The return on investment (ROI) is a vital metric for investors evaluating the profitability of property investments. It offers insights into financial returns, helping investors assess capital efficiency. By considering rental income, property appreciation, and related expenses, ROI provides a comprehensive view of potential earnings. A strong ROI indicates a wise investment, enabling investors to make informed decisions for a successful and profitable real estate experience.
Basem Elsherbiny, the CEO and Founder of ETQAN Business Development, said that ROI in Egypt’s real estate sector varies based on property type—whether commercial, administrative, residential, or coastal. He noted that annual returns in Egypt range between 10-15%, in contrast to more stable markets like England or Dubai, where returns typically fall between 5% and 8%. Elsherbiny also emphasized that Egypt is one of the largest real estate markets in the Middle East, with approximately 15 million Egyptians living abroad, who account for 35-50% of local property sales.
Ashraf Diaa, the Chairperson of A-Squared Consulting, shared that property values in Egypt generally increase by 15-20%, and also stressed the importance of considering the Internal Rate of Return (IRR), which reflects the growth of each pound invested over time. According to Diaa, rental yields for commercial properties range from 10% to 14%, while residential properties yield between 7-9%. He further projected a rise in residential rental returns, driven by an influx of Sudanese refugees investing in residential properties, as well as a surge in unit deliveries and the launch of several new projects, particularly in newly developed cities.
Elsherbiny highlighted that commercial properties deliver the highest return on investment in Egypt, followed by coastal properties, which have seen significant growth. Administrative properties come next, with residential properties generating the lowest returns.
Hatem Adel, the CEO of RoadMap Consulting, said that commercial real estate yields up to 12% ROI, especially in newly developed cities. He noted that Sheikh Zayed offers a better return on investment for commercial projects compared to East Cairo or the Fifth Settlement.
Elsherbiny also mentioned that economic stability, the liberalization of the exchange rate, and a stable dollar have revitalized the real estate market, making property investment more sustainable. He observed that the market began recovering in May, predicting it will reach its peak in the final quarter of the year. By the end of July, sales in the sector had reached EGP 800bn, with projections estimating they will hit EGP 1tr by the end of 2024.
El Sherbiny emphasized that the growth in real estate investment returns is influenced by several key factors, with location, the developer’s reputation, and the project’s brand name being the most important. He also highlighted the significance of operational status, especially in non-residential developments. Furthermore, scarcity plays a crucial role in boosting returns; the more limited the supply, the higher the return on investment.
Adel added that financial returns from real estate investment depend on various elements, including annual rental income, property value appreciation, and additional expenses like maintenance and repairs. He explained that the return is calculated by subtracting annual costs from annual revenue, then dividing the result by the property’s market value. This formula provides a clear and accurate picture of the expected profitability from real estate investment.
Diaa emphasized that the ROI in real estate outperforms that of gold and the dollar, as real estate generates revenue from various sources, including recurring rent, while gold and dollar profits primarily depend on sales. This diversification makes real estate a more stable investment, less prone to market fluctuations.
He highlighted that property values tend to remain stable, in contrast to the price volatility often seen with gold and the dollar. Additionally, he noted that returns on ownership can increase even if the buyer pays only 30% of the property’s value and begins renting it out upon acquisition. In such cases, rental income can help cover part of the instalments, turning the remainder into continuous profit, which further showcases real estate’s advantages as an investment option.
In conclusion, he pointed out that returns in real estate can manifest as investment returns, ownership returns, or asset returns, providing a level of diversification that is rarely available in other investment avenues.
