The Curious Case of The Egyptian Real Estate

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The Curious Case of The Egyptian Real Estate

In a landscape of dwindling investment options, exacerbated by the continuous devaluation of the Egyptian Pound, many Egyptians turn to real estate as a safeguard for their life savings. In this context, real estate holds more value than paper money, which has historically lost value over time. However, this seemingly safe investment choice is not without its risks.
Demand for real estate typically stems from either the intention to occupy or rent out the property. The decision to invest in real estate cannot be divorced from one of these two utilities. After all, it would be irrational to purchase a property that cannot be sold or rented in the future.
According to Professor Hasan Al-Sady, an Economics Professor at Cairo University, real estate occupancy rates in Egypt do not exceed 25%. This means that a staggering 75% of all real estate acquisitions remain unoccupied, indicating they have been purchased for investment purposes rather than for consumption. As long as there is demand for real estate, developers will continue to build and market new projects, thereby increasing the supply of properties. However, with only a quarter of properties currently in use, this percentage is likely to decrease as more properties are introduced into the market.
As the supply of properties increases, and potential consumers have a wider range of options to choose from, prices are inevitably driven down. This is a natural consequence of supply vastly outweighing demand. Consequently, real estate investors may find themselves unable to sell or rent their properties at the prices they initially anticipated. Market prices may fall below their initial investments. When this realization dawns, panic ensues, leading to a rapid decline in prices and ultimately culminating in a real estate crisis—a risk that I fear greatly.
The question arises: why hasn’t this crisis occurred yet? It appears that the market hasn’t reached that tipping point, but it is steadily moving towards it. Financially capable customers continue to buy properties, believing they can easily sell them in the future. As long as this perception persists, developers will keep selling, and customers will keep buying. However, at some unspecified point in the future, a critical mass of investors will attempt to cash out but will find themselves unable to do so. This will mark the bursting of the real estate bubble, as the market finally recognizes the over-supply of properties, leading to a crash.
While I sincerely hope that such a crash does not occur, it is essential to acknowledge that a real estate crash would not only erase billions of Pounds in value but would also have a drastic impact on the entire economy. Nevertheless, it is difficult to view the seemingly boundless and incessant growth in real estate prices, fueled by unfounded investment demand, as a sustainable trend. While this trend may persist for years, it must eventually reach a breaking point.
I strongly advise real estate owners to be cautious of this very real risk and to take appropriate precautions. If you choose to invest in real estate, ensure that you either plan to use it yourself or are confident enough to sell or rent it at the right time. If not, I recommend exploring other investment options. The risk is simply too great to ignore.
Omar Kandeel,
Adjunct professor at management department, AUC School of Business

Interview with Dr. Hasan Al-Sady –

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