DON’T INVEST IN REAL ESTATE!
A quick scan of the real estate scene in Egypt shows that, from the viewpoint of the shoppers in the marketplace, it is crazily growing in prices and probably is the best investment opportunity, even if you don’t intend to buy a new house.
Most real estate developers and bankers preach of this decade as the peak of the market growth. The growth curve is exponentially portrayed and it’s deemed at one of its major peaks (we are talking about growth peak, because real estate prices will keep increasing but we’re assessing how fast it is increasing).
Field surveys have shown an increase of real estate prices in New Cairo by 300% between 2013 & 2015.
If a market grows by 300%, only a fool wouldn’t invest in it, especially that the new aggregations and compounds would yield in no time. One of Egypt’s most powerful yet not famously known businessmen claims to own 2% of Egyptian soil, without breaking any laws of monopoly or land utility; they buy the land, develop it slowly and eventually sell at a very high premium, if at all. They would only sell if needed. They most probably aren’t interested in any yield they would get anytime soon, again, if at all. They just buy more and more.
Obviously there is a very high relative demand on new cities that offer Egyptians the basics of a modern world-class city. This is tightly related to the fact that urban life in Egypt isn’t fulfilling the very basic needs of a normal life: transport, traffic, services, …etc.
However, if a demand on the product category would push the increase of the prices of the whole industry, this definitely means some less competitive compounds are way overpriced and they’re just benefiting (making use) of the fact that people want to buy good houses but don’t know how to choose. In a nutshell, all prices are increasing almost equally regardless to the quality of the offered product, which is a huge yet acceptable flaw in the market system.
“That said,
someday,
It will all burst”
We don’t discourage people to invest in real estate, we only encourage them to do so consciously. This in itself is still a very bold statement and we are courageous enough to make it and let history judge whether we were right.
Let’s assume most of those with relatively high buying power in Egypt managed to own a good bunch of real estate and held it just as all financial advisors encouraged them. Now everybody has real estate in the best possible locations, hoping they would sell them to someone else who would be interested in the added-value and with a very high premium. But who can afford this premium, now that everyone has already invested a lot in expensive real-estate wish for a return as well? Even worse, many people would take loans in order to finance their real estate investments, hoping it would yield much more than the interest rate of their loans.
Doesn’t this ring a bell?
US 2008 real estate crisis?
Not necessarily, but most probably it will happen, or at least there is a high risk it wouldn’t happen. Would the Egyptian economy sustain such a crisis? Even worse, this real-estate bubble is probably the main reason behind inflation: higher interest rates without equivalent production or productivity.
Don’t stop investing in real estate,
just do it consciously,
and consider smaller and more profitable investments.