Antidote to Dollar Crunch Seen Fanning Egypt's Property Boom

  • Housing demand is rare bright spot in struggling economy
  • Pound devaluation seen boosting demand as investment haven

Good news keeps coming for Hisham Naguib and his sales team at Cairo-based real-estate company Mountain View. With apartments already snapped up long before they’re built, last week’s devaluation of the Egyptian pound looks set to boost demand even further.

“The pound’s devaluation is on everybody’s mind, and it’s sending demand for real estate off the charts,” said Naguib, who has taken to using the back door to his office to avoid crowds of buyers on project launch days. “Even if banks start offering 20 percent interest rate on the pound, people will still prefer real estate.”

The property boom marks a rare bright spot in an economy that has struggled since the 2011 uprising that toppled former President Hosni Mubarak. The pound has slumped in the black market, tourists have stayed away since a suspected bombing brought down a Russian passenger plane in the Sinai peninsula last year, and capital outflows have left businesses starved of dollars to import raw materials.

Egyptians have been buying property as a safe haven against a weaker local currency. Authorities, meanwhile, have spurred construction in the most populous Arab country by releasing more plots, abandoning supply-sapping public land auctions in favor of a share of developers’ profits. All of that was happening before the central bank devalued the currency by more than 10 percent this month.

The EGX 30 Real Estate Index has risen by 22.6 percent since March 14, when the central bank weakened the pound by the most since 2003. Over the following two days, luxury developer Palm Hills Development SAE said it sold 108 units at Palm Valley project west of Cairo for 491 million Egyptian pounds ($55 million).

“We have a culture that thinks of real estate as a safe investment that’s why when times are bad people tend to invest more in real estate,” Magued Sherif, managing director of Six of October Development & Investment Co., said in an interview in Cairo. Devaluation “is good for the real estate market,” he said.

Bureaucratic Tangle

Although the property market has largely been resilient since 2011, developers say red tape is holding it back.

All undeveloped desert lands are owned by the government, and the Ministry of Defense must ultimately approve any use of it. That leaves the government “playing the role of a broker,” according to Gasser Bahgat, chief executive officer at Cairo-based luxury housing developer Madaar Real Estate.

Talaat Moustafa Group, Egypt’s biggest listed developer, faced two legal challenges over the land contract at its flagship Madinaty project east of Cairo, paying billions to the government and reaching a settlement. Other developers including Sodic and Palm Hills have had similar issues.

Mahmoud Farouk, executive director of the Egyptian Center for Public Policy Studies, said the state still largely “cripples the market for no good reason.” Although things have loosened up, “closing off supply when demand is growing raises prices” and encourages unlicensed and illegal construction, he said in an interview in Cairo.

The government has released more land over the past two years than it offered at auction in the previous 15 years, Khaled Abbas, assistant to Egypt’s housing minister, said by phone.

With Egypt’s population of 90 million population growing at a rate of 2 million people a year, demand for housing is expected to reach about 500,000 units a year, Abbas said.

Even before the devaluation, speculation of an imminent currency weakness had propelled property sales in 2015. Palm Hills sales surged 69 percent, while Talaat Moustafa Group’s revenue climbed 17 percent.

“It doesn’t matter if you’re talking to a poor farmer or to a billionaire,” said Bahgat at Madaar Real Estate. “You will get the same answer: Owning -- not renting -- a house is their top priority. Everything else comes next.”

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