PROJECTS: Egyptian real estate sector worried about surge in construction material prices

10-15% hike in property sales prices could hit buyer sentiments

  
Image used for illustrative purpose. A worker installs steel rods at a construction site in Paranaque city, metro Manila, Philippines May 29, 2018.

Image used for illustrative purpose. A worker installs steel rods at a construction site in Paranaque city, metro Manila, Philippines May 29, 2018.

REUTERS/Romeo Ranoco

Construction material prices in Egypt are mirroring global trends as pandemic-induced supply chain bottlenecks have increased the prices of steel, copper, cement and aluminium over the past six months, industry stakeholders interviewed by Zawya Projects said. 

The rising cost of materials was flagged as the second biggest obstacle to construction activity after financial constraints by more than 70 percent of the Middle East and Africa respondents surveyed by RICS [Royal Institution of Chartered Surveyors] for its ‘Q1 2021 Global Construction Monitor.’

Steel rebar prices per tonne in Egypt increased by 1,000 Egyptian pounds ($64) in May due to the increase in the global prices of steel billets that local manufacturers import to process into rebars.  

Egypt produces about 7.9 million tonnes of rebar and 4.5 million tonnes of billet, while it imports 3.5 million tonnes of billet, according to the Chamber of Metallurgical Industries

Ahmed Al-Zaini, Chairman of the Building Materials Division, Federation of Egyptian Chambers of Commerce (FEDCOC), said that the price of a tonne of rebar at Ezz Steel reached 14,600 pounds ($933) while at Egyptian Steel, it increased to 14,500 pounds ($927), and at Beshay Steel, the price increased to 14,050 pounds ($898). 

Globally, prices have hovered in the region of $700/tonne for steel billets and about $502/tonne for scrap steel. 

Absorb or pass on 

Real estate experts interviewed by Zawya Projects expect property sales prices to increase by more than 10 percent in the coming months to compensate for the higher material costs. 

However, Living Yards Developments’ Chief Commercial Officer Ahmed Abo Al-Saoud, said they would absorb the rising costs of building materials instead of passing it to the customers. 

In May, Ahmed El Shennawy, CEO of Adva Developments and a member of the construction committee of the Egyptian Businessmen Association, had told Zawya Projects that despite the rise in material costs, most developers had left prices untouched

 “Although material costs would have increased by 10-15 percent, developers have left property prices untouched as they want to revive the real estate sector instead of making quick gains,” he said. 

Bahaa Hefzallah, General Manager of Aqar Masr, told Zawya Projects that he sees the steep increase in rebar, cement, and copper prices by as much as 40 percent forcing developers to increase property sale prices to reduce the cost burden.  

Mohamed Salah, Chairman of Capital Hills Developments, said the price of a tonne of rebar increased by about 50 percent over the past six months. He added that if higher material costs translate into higher property prices, and buyers leave the market, developers could be saddled with unsold inventory, which is likely to tip the real estate market into a slowdown. 

Hefzallah noted that higher material prices would also leave developers with little room to create offers and incentives for buyers.  

Salah said he expected sales prices to rise by about 10-15 percent short term, and by 25 percent in the long term if the prices of construction materials continued to rise unchecked. 

Mohamed Zohdy, CEO of Mardev Developments, confirmed that there has been up to 40 percent increase in the prices of building materials, mainly rebar, copper and aluminium. He said he expects unit prices to increase by about 10 percent, indicating that property sale prices in the New Administrative Capital (NAC) will start to increase once the government offices move to the new capital. 

Misr Italia Properties CEO and Managing director Mohamed Khaled Al-Assal told Zawya that they will keep the property sale prices unchanged this year but intend to increase them by 10 to 15 percent in 2022. 

(1 US Dollar = 15.65 Egyptian Pounds) 

(Writing by Eman Hamed; Editing by Anoop Menon) 

(anoop.menon@refinitiv.com

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here

© ZAWYA 2021


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