What is the Price of Your Home?
The Condition of Real Estate Prices in Egypt Today

It is a known fact that real estate properties prices do not only affect investors, but also influences people from all walks of life. Whether you are an investor, an employee or self-employed, real estate prices are sure to have a tremendous impact on your plans for the future as well as your present. It affects many aspects of living such as where you live, how long you travel to go to work, projects plans, where your children live when they get married, whether your children (or you) can afford getting married at all, mainly because of the price of the home you are trying to buy. Well, now we agree that the prices affect our lives, but

What affects prices?

Internal and external stimuli govern property prices anywhere. The “average mean real estate price” is the immediately obvious example of internal effect. If there were two same exact flats, in terms of size and conditions, one in Heliopolis , the other in the 6 th of October City, it does not take you a second to guess which is more expensive. That is governed by the mean price, which is the average of the prices of similar real estate properties sold in a certain location in a certain period of time. Another internal effect is of course the size of the real estate property.

Overcrowding is a good example of an external effect. When there are 10 families looking to buy a new real estate property and there is only one for sale, it is only logical that the price of that real estate property is going to shoot upwards. That is not very different from the condition of real estate prices all around the massively overcrowded Cairo . Other examples of external effects are decline, and renaissance. Decline occurs when there are many real estate properties available for sale, but not so many buyers. A good example of renaissance is any of the new emerging cities like the fifth aggregation (Al-Tagammou Al-Khames), where a barren wasteland turns fairly rapidly into a potential gold mine.

To make things easier, internal effects are the effects that have to do with the real estate property itself as its size, location, cost, and average price. While external effects are the effects that have to do with people and other factors that surround this certain property. As you might have guessed, external effects are variable and harder to predict than internal effects. Still, nothing escapes an educated guess; so take the time to think, watch, and ask around, and successfully predict the change in price.

What is driving this sharp escalation in real estate prices?

Mr. Hatem Farouk, Edar Image Board Chairman states that the real estate market has turned into a mystery that requires solving. Many different views have been stated; let us review two of the theories:

Some claim that the Egyptian real estate market has become overloaded. This leads to a sharp drop in prices that may reach up to 25% next year compared to today's price.

Others speculate that prices shall continue to rise, but not at the same rate as the past three years. They expect the slow rise in real estate prices to continue until year 2010. Next comes a phase of stagnation which remains until year 2012, followed by a continuous drop until year 2015. Prices are not expected to reach their original levels under any circumstances.

I personally lean towards the second opinion" commented Mr. Hatem Farouk

Mr. Ibrahim El Henawy, Edar Amlak General Manager states that the land value is one of the factors responsible for the increase in real estate prices. He believes that the country has to interfere so that the value of a piece of land would be logical with a reasonable economic price. He believes that this will help avoid the situation that occurred in El ‘Ain El Sokhna land (during which investors continued buying lands, preferring to lose the insurance price; 3 million pounds per company , rather than buy with an exaggerated price). We suggest that the government applies a reasonable average price for investors that is governed by more factors than just the per meter square pricing .

Another factor is the cost of building materials e.g. iron, as the continuing increase in their price is attributed to the international market. The government's lift of the energy subsidy will lead to a sharp increase in the materials' prices. Encouraging the manufacturing of building materials would surely provide both an intermediate and a long-term sense of security.

Mr. Ibrahim expressed that the supply and demand, especially the exceptional demand on luxurious real estate property, is an important factor in the increase of real estate prices. This increase will diminish however, after demand settles down, which is expected to happen as much is currently offered while the number of potential buyers of foreign, Arab and Egyptian investors has relatively decreased.

It is to be noted that the possibility of introducing payment over long-term installments as well as mortgages is bound to attract a wider range of customers than just the elite class.

Mr. Mohamed Gamal, Edar Sakan Board Chairman agrees that Egypt stands witness to a sharp increase in real estate prices that is attributed to several internal and external factors. These factors are being constantly, not only by the media but also among individuals. In Mr. Mohamed's opinion, this sharp rise is mainly due to a high demand and a low quantitative and qualitative supply.

We cannot neglect the important role that the public view plays in the process of predicting change in prices.

Public View:

Mr. Ahmed Hakim , a dentist and investor says: “Prices have reached astronomical numbers. They show no sign of slowing down. I believe that this strange, quick increase in real estate prices is attributed to the government's decision to allow foreign investors to buy real estate property at prices far higher than the ongoing rate and ability of the average Egyptian buyers. This created a much higher current value, so in a short time, the government had made a lot of money, which is being lost to a negatively balanced budget, and caused the prices of homes to jump high, making the prices just right for foreign investors, and well beyond the ability of the average citizen. It's true that when I say the average citizen, most of us think he's poor, and he shouldn't be able to buy a home!”

Mr. Bassem, a young investor says: “There is a fundamental flaw in the way the current government is dealing with the Egyptian economy, where it chooses the easy way of acquiring income by selling state owned properties: lands, banks, companies, factories, etc instead of raising income through increasing industrial and agricultural production. This is similar to someone trying to feed his kids by selling the family furniture an item a day instead of going to work and earning a salary. Eventually he is going to run out of furniture to sell and hence his kids will sleep on the floor and they will still be hungry. “

The majority of the public firmly believe that the prices of real estate properties will only continue to rise. This is attributed to external effects as the alarming increase in demand, or because of allowing foreign investors to buy and sell real estate at prices suitable only to them, and virtually impossible for the average Egyptian citizen to even consider.

Miss. Mariam Abou Doma , Math Teacher replies: "That's interesting because the first thing that came to my mind is how my fiancée and I rarely ever fight except when we start to talk about our future 'home'. I simply had no idea that it actually costs 100s of thousands to buy a moderate size apartment in a decent area.

The second thing that came to my mind is that after months of talking things over, trying to sort out how he can actually afford to do it, we decided to build an apartment over the building of his family's home. Honestly, this is the best solution and we are going ahead with it, and guess what? After saying I want a 300 square meter in Heliopolis I am so grateful that we have actually found something in the end. It was really beginning to look bad and I was honestly thinking that we might eventually marry but perhaps after years and years and years."

Mariam comments: "Please put in mind that I am talking about the situation of two upper-middle class citizens, both with relatively well paid jobs and rather rich backgrounds. "

Mr. Mostafa Abdellatif , Senior Assistant to the Minister of International Cooperation thinks that despite the fact that property prices have increased dramatically (almost 80%) in the last year, still a huge number of buyers can afford these increases. In his opinion, the entire Egyptian banking system should start activating its mortgage finance schemes in order to contain prices and help both developers and buyers. Special attention should also be given to the lower and middle-income segments of the society.

Mr. Nasser Osman, Businessman and investor, has voiced a unique point of view casting aside both internal and external effects , "Prices will be entering a phase of recession, sooner or later" he says. “Why?” I ask him. Mr. Osman responds: “A very important lesson is to be learned from the American system of real estate loans which is known as the mortgage: The US has entered a phase of not only stagnation, but actually a depression in real estate prices all around the country, accompanied by the bankruptcy of the largest mortgage companies in the US. This was followed by the huge drop in stock prices as well as the value of the US dollar itself to the point that famous celebrities started asking to be paid in Euros, which they felt is more secure. The same thing is starting to happen in Egypt ; now, homes are much too expensive, due to factors like the increase of demand and the abnormal and rapid rise in building materials cost as steel and cement. Many unlawful factors as money laundering are also to be blamed here. So, the public is destined to call for the help of mortgage companies. If American citizens were not able to pay their mortgages, leading to the US economic drop, the same thing is bound to happen in Egypt, because there is simply no way the average Egyptian worker will be able to pay for a home, even if its mortgage was extended over a 25 year period. His salary alone barely feeds him. It is simply impossible if, for example, he is a factory employee.”

So should we expect a drop in real estate prices?

“No, not necessarily a drop,” Mr. Osman says. “But you could at least expect a stage of stagnation since the jump in prices has already happened. People who have money are done buying and people who have not simply cannot afford it. People want to buy; the problem is that they cannot. So what is going to happen when investors buy, and find no one to sell to? The least to be expected is a much slower rate of price increase when only Egyptian and foreign investors are playing the game .”

W e have discussed factors that could positively or negatively affect the price of real estate properties. Internal factors like size, cost, location and current going price. External factors like renaissance, overcrowding, demand and economic decline, mortgage influence and buyers' class.

If you are looking to buy real estate property

Naturally, you want to wait for the prices to go down, if you are buying. If you already own and are looking to sell, logically, you want to wait for the prices to go up. We are talking in terms of years, of course. Whatever happens, it is going to be good news for some, bad news for others. A good maneuver is not to put all your eggs in one basket. Do not buy real estate with all your money and suffer when there is a price drop. Do not keep all your money in the bank either, and wish you had bought that home whose price just doubled. Even though most evidence point to a constant increase in value, the risk of an exceptional unpredictable condition remains evident. A good lesson to be learned is what happened in the US , and its recent wave of economic depression.

Now all you have to do is stay tuned to the news. If we are going to predict the prices of real estate, we will need to be very well informed. It is going to be a risky ride. Risk, and the choice to take it, after all, is the most significant difference between an investor and an employee. Risk makes an investor's money truly well earned, unlike what 90% of what people, the employed class, think.

Be heard; E-mail your comments and predictions concerning the real estate prices and business to f.back@e-dar.com .

Your responses will be discussed and published in our upcoming issue.