The Impact of 2024 Egyptian Pound flotation

The Impact of 2024 Egyptian Pound flotation

Tasneem Khalil 09 May 2024

The recent devaluation of the Egyptian pound against the US dollar and the Egyptian pound flotation resulted in some tensions across the country, and has been affecting the prices in different realms. Only a few terms in finance and investment that carry as much weight as "floating." It's a concept that is reflected not just through the broader economy, but also through the more specific parts of the real estate market. Understanding the currency flotation’s implications is important, especially when it comes to making decisions about your investments in real estate.

Currency floating refers to the fluctuation of currency values within market dynamics. These dynamics are driven by the interplay of supply and demand on a global scale. This flotation can have great effects on economies worldwide. When it comes to Egypt, such currency fluctuations extend far beyond the field of finance. This affects every aspect of daily life, from the prices of essential goods like food and fuel to the cost of luxury items like gold. As a result, both individuals and investors are left wondering about these times of economic uncertainty, and navigating the possible opportunities they can get.

When it comes to the real estate market, investors question the urgency of making current investments in properties. As the answer isn't always straightforward, and requires a good understanding of market trends as well as awareness of geopolitical developments and their potential impacts, we will answer the most important questions you can be thinking about. You can also read about Real estate investment and how the market developed in Egypt

What Is The Meaning Of Floating A Currency?

Flotation is an economic term, primarily used by governments to deregulate currency exchange rates, allowing the value of a currency to be determined by market supply and demand.

The currency's value is strictly set in relation to other currencies under a fixed exchange rate system, typically enforced by the government. In the time of flotation, the currency's value is determined naturally based on market dynamics. The currency can fluctuate based on various economic factors such as economic conditions, foreign investment, and international trade.

The impact of flotation, however,  is influenced by different factors such as the national economy, international economic relations, and inflation. While flotation can lead to benefits like increased exports and foreign investment, it may also result in inflationary pressures, price increase, and challenges in different economic sectors. The main objective of the flotation policy is to achieve greater market stability and allow the currency to liberate from government intervention. Such strategies, however, must be implemented cautiously and guided by appropriate economic oversight to lighten the overall effects on economic stability.

What Is The Impact of Currency Flotation on Real Estate? 

The real estate market has gone through many challenges over the years, including those in 2008, 2011, 2013, and 2016. Despite these challenges, the real estate market has consistently grown stronger. One significant crisis was in 2016 when the Egyptian pound was devalued and the price of the dollar doubled. Surprisingly, during this period, the real estate market has not fallen at all. On the contrary, the real estate market has flourished and witnessed a notable surge in serious buyers, recognizing more opportunities to invest in real estate.  Compare also between Secure investments at the present moment, Real estate or gold?

Experts predict that the future of the real estate market will navigate through the current crisis successfully. When asked about the timing of investments, experts also suggest that now is an ideal moment. They confirm that property prices are unlikely to decrease; instead, they are going to rise consistently in the future.

Real estate has always served as a reliable store of value, especially during currency fluctuations. People have turned to real estate as a secure long-term investment in Egypt. Investing in real estate now can make you gain substantial returns within a short period of one or two years, with a potential of doubled value. As the value of the dollar increases, foreigners can purchase properties at comparatively lower prices, benefiting both the Egyptian economy and the real estate sector.

What Is The Impact Of Currency Flotation On Developers?

The real estate sector is facing a significant challenge in Egypt as the current crisis greatly affects the high increase in prices of essential raw materials like cement and iron, in addition to their scarcity in the local market. This situation has left real estate developers with tough decisions. The impact of this flotation is obvious with the different developers. While some developers are trying to navigate through this crisis, ensuring the timely completion and quality delivery of their projects, others are facing the sad reality of potential project failures.

That’s why it’s important to choose developers you invest with wisely during such times. On the bright side, developers with a deep understanding of the market's dynamics and the ability to adapt to changing circumstances have a better chance of overcoming this challenge. If you are a potential property buyer, it’s important to seek advice from experienced property consultants who can help you choose reputable developers with a strong portfolio of timely delivered and excellent projects through challenging conditions.

What Are The Benefits Of Flotation In Real Estate?

Despite the challenges that real estate faces in the recent economic fluctuations, it's important to recognize that the flotation of the Egyptian Pound can bring some positive impacts on the real estate market in Egypt. These potential benefits include:

• Increased Foreign Investments: The depreciation of the Egyptian Pound resulting from currency flotation may attract foreign investors to the real estate market. With the local currency's decline, international buyers can seize the opportunity to purchase properties at discounted rates. This foreign investment can lead to market expansion and increased demand for real estate properties.
• Increased Local Real Estate Activity: The flotation has the potential to stimulate overall economic activity and improve the local economy. Economic growth and currency stability is often related to increased demand and activity in the real estate sector. As consumer confidence grows, so does the momentum in the real estate market.
• Promoting Real Estate Exports: By attracting foreign investors, the flotation opens new doors for real estate developers to enhance their exports. Increased interest in the real estate market can increase demand for local real estate projects, thus leading to increased exports.
• Enhancing The Purchasing Power of Local Buyers: A decline in the value of the local currency may enhance the purchasing power of local buyers. As affordability increases, local buyers may show increased interest in real estate investment, which results in higher real estate activity within the local market.

How Does The Government Support Real Estate During Currency Flotation?

While adjustments to the effects of the currency flotation on the real estate market are made over time, it's crucial for the government to take proactive measures to encourage investment, support the real estate sector, and subdue industry challenges. This can happen by implementing necessary reforms and creating a conducive environment for investment, so Egypt can make way for long-term stability and growth in its real estate market. The government's recent execution of a new investment law has received enthusiasm from both Egyptian and foreign investors. This legislation allows foreign nationals to own properties in Egypt without constraints, marking a significant shift in the investment landscape. This presents a golden opportunity for foreigners who are interested in the Egyptian market to be part of one of the most dynamic real estate sectors in the middle east. As most limitations are lifted, the temptation of investing in Egypt has never been stronger. There are endless possibilities of investments from the capital, Cairo, to the coastal homes along the Red Sea. The government's proactive approach has also extended beyond legal reforms. Accessibility to important investment areas has been simplified, with a concerted focus on important development areas such as the New Administrative Capital, Galala, and New Alamein City. These strategic locations provide promising prospects for investors seeking high returns and sustainable growth. The government also realizes the importance of backing developers during these challenging times as timely completion of projects is crucial, and financial assistance ensures that developers are able to meet their objectives.

Furthermore, banks play a crucial role in supporting the real estate development in Egypt. Banks are now offering tailored financial solutions and flexible facilities to empower developers and investors to build and develop new areas. This partnership between government, developers, and financial institutions becomes the cornerstone of stability and progress.

While challenges in the Egyptian real estate market stand as an example of persistence and opportunity, progressive reforms, strategic initiatives, and financial support play an important role to attract investors. It’s common to find people choosing patience and wisdom as their guidelines in such rough times, but opportunities for those who want to tread carefully and seize the moment when the time is right can be extremely fruitful.