Despite headwinds and economic turmoil associated with the currency devaluation in Egypt, the value of projects awarded in 2022 represented approximately 21% of the total value recorded in the MENA region, indicating a year-on-year spike since 2020.
This was attributed to a record inflow of foreign direct investments (FDIs), which increased by 71% for the fiscal year 2021/2022, as well as regional developers investing in critical infrastructure projects, highlighting a resilient real estate sector.
Although the International Monetary Fund (IMF) lowered its prediction for Egypt’s real gross domestic product (GDP) for 2022/2023 to 4%, Trading Economics recorded that FDI in the capital had reached an all-time high of $7.7 billion in Q1 2022 after merely averaging $2.8 billion since 2002.
The pace of investment is driving the development of the real estate sector, as Egypt is commencing the development of 20 new cities, while also redeveloping some of its existing stock.
Furthermore, Emirates NBD Research predicts privatisation, and the sale of government assets will catalyse further future investment inflows, which are mainly forecasted to come from substantial financial support in the form of FDIs from the GCC countries.
Post-COP27 growth
Laura Morgan, market intelligence lead for the Middle East & Africa at JLL, said: “The record inflow of foreign direct investments coupled with regional developers investing in critical infrastructure projects has helped Egypt’s real estate market remain resilient in 2022, despite headwinds and economic turmoil associated with the country’s currency devaluation.
“Egypt is commencing the development of 20 new cities while redeveloping some of its existing stock, which demonstrates the strength of the country’s construction sector. Egypt recently hosted the COP27 climate talks, and data suggests that the region has improvement opportunities associated with decarbonising the construction sector and implementing real estate sustainability assessment.
“Whilst countries in the region are currently focusing on their paths to Net Zero targets, Egypt has pledged to update its climate plan by June 2023, including a long-term strategy that explores a net zero target.”
According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), Egypt welcomed approximately 5 million visitors in the first half of 2022, up from 2.5 million during the same period in the previous year.
Looking ahead, Trading Economics forecasts that travel and tourism will account for 12% of Egypt’s total GDP by 2024, equating to up to 40 million tourists. Within Cairo’s residential sector, approximately 18,000 units were delivered in 2022, and 2023 is expected to see the delivery of approximately 35,000 units, indicating a strong residential sector in terms of construction development.
Improvements within Egypt’s supply chain
JLL’s market intelligence data obtained through discussions with regional contractors and players in the supply chain identified that global economic volatility in the first half of 2022 created challenges within the local construction market in relation to delivery lead times and instant price increases, with suppliers reluctant to guarantee prices for extended durations.
Furthermore, construction materials linked to aluminium, such as façade systems, Rebar, and MEP elements like generators and semi-conductors, saw the greatest impact in connection with delivery shipping time, leading to financial bearing and contractors citing the need to micromanage the supply chain to mitigate risks and safeguard project programs, budgets, as well as cash flow.
Nevertheless, JLL witnessed improvements within the supply chain in the second half of 2022, however, price increases remained a significant risk in Egypt due to the currency devaluation and rising inflation, with contractors and developers proceeding with caution.
JLL expects that the construction material prices are likely to continue to increase throughout 2023 on the back of further floatation of the Egyptian currency.
Future construction costs will be balanced against the local market and global economic factors, although commodity and other material prices are softening, or have already flatlined. The MENA region’s construction sector performance is strong and reliant on construction material imports outside of the region, which is detrimental to the Egypt construction market.
Global increase in demand for skilled labour, combined with shortages in the construction sector are facilitating rising construction costs.
Source: Construction Week
