Egypt's Real Estate Bubble: What You Need to Know

Mohamed Hassan
Jul 13
4 min read

Today, we're talking about a topic on many minds in Egypt: the real estate bubble. What's new here? We'll cover the signs that appear right before a bubble bursts, and what happens after it does. Most importantly, we'll reveal the main reason behind a potential real estate bubble burst in Egypt. This information is crucial for anyone considering property investment, and indeed, for everyone living in Egypt.

Why Egypt's Real Estate Market Matters So Much

The real estate market isn't just a simple game. Any shake-up or bubble burst in the Egyptian property market could trigger a massive earthquake for the entire Egyptian economy. Here's why:

Real estate makes up about 20% of Egypt's Gross Domestic Product (GDP).
Industries that support real estate add another 10% to the GDP.
To put this in perspective, the entire industrial sector in Egypt accounts for about 16% of the GDP. This means the real estate market is nearly twice as large, highlighting its critical role.

Signs Before a Real Estate Bubble Bursts

Before a property bubble bursts, several key indicators usually appear:

Rumors and Negative Talk:
- Negative discussions and rumors are often the first signs.
- This erodes buyer confidence, leading people to stop buying and causing market collapse (similar to what happens in stock markets).
- Often, those spreading negativity aren't experts and might even seem to gloat, unaware that a real estate crash affects everyone.
- The property market relies on "psychology" and trust. If trust is lost, the market falls.
Unnatural Price Increases:
- Property prices rise illogically, making it unaffordable for about 90% of Egyptians.
- This price increase is linked to general inflation across all goods and services (like cars and gold), not just real estate.
- Landlords are forced to raise rents to keep up with their own rising living costs.
- The real problem is the lack of purchasing power because salaries and incomes haven't increased at the same rate as inflation.
Speculators Exiting at a Loss:
- Speculation has been ongoing, but now, many speculators are forced to leave the market at a loss, sometimes losing all their money.
- Some might even find themselves owing more in penalties than they initially paid.
- This is actively happening now, with many accepting losses because there are no buyers.
People Stopping Installment Payments:
- Developers often don't deliver units on time but continue to collect installments.
- People feel wronged and start refusing to pay, filing lawsuits, or creating issues with developers.
- Trust in the Egyptian market is shaking. People now only trust a small number of major developers (around 10-20).
- Developers are focusing on the 10% of the population who can afford current prices (around 50,000 EGP per square meter or more in Cairo, and 15,000 EGP or more in the North Coast).
- While there's a slowdown, it's not a complete halt or paralysis of the real estate market.

What Happens After a Real Estate Bubble Bursts

Egypt has never experienced a real estate bubble burst before, so many don't understand the consequences. A bubble burst means prices drop by more than 30% (less than that is considered a correction).

Impact on Banks:
- Banks will be heavily affected because most developers borrow from banks and use customer checks as collateral (getting a portion of the check's value in cash).
- If the bubble bursts, these checks will become worthless, and neither customers nor developers will be able to make payments.
- Developers will stop work, and the market will face complete paralysis for months or even a year.
Supplier Stoppage and Job Losses:
- Suppliers for all construction materials will face a complete halt in business.
- There will be massive job losses across all real estate-related sectors (brokerage, marketing, developers).
- Small companies will close, and developers will lay off half or all their staff due to no sales.
General Economic Recession and Liquidity Crunch:
- A general economic recession will affect all sectors in Egypt, as the real estate market accounts for 30% of the economy.
- Spending will shrink. People won't go out or buy anything (clothes, coffee, malls); they'll stick to basic necessities.
- Everyone will hoard their money, fearing the future.
Unprecedented Outcomes:
- This situation is new for Egypt, and no real estate or economic expert can precisely predict the exact outcomes.
- Egypt could face an economic earthquake unlike anything it has seen before.

Real Estate Market Recovery Period

A real estate cycle typically takes 10 to 15 years to recover and reach its peak again.

If the bubble bursts or a correction occurs, the market will gradually decline.
To reach the bottom, then start rising and reach its peak again, it could take five years for the market to return to its highest prices.
This means we might need at least two and a half to three years for the market to just begin recovering and showing signs of life before reaching its peak in the subsequent years.

The Solution Lies with the State

The only solution is to restore confidence in the market, and this responsibility falls on the government.

New laws must be enacted to protect investors and buyers.
If trust returns, people can continue buying even if prices remain high, because the price increases are linked to inflation and cannot be easily lowered.
The state must provide the necessary confidence to the market to prevent the bubble from bursting.

Conclusion

I hope this has clarified my perspective and warned you about the seriousness of the situation. Whatever happens in Egypt will affect you, whether you're directly involved in real estate or not. So please, stop the negative talk about real estate; the situation is delicate, and you could inadvertently cause the market to collapse. We should discuss both the positives and negatives.

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