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| 30 November, 2016

Egypt real estate market approaching 'bubble' due to 'crazy profit margins'

Image for illustrative purpose only. Vehicles drive by in front of Central Bank of Egypt Headquarters in Cairo.

Image for illustrative purpose only. Vehicles drive by in front of Central Bank of Egypt Headquarters in Cairo.

Reuters/Amr Abdallah Dalsh

30 November 2016

Egypt’s real estate market is approaching a bubble that will follow the current boom in the sector, Samih Sawiris, chair of the board of directors at Orascom Development Holding, said on Sunday.

Sawiris told Daily News Egypt that the growth in the real estate sector would continue until next year, and maybe the year after. After that, the sector is expected to enter a bubble, due to the “crazy profit margins” and large number of developers that are operating in the sector. He added that at the same time, trading on real estate is in decline, while prices increase.

He pointed out that all of these are indicators on an imminent crisis in the sector.

Sawiris said that equality between tourism and real estate investors provided fairness among companies working in both sectors.

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He added, during the American Chamber of Commerce conference, that he once spoke to former president Hosni Mubarak during his visit to Hurghada, asking him which is better: a villa that is closed 10 months a year, or a hotel that hosts tourists.

Mubarak answered that the hotel would be better.

Sawiris then asked Mubarak why his government would provide tax incentives for real estate companies of up to 10 years at the North Coast, while only granting tourism investors five years in the Red Sea.

Mubarak in turn asked Hasaballa El-Kafrawy, the housing minister at the time, who said that the North Coast is a deserted area—to which Sawiris sarcastically responded: “So the Red Sea is as crowded as the Ahmed Helmy bus stop?”

Sawiris explained that the stagnation of real estate trading means that supply is much higher than demand, which would spread fear among customers. Therefore, they will resell their units and become a competitor to real estate developers. During crises, the customer—who becomes a reseller—is stronger than the developer.

He referred to the real estate crisis that had swept across Egypt between 2001 and 2003, noting that during that time, real estate developers did not buy a single unit.

During a conference titled Sustaining the Real Estate Industry in Egypt, held by the American Chamber of Commerce on Sunday, Sawiris stated that social housing is not beneficial to businesses, as that should be a task for the government.

However, Sawiris criticised the government for providing land at high prices to private investors, as this encourages luxury housing rather than social housing.

He noted that the government should repeat the example of the low-income housing experiment implemented by the minister of housing during Mubarak’s era, Ahmed El-Maghraby.

Sawiris added that Egypt is now a much safer country for investment in the real estate sector.

© Amwal Alghad 2016