Real estate prices is a mirror for the inflation: Colliers International

04 Oct 2017

Real estate prices will still go up due to the inflation that came as a result of the currency devaluation, according to Regional Director at Colliers International Middle East and North Africa Ian Albert.

Colliers International is a global commercial real estate company.

In an interview with Daily News Egypt, Albert said that the there is a demand for high quality class A office spaces projects.

How do you evaluate the demand on the real estate sector? In addition, which sector is more important?

The baseline is that the demand on the real estate sector is always strong and is the top of everything and supported by very strong demographics, much population means lots of demand on many sectors.

With the current economy, some sectors obviously perform better than others. The real estate sector is still strong, further, administrative offices with high standards of quality is still stronger than others.

Retail in terms of demand on shopping malls dropped because of the inflation situation; however, community retail (small size of shops) is a very small scale and its market is small.

In the past two years, hospitality went up. The good news is that the tourism is returning back in Sharm El-Sheikh and North Coast.

Furthermore, there are some services related to real estate, such as education and healthcare. In other words, hospital schools and universities are real estate investments, as these strong demographics need such services.

Which areas are more demand for second home market?

Hurghada and Ain Sokhna are the most in demand.

What is your expectations to the real estate prices in the coming period?

We are hoping the increase in real estate prices will slow down. However, I think that price will still go up due to the inflation that happened as a result of the devaluation of the local currency.

Eleven months have passed since the pound flotation, and we are still in the phase of settling down. Property prices match the inflation. For example, if inflation drops down between 12% to 15% in 2018 and 2019, we expect real estate prices to match that as well.

Since the pound flotation, prices increased by 30%. If inflation is down by 50%, the increases in prices will decrease by 50%.

For the next year, property prices would increase only by 15-22% because average inflation should decrease to 20%.

Do you think that the real estate sector is approaching a bubble?

No, property prices reflect inflation, which is why construction costs increased. The pound value went down, inflation went up by 30%, and property crisis increased by 30%. The real estate sector is a mirror that reflects the state of inflation.

What are the most promising parts of real estate sector, whether residential, commercial, or retail?

We still see a lot of demand for class A office space in the 6th of October mainly. We are going to see a development in education and healthcare coming in as very strong as the real estate sector and community retail.

Do you think we have a shortage in administrative buildings and offices?

Yes, Egypt has a shortage in high-quality office spaces. We also have a shortage in community retails.

Recently, there has been a high inflation rate. How do you explain the high demand on the second home market?

The second home market is considered a safe investment, as in the Middle East area people like invest in the real estate.

How do you evaluate Egypt’s real estate prices in comparison to other countries?

The prices in Egypt always hike due to the growing population, which is higher than all the countries in the region.

Do you think the EGP devaluation will increase the real estate purchasing of foreigners or Egyptian expats?

For Egyptian expats, the answer is yes because we see more of them buying homes after the dollar appreciation. However, for foreigners, it is still difficult because of local regulations.

Nevertheless, the cabinet approved a temporary stay or residence to the foreigners who buy properties between $100,000 and $400,000 for about 5 years and one year. Do you think this can help in increasing foreign purchases?

Well, I think it depends on where the money comes from. I think if you are offering that to Libyans or Yemenis, it could work because they will find a place to live. But most Europeans don’t need residency.

In your opinion, what is a way to promote the sector to attract more dollars?

I think the residency decision is a good step for many people whose countries do not have the same political stability like Egypt. There are some aspects that hinder foreign investments, such as security and inflation.

Regarding the tourism sector, what is your expectation to the sector’s growth, and which areas are the fastest in growth?

The sector is recovering. I think “conference tourism” and tourism in general are improving. The problem with Egypt is that every time a boost in tourism occurs, accidents happen. Cairo and the North Coast are witnessing a flow of Gulf tourists, but Sharm El-Sheikh will regain its prestige and tourism gradually.

Do you think the increase in interest rates in banks will affect the sector?

Investing in the real estate market in Egypt is very good because interest rates are very strong. The issue is: for how long will this rate be sustainable, as it puts pressure on the local market in terms of borrowing? It has two sides: it brings foreign direct investments (FDIs), but it reduces the appetite of the local market.

How do you see the devaluation and its effect on the real estate market?

I think it is good for the sector. It hurts in the short term, but in the long run, I think it is the best thing to do.

What are the challenges in the sector?

The big challenge is the inflation. Furthermore, the market needs access to affordable land and finance and stable construction costs. The latter depends on the inflation rate. Besides, there are efforts to provide land, but finance is still difficult at the moment, as there is a need for retail finance to promote the mortgage system in Egypt.

Do you think the government represented in the Ministry of Housing acts as a competitor to real estate companies?

The government is developing low-end projects with low-profit margins for specific segments or tranches of the community that are not covered by real estate companies.

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