said buyers were seeking to hedge against inflation and currency devaluation by investing in real estate.
Foreign direct investments (FDIs) are critical to activity in Egypt’s construction and real estate sectors. UN Conference on Trade and Development’s (UNCTAD) data shows Egypt was the second-largest recipient of FDI in Africa in 2021. Its receipts totaled $5.1 billion, however, marking a 12 percent decline over 2020 figures.
Egypt has typically been an attractive FDI market in the region, but overcoming structural challenges is essential on the path to securing investments.
In February, Moody’s downgraded Egypt’s sovereign rating from B2 to B3 due to its diminished external buffers and shock absorption ability.
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Egypt’s $3 billion rescue package agreed with the IMF last year, too, is conditional on it implementing a flexible foreign exchange system. Egypt must also shrink the role of the government to allow private sector growth as part of the deal.
Finance Minister Mohamed Maait reiterated Egypt’s political to stimulate FDIs in January 2023. The government will also proceed with efforts to maintain the “stability of taxation policies in order to scale up investment activities”, he added.
Egypt real estate market: outlook
Certain macroeconomic fundamentals, however, are more favorable. Planning Minister Hala Al-Saeed said in January 2023 the number of tourists in Egypt increased by 55 percent YoY in the first quarter of the ongoing fiscal year (1 July 2022-30 June 2023). Retail is also one of the sectors that could help Egypt secure growth of 4.8-5 percent by end-June, she said.
Regulatory support is also being offered to incentivize growth in the Egypt real estate market. Government initiatives were introduced in February 2023 for real estate developers of new cities in Egypt.
The support package includes a 20 percent deadline extension of the original period granted for the already under-construction projects.
The government will also consider projects finished when they are 85 percent complete, down from a previous 90 percent rate. The decision will allow developers to finish the remaining work without being penalized for late delivery.
Members from the Federation of Egyptian Industries and the Federation of Egyptian Chambers of Commerce also met in January 2023 to discuss crisis-mitigation routes for the Egypt real estate market.
The introduction of a net-zero interest period for under-development projects and installment and interest payment deferments were discussed.
Officials also proposed adding the real estate sector to a government initiative that has funding worth $5 billion (EGP150 billion). Also agreed was a decision to meet with the central bank governor to ease pressure on stakeholders in the Egypt real estate market.
Developments in recent months have reiterated the government’s view on the significance of the Egypt real estate market. Local developers and end-users will hope macroeconomic conditions are more supportive in the rest of 2023.