Since the flotation of the Egyptian pound, real estate prices have shot up. On average, real estate developers have increased their prices in Egyptian pounds by 15-20%. Of course, if you calculate the prices of real estate in US dollars, the prices have significantly decreased. We frequently get asked: is now a good time to buy?
That depends on several factors. If you are planning on buying a house in 2017, then buying now is better than buying later. Over the next quarter, real estate prices will continue to climb to make up for the loss in the US dollar value they exhibited since the devaluation. We expect that in the medium-term, prices in US dollars will not reach their pre-devaluation levels, but will be higher than they are today.
If you are buying for investment, then location and community are the most important factors to consider. The value of real estate will increase significantly in some locations. To take an extreme example, one of the hottest compounds in Egypt is Katameya Heights. Some villas are selling for $14m when they weren’t even worth a twentieth of that 10 years ago. Also, prices in Katameya Heights have maintained their value in dollar terms since the devaluation and in some cases, have actually increased. So if you pick the right location, then your investment will provide you with an excellent return. We’ve seen this happen over and over again—the price of units in the best compounds increases and the quality becomes clearer. Community is the key here. People enjoy living in communities with people that have similar lifestyle preferences. When a compound succeeds in developing a strong community, the value of the properties significantly increases.
As a similar example, in 2002, the nation of Argentina dropped its peg of the local peso against the dollar, and similar to Egypt, the peso quickly lost about half of its value. Although the peso price of real estate increased, most properties lost dollar-denominated value. The resale market was also in chaos, and it took several months for the market to clear and prices to stabilise. After the initial fluctuations, most properties increased in value in terms of pesos, but decreased in terms of US dollars. However, the best properties in Buenos Aires maintained their value in terms of US dollars.
If you are buying for consumption then pick the house that feels like home and honestly, nothing else matters. The house that feels like home can depend on many factors including the community and neighbourhood. In the long-run, real estate prices will always increase, as upwardly mobile Egyptians look for higher qualities of life during good times and savers look for inflation hedges during uncertain times. Any short-term gains or losses will balance out.
In general, buying a property today with relaxed payment terms is a good idea. No one can be certain how much more the pound will devaluate, but judging by the current state of the economy, and the lack of full capital mobility, we expect short-term fluctuations but medium-term loss in value. So if you buy a property today, with 5-7 years of payment terms, you are fixing the price of a unit in pounds. That unit’s price in pounds will increase significantly over that time period due to inflation.
If your basis is foreign currency, then real estate got much cheaper for you. So now would be the best time to buy with relaxed payment terms. Timing is key, and you should buy your new property before any further price increases. Any further devaluation will benefit you by making your future payments even cheaper in foreign currency terms.
In conclusion, there isn’t a yes or no answer to whether now is a good time to buy or not. If you’re buying to live, look for a location, community, and amenities that match your preferences. If you’re buying to invest, it’s a matter of identifying which communities will prosper and be the cream of the crop.
Abdel-Azim Osman holds a BS in Economics from MIT, and is a Co-founder of CooingEstate.com