What Determines Housing Prices in Egypt?

The Egyptian housing market is a very dynamic market and has many interactions with monetary and financial markets in the economy. In this paper, we investigate the macro-financial fundamentals, institutional as well as specific behavioural and cultural factors that are argued to play a role in housing demand and prices in Egypt. We design a field survey for a representative sample of household homebuyers and sellers as well as real estate developers and brokers. We then run an Ordinal Logistic Regression Model (OLM) based on the results of the field survey and a constructed housing price index. Analysis reveal many important findings, firstly, land construction and licensing costs, government real estate and housing policies are all perceived as main determinants of housing prices in the Egyptian market. On the contrary, macro-financial variables, namely inflation and interest rates were not significant indicating a possibly weak monetary transmission mechanism through the theoretically explained asset-price channel. Results also affirm that housing investment is perceived by Egyptians as the safest form of investment during uncertainty shocks and good hedge against inflation and other financial turbulence. Finally, findings reveal a huge discrepancy in information and data on housing dynamics and expectations across the sampled groups, households and Developers & Brokers. Lack of information makes market actors more vulnerable to principal-agent problems and result into asymmetric information moral hazard outcomes. The above results altogether reinforce the importance of constructing a micro dataset on housing prices in Egypt and constructing a housing price index for the Egyptian market as was initiated in this research and planned to be further developed in future research.