Covid-19 Impact on the Real estate Market in Egypt

June 29 2020 Loay Sherine

Economics,Business Strategy

Covid-19 Impact on the Real estate Market in Egypt

Amid many economic and political shocks that Egypt has witnessed in the last decade, the real estate sector has proven to be one of the most resilient sectors as it may have slowed down after the first and second revolutions and the devaluation in 2011, 2013 & 2016 respectively, but it did not crash.

The real estate sector in Egypt is mainly driven by many factors, amongst which: a strong demand with a supply gap of 3 million residential units in 2020, a growing population of over 100 million people mostly young people, and general drive to buy real estate as either as an investment as hedging against inflation or for their children due to the continuous increase in prices.

The Real Estate sector has been on the rise in terms of investments and contribution to GDP as it is a relatively safe investment and the demand is always increasing. This is until the COVID-19 crisis, as the crisis impacted the saving of many middle-class families and led many to lose their jobs which in turn affected their savings and their properties, Coldwell banker claims that real estate properties represent around quarter to third of the Egyptian families’ wealth at middle and high-income classes and even more than that for lower-income classes.

Covid-19 Impact on the Real estate Market in Egypt

Has the sector been affected so far?

Despite the current situation that is affecting all the economy and the real estate market, the Egyptian capital Cairo, most sub-sectors remained stable during the first quarter with the office sector in particular that recorded strong performance. Cairo’s office sector has seen a 9% increase in average prime rents on an annual basis despite the unfavorable market conditions, due to the limited supply of high-quality offices. On the residential sector scenario, it remains almost unchanged with limited units delivered in the first quarter, keeping the total residential units at 159,000.

A report published by Aqarmap (The largest real estate online marketplace in Egypt) shows that during the crisis of Covid-19 the leading purchase objective of the active buyers are actually first time home buyers, some are newlyweds or simply people who are finally entering the housing market; however, the segment breakdown shows how the objective differs by segment. The buyers assigned to socioeconomic status (A) and (B) who are active during the crisis are mostly buying to upgrade their home. While those in status (C) are mostly buying their first home.

Covid-19 Impact on the Real estate Market in Egypt

While other sectors may have been deeply affected by the crisis, the impact on Real Estate sector has been “manageable” as the CSO of Landmark Sabbour would put it. This could be mainly because the sector is greatly supported by the government. For example, in March 2020, the Central Bank of Egypt has reduced interest rates by 300 basis points setting the lending rate at 10.25 %. A move which experts hailed as great for the industry as a decrease in the lending rate and accordingly in Financing cost will make the sector more attractive for investors as it will likely increase the real estate valuation.

How much were the Real Estate developers affected by this?

The current market conditions have suffered from the pandemic and caused an increase in downward pressure on operations and sales volumes, resulting in landlords offering rental exemptions to support tenants. This is expected to reflect even further in the second half of this year provided the temporary lockdown of all retail operations and other preventative measures remain active

Many experts & real estate developers believe that the residential market will not be very much affected as people still need to buy homes and that the market now is weaker, they would be more encouraged to move on with their plans. However, the real estate sectors that are expected to be hit the hardest are Luxury homes, Retail and F&B and the hospitality sectors

In Cairo that has the bigger stock of units in Egypt, merely 135 residential units were delivered in the first quarter of 2020, keeping the total residential stock almost unchanged at 159,000 units as mentioned above. Around 58,000 units are expected to be completed over the remaining 9 months of the year. However, given the current market conditions and a potential slowdown in demand, on the back of negative sentiment and contraction of household incomes, we remain cautious of the timely delivery of projects and can expect these to spill over into 2021/2022.

A large amount of future supply currently under construction in East Cairo has put downward pressure on sale prices over the quarter. Meanwhile, the shortage of supply in 6th of October makes it the better performer in Q1 2020.

How will the pandemic affect the sector?

Digitization:

One dimension that COVID-19 certainly accelerated is the pace of digitization in the sector. Given the necessity of keeping a social distance, most real estate companies are now encouraged to rely more on digital solutions including augmented reality (AR), virtual reality (VR), and 360° virtual panoramic tours. For example, Iwan development started to progress its sales digitally by promoting its projects online and using different digital channels to provide payment plan options for clients. In addition, Tabarak developments are encouraging their clients to communicate and pay their installments using digital channels. The interesting part is that, not only the private sector is interested in the digitalization of the sector but the government as well. According to Khaled Abbas, Deputy Minister of Housing, Utilities, and Urban Communities for National Projects, the digital transformation of the sector is “inevitable” which was obvious in the usage of online services for the government’s offering of units and land in the Beit Al Watan project.

Healthcare Boom:

According to a report by Coldwell Banker that was released in April 2020, the Covid-19 crisis is expected to increase the health awareness of many Egyptians which would lead to an increased demand for healthcare facilities that by role will help in flourishing the sector as a whole.

Loay Sherine – Senior Analyst

Sources:

https://i.aqarmap.com/covid19/Aqarmap-COVID19-Study-Detailed-Summary.pdf

https://www.jll-mena.com/content/dam/jll-com/documents/pdf/research/emea/mena/jll-real-estate-market-overview-cairo-q1-2020.pdf

https://www.zawya.com/mena/en/business/story/Cairos_real_estate_stable_in_Q1_despite_Covid_challenges_JLL-SNG_173817781/

https://coldwellbanker-eg.com/uploads/Main_Entity_Db_AssetMedia/Coldwell%20Banker%20Commercial%20Advantage-Dealing%20with%20COVID-19%20impact%20on%20the%20Real%20Estate%20Sector-April%202020-2.pdf

https://www.savills.sa/insight-and-opinion/news/298327/egypt-s-strong-economic-fundamentals-to-support-speedy-recovery-from-the-covid-19

https://invest-gate.me/features/will-business-move-forward-in-the-time-of-corona-2/

https://wwww.dailynewssegypt.com/2020/05/18/covid-19-to-accelerate-real-estate-company-digitisation-developers/

https://www.arabfinance.com/en/news/details/egypt-economy/516201

Graph:

https://coldwellbanker-eg.com/uploads/Main_Entity_Db_AssetMedia/Coldwell%20Banker%20Commercial%20Advantage-Dealing%20with%20COVID-19%20impact%20on%20the%20Real%20Estate%20Sector-April%202020-2.pdf Page 8