Niche real estate segments benefit from depreciation of Egyptian pound

While the decision to float the Egyptian currency in November 2016 had a mixed impact on developers and the new-build residential market, it had a singular consequence for the resale or secondary market. Indeed, in terms of new units, the market has continued to progress, with extended payment terms and a slower release of off-plan units ensuring that transactions keep ticking over. However, the situation for existing homes has not followed suit: the market has ground to a halt and become illiquid.

The depreciation of the Egyptian pound meant that within a matter of weeks, homeowners were faced with the fact that their homes had lost 50% of their value in US dollar terms. Some sellers simply doubled their asking prices to accommodate the depreciation, while others took their properties off the market altogether and waited for the currency to stabilise, due to uncertainty of how to effectively navigate such a volatile market.

New Markets

Given the domestic inflationary environment, many prospective homeowners are purchasing off-plan properties with long instalment plans to lock in the price and park capital in what is commonly understood as a safe asset.

The most expensive location is El Gouna, on the Red Sea, where holiday villas sell for as much as $2500 per sq metre This has also reportedly led to the flipping of off-plan properties, as investors seek to make a quick return on their investments in in-demand units.

Second Homes

The drive to hedge against inflation has provided a boost to the country’s second home market. This segment caters mostly to domestic demand, with Egyptians accounting for 98% of second home ownership. The market is concentrated along the coastline, with the North Coast area and Ain Sokhna the most in-demand locations for second homes. According to real estate firm Colliers, the supply of second homes in Egypt increased by about 90% between 2006 and 2016, with inventory reaching 65,000 units by the end of that period. Almost half of this supply is in Ain Sokhna. The resort is popular with Cairenes, given its proximity to the capital and new suburban residential neighbourhoods.

Furthermore, it has the most affordable domestic holiday home market, with apartments selling for between LE6000 ($395) and LE10,500 ($692) per sq metre, and villas selling for between LE7000 ($461) and LE15,000 ($988) per sq metre. This compares to figures of LE9000 ($593) to LE21,000 ($1380) per sq metre for apartments, and LE10,000 ($659) to LE17,000 ($1120) per sq metre for villas along the North Coast. The most expensive location is El Gouna, on the Red Sea, where holiday villas can sell for as much as LE38,000 ($2500) per sq metre.

Investment Potential

This trend is unlikely to be affected by the currency fluctuation, with the impetus to investment as a hedge against inflation serving to boost the market. Moreover, such property has become relatively more competitively priced for expatriate Egyptians who are paid in currencies pegged to the dollar. In a high interest rate environment, with a benchmark rate of 18.75%, returns may not be very compelling. However, on a longer-term basis, second homes offer a solid investment opportunity, with annual returns for Egyptian holiday homes ranging between 15% and 25%, according to Colliers. In this scenario, the appetite for second home ownership among higher-income Egyptians is likely to remain robust.

While the resale market in Cairo has been adversely affected by the pound’s decline in value, other segments have, in many cases, shrugged off the difficulties surrounding the government’s reform programme and remain in good health.