Loxley McKenzie Managing Director of www.colordarcy.com answers questions on the Egyptian property market
What has been the effect of the recent disturbances in Egypt on the property market?
Regarding the effect on the property market, initially there was a huge drop in the enquiries we were receiving, especially in the first few days of the unrest. This was a natural and expected response. But once everything had settled down the true resilience of investors became apparent. The outlook became more positive than negative as the scope for an investment opportunity presented itself and investors began searching for great deals.
Have these recent events led to many cancellations from those due to take ownership in the near future?
Investments in Cairo real estate and urban projects seem to have been the most affected by cancellations from nervous investors. In other regions, some re-sale deals didn’t go forward but we saw only a small increase in the number of cancellations or postponed deals as buyers go back and re-think their purchase options. The main factor for us coming out largely unscathed is that we focus on Sharm el Sheikh. This modern seaside resort is a world apart from the rest of Egypt and more and more people regularly holiday there or know someone who has been to Sharm. Existing buyers who were worried could also see on the news that the unrest was in other areas of Egypt but there were no disturbances in Sharm El Sheikh. Another factor is that many of our projects are off-plan and clients due to take ownership had been paying over the last 18 months or two years: two weeks of unrest in another part of the country didn’t curb their excitement about taking possession.
What level of enquiries in Egypt are you now receiving compared to before these events?
There is no doubt that there was a very quiet period during the unrest and for about four weeks following the end of the Mubarak regime on 11 February. This was caused mostly by a drop in the number of tourists who had been re-routed by some tour operators but also by a wait-and-see policy adopted by nervous investors. This seems to be behind us as the numbers of international enquiries and sales have started to climb steadily with a shift towards investor enquiries currently outnumbering lifestyle buyer enquiries.
Have property prices in Egypt been further discounted as a result?
No, this has not been the case. The developers we work with are cash-rich and were adamant about not heavily discounting. This would have been a knee-jerk reaction to a short-term event and would have been detrimental to the long-term future of the market. However, we are currently offering other buyer incentives such as longer payment plans, lower initial deposits or early delivery so properties can generate rental returns before full payment is made. This is helping to stimulate sales in the short term.
What is the long-term expectation for the Egyptian property market?
There is a strong expectation for the Egyptian property market. Transaction levels were already high at the end of 2010 but after this brief pause, prospects are even better. From an economic point of view, the advent of a new democratic nation is good news for business. It will bring more prosperity, more transparency in large land deals, create more of a free market and allow more entrepreneurs and solid business figures to enter the market. It should also open the door for mortgage products to be made available to foreign buyers, which currently is not the case. As a result, a whole new market of potential buyers will be able to purchase property in Egypt, which is obviously good news for property investors and professionals.
Egyptian tourism must have suffered as a result. Do you think this will have a significant knock-on effect on the property market?
The tourism market did suffer for a few weeks as large tour operators were taking precautionary measures of moving their clients to other alternative destinations with bookings up to two months ahead, so that they did not lose money. The fact that the fundamentals are all there is a key factor to why the future is bright in Sharm el Sheikh, both for the tourism industry and the property market.
Has the Egyptian pound weakened? If so have investors taken advantage of this and could probably do so for the foreseeable future?
In December the Egyptian Pound was about 9.1 EGP/£. While the Cairo stock exchange was closed for almost two months until a few days ago, the Egyptian government tried to keep the rate stable. However, the currency has weakened during that time and we currently have an excellent exchange rate of about 9.55 EGP/£. This is giving foreign investors a saving of almost five per cent on the cost of buying property! Investors are indeed taking advantage of this rate. We have three year payment plans available with low down payments from as little as £6,000 but we find that many purchasers prefer to put down as much cash as possible now to enjoy the current exchange rate.
With studios available for just £25,000 and a five per cent discount given for cash buyers, some property buyers are even simply paying the full amount now to enjoy a double whammy saving of 10 per cent. The currency is expected to recover over the coming months so investors are making the most of the current exchange rate while they can.