The real estate market has always been of interest to Egyptians, as it is a tangible asset and a safe haven that preserves the value of money. However, with the occurrence of economic crises such as inflation that affects everything, we have started to think more than once before putting our money into any investment, as this is not the right time for any wrong choices. So, is real estate investment still the right decision during the inflationary periods we are experiencing?
To answer this question, we need first to address three important questions:
1- What is inflation?
Inflation simply means that the money you have today won’t be able to buy the same things that you bought with it yesterday. This means that prices have increased and the purchasing power of your money has decreased. Inflation has many causes, the most important of which are:
Global crises, such as the COVID-19 pandemic, and the Russo-Ukrainian War, which have had a major impact on global buying and selling activities.
A significant increase in demand for goods or services can occur for various reasons such as population growth or monopolistic practices by some businesses. In all cases, this leads to a situation where demand exceeds supply, causing prices to rise and the currency’s value to decline, which results in inflation.
All of this has a significant impact on the economies of countries and all sectors. For example, the banking sector in the United States experienced the second-largest bank collapse in the country’s history when Silicon Valley Bank filed for bankruptcy in March 2023. Real estate, like any other sector, is also heavily affected by inflation. This leads us to the second question…
2- How does the real estate market get affected by inflation?
When inflation occurs and interest rates increase, the cost of mortgage loans also increases. This leads to a decrease in demand for real estate, as not everyone can afford to borrow at a higher interest rate.
Additionally, during the COVID-19 pandemic and the Russia-Ukraine conflict, the Egyptian real estate market experienced a significant slowdown in early 2020. According to Morder Intelligence, sales decreased by 30-40% due to the high increase in the prices of basic building materials such as cement and iron, as well as supply chain disruptions and import price hikes. All of these factors led to an increase in the final price of real estate for consumers.
During this time, there was also a significant comparison and confusion between the most important saving and investment tools, namely real estate, banks, and gold. This leads us to the third question…
3- How did gold and banks get affected by inflation?
A- Bank Certificates:
If you had invested your money in an 18% certificate right after it was announced on March 21, 2022, let’s see how it will be affected by inflation. We can calculate the real return on your investment, which equals (the expected return – the annual inflation rate at the time you receive your return). If you receive your return at the inflation rate announced in February 2023, which is 40.3%, then the real return on your investment would be 18% – 40.3% = -22.3%. This means that you have lost 22% of your purchasing power.
B- Gold:
Gold prices are unstable over the years because they are heavily tied to the US dollar. Gold prices dropped by 2% in March 2023 after the hearing session conducted by the Federal Reserve Governor, Jerome Powell, who stated that he would raise interest rates. This greatly affected the price of gold now and is expected to affect it even more later. This is because inflation is not contracting, and unfortunately, the value of your money decreases if it is in gold.
As a result of the losses that people have experienced from bank certificates and gold, money started to move toward real estate. Based on all the information we have mentioned above, we can now answer our main question…
Is real estate investment the right choice in times of inflation?
The answer is yes because real estate prices in Egypt increased by 7.5% in late 2020 “according to a report issued by the global real estate consultancy company (Knight Frank)”. In the first 9 months of 2021, the real estate market witnessed a growth of 59%, followed by a slowdown in sales activity in early 2022. However, by the end of the year, real estate prices increased by 17% “according to a report by JLL, the global real estate services company”. All of this makes the real estate market one of the fastest-growing markets in the world. You can imagine the significant returns for investors who bought during the pandemic or afterward. This confirms the statement by former US congressman Will Rogers who said “Don’t wait to buy real estate, buy real estate and wait”; because you will reap many benefits from your investment later.
Inflation has a positive effect on real estate, and they have a reciprocal relationship because as inflation increases, real estate prices increase. Here, you benefit from inflation in two ways:
Selling your unit: Recently, President Abdel Fattah El-Sisi removed all restrictions on foreigners’ ownership of Egyptian properties, which makes selling real estate easier and faster due to the devaluation of the Egyptian currency against foreign currencies. This opens up a new field for investment and encourages foreigners to buy in Egypt, thus ensuring the quick sale of your unit at a significant profit for you. Of course, you can also sell it normally to Egyptians and still benefit from the continuous increase in real estate prices.
Renting your unit: The rental market is very active now because many people prefer to rent due to the high ownership prices, thus ensuring a steady and guaranteed income from your property.
Also, what ensures that you will achieve a profit in light of the rising prices is that the demand for real estate has increased by 25-30%, and building materials prices have increased by 5%. This means that the demand and profit are higher than the cost you pay.
The best investment on earth is the earth itself because the need for housing is a basic human need that cannot be dispensed with. This is especially true in light of the high rates of marriage and population growth, and regardless of any crisis the world may go through, you are guaranteed that your investment is protected and secure and that it will bring you continuous and high profits as long as humanity exists on the planet. So, if you want to invest your money in a secure investment and don’t know how to start or where to begin, contact us and we will guide you step by step in choosing the most suitable units for you that will bring you the highest return, to after-sales services.
TAWABEQ…we elevate your dreams to new horizons.
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