Overprice investment threatens the expansion of real estate developers in Egypt

The real estate resale market - the secondary market for units with unpaid installments, or what is known as “resale” - has rebounded in Egypt recently after the record profits achieved by investors, which were mainly driven by raising the prices of new offerings from real estate development companies in the primary market.

Resale

Resale, or "resale", is very similar to financial derivatives, as it is not necessary to pay the full price of the unit. Sometimes it is enough just to pay the "serious reservation" - an amount that may not exceed 5% of the value of the unit - to become the paper owner of it, and then You resell it again if the price increases at an “Over Price” premium. It is sufficient for the real estate developer to raise the selling price by only 10% for the investor to achieve a return of up to 200% on his investment.

As an example, the serious reservation amount for a real estate unit worth one million pounds is 50 thousand pounds. If the company raises the new offering price by only 10%, the total price of the unit will rise to 1.1 million pounds, and the “Resale” investor can resell his unit for a profit of up to 100 thousand fairy.

But the record rises in prices, which grew by rates ranging from 65 to 100% during 2023, inflamed the desire for risk, and brought adventurers into the market whose income did not match the prices of the units for which they accepted to make down payments.

Reasons for the significant increase in prices

The large increases in prices were driven by two factors: the first was the wave of inflation and the decline in the value of the pound against the dollar, which in turn led to an increase in the prices of building materials, and thus construction costs for real estate companies.

The second factor was the demand to buy real estate as a hedge against a new decline in the value of the currency, considering real estate a safe haven for preserving value and its high returns compared to fixed income instruments.

Zero risks

One of the investors in the Egyptian real estate market told Al Arabiya Business that this type of investment is highly profitable and safe at the same time. “The risks are almost non-existent, especially with regard to the resale of ready-made units, and often provide greater returns for the investor.”

“Renting is a suitable alternative if you want to keep the property for a longer period, and the presence of the unit on the ground places a greater premium on the price that competes with the price offered by developers for the new, unimplemented phases.”

For his part, the Chairman of the Board of Directors of Beta Egypt for Urban Development, Alaa Fekry, believes that the increase in demand in the secondary market for real estate, the “resale market,” is supported by hedging operations against a greater decline in the value of money with every decline in the price of the local currency, and for this reason he seeks Many people want to convert this cash into an asset that preserves value and generates returns if exploited.

Fikri told Al Arabiya Business that the conflict over investment alternatives is limited in Egypt between certificates and bank deposits, or gold and dollars, and a significant percentage of Egyptians prefer real estate.