This is probably one of the hottest topics in the Egyptian market right now.
Just the mere whisper of a bubble gets everyone involved on edge, ready to defend the sector like it’s their own mother.
It’s understandable.. The Real Estate sector represent a large portion of the current market, and it affects the livelihood of many.
So I’m gonna try and make this as simple as possible.
So.. Is There A Bubble?
The short answer: Yes! There’s definitely a real estate bubble in Egypt right now.
Good news is: It’s not as bad or dark as people imagine.
Just because there’s a bubble, doesn’t mean the economy is gonna crash. This is not 2008, and we are not in the United States.
You Can Handle The Truth (Probably)
The existence of a real estate bubble in Egypt is inarguable. Even people working in the sector know that, regardless of how hard they try to convince you otherwise. After all, they need to make their commissions.
The reason everyone is on the defensive, is that once you mention a bubble, they think of the infamous ’08 USA crash. But this is not the same scenario we have here.
The reason? We simply don’t have the same financial system that allowed the USA economical crash to happen in the first place.
What Is A Bubble?
Simply put: a BUBBLE to businesses is like TREND to social media.
For a period of time, it’s all everyone talks about, invest in, and work at. It becomes the sector that holds the biggest portion of economical and financial transactions, strongly affects the stock market, and is driven by FOMO rather than logic.
Everyone is blindly stepping into that sector, with an unshakeable conviction that “It Doesn’t Lose”
It happens when there’s a lot of money going in, a lot of buying, but not actual demand. To give you an example, imagine you started a clothing brand, and you have 20 customers who come and buy everything, every month.
On paper, you’re selling out, and cashing in. Inventory is running out quick, and you’re hiking up prices. The reason they come back every month, is that you keep increasing your prices, they’re in FOMO mode, and think they’re getting a good bang for their buck.
Eventually, these 20 customers will have more clothing than they need, and will stop coming in.
Initially, you felt like your products were in high demand and everyone racing to get it. Now you’re realizing, there wasn’t actual demand, and you’re not reaching the actual market. It was a hype by some people.. A trend.. A BUBBLE!
We’ve recently seen it in the USA in 2000s “.com bubble”, 2008 “Real Estate Bubble”, 2021 “NFT Bubble”
These were all bubbles, but not with the same magnitude or economical impact. This is probably why you’ve only heard of the ’08 one.
Why ’08?
The reason you’re aware of the ’08 bubble, is that it was so big, it affect the whole world.
Countries were affected, differently. Some were hit hard, others just heard of it. Nonetheless, it shook the world for a while.
The reason it had such great impact, was because it was more than just a market bubble bursting. It was a bubble topped with financial institution’s greed, and pure corruption. Banks and institution sold faulty products to investors and other institutions worldwide. It was 5% real business, and 95% fancy ponzi scheme.
They knew it was faulty the moment they decided to make it, and that it would eventually collapse. They just didn’t care. They were making shit ton of money!!
Is This Going To Happen Again?
In the U.S: YES!!! And sooner than later. Simply because they’re doing it again, the same exact way. They just changed the name of the product.
And it’s not just in the Real Estate sector anymore. They managed to expand it to more businesses and sectors.
In Egypt: No!
We simply don’t have the same financial system they have.
I’m not saying they have a better system, or ours is lacking. It’s just not the same system. Not the same way business is done.
But We’re Not In The Clear
Even though it’s not going to happen the same way, or with the same magnitude, doesn’t mean it’s not going to happen.
Banks aren’t going to collapse. People are not going to up end up on the streets.
But there’s will be a lot of foreclosures and bank acquisitions, lots of penalties paid for failure to pay off loans, and prices will go down hard (Maybe even up to 61% in some cases)
It will be more like a real estate Black Friday that lasts a couple of years, and less like the ’08 crash
But Why?
The same reason you clothing brand collapsed… There’s Hype Demand, but not Actual Demand.
Majority of the sales are not by people wanting to move in. It’s people buying because it’s gonna go up, and it goes up because THEY are buying.
For the rest of the market, the real demand, it’s getting harder and harder to buy these types of places to move to. The harder it gets, the less likely they are to buy, the harder it will be for the original buy to sell.
If I can’t sell it and make a profit, then why would I buy more? Developer sales will start to drop, but they got mouths to feed and employees to pay. What can they do?
Special Offer!! Expo Discount!! Mother’s Day Gifts!! Whatever they can think of
Whatever they can do to generate cash. Eventually, they will be competing with the people who originally bought from them on who can bring the prices lower and flip more units.
Numbers Don’t Match
The rate at which new units are being built, far exceeds the rate at which actual demand is growing.
We got 100 people every year who are looking to buy a place to live in, but we’re building 1,000 new units every year (NOT ACTUAL NUMBERS, BUT YOU GET THE GIST)
I ask you, do you think this is sustainable?
Humble Conclusion
Probability wise, there’s a higher chance in favor of the existence of a real estate bubble. The question now becomes not IF it exists, but rather WHEN will it burst.
But either way, it is highly unlikely that it would disrupt the economy like the ’08 crash. The only major effect is that it would slow down developers, and make it harder for investors to flip their acquired units in a short period.
Eventually, price will go back up, there will be a new wave of high demand, prices will go even higher than they are now, and life will go on.
The internet and website didn’t disappear after the 2000 bubble burst. People are still buying houses after the ’08 crash, and NFTs, well, they’ll come back once people understand what the tech actually is (No, it’s not pictures and monkeys. It’s an actual tech 😆 )
