Engineer Mustafa Mohsen, Chairman of Empire State Development Company, stated that relying on hedging strategies for pricing real estate projects significantly loses its effectiveness during periods of war and economic instability. He explained that markets experience sharp and rapid fluctuations that are difficult to predict, rendering this strategy ineffective.
Mohsen pointed out that hedging as a pricing tool is fundamentally based on well-studied forecasts of cost change rates. However, this mechanism becomes limited in its usefulness in exceptional situations characterized by severe disruptions in construction input prices and supply chains. He said, “In times of relative stability, a developer can set a reasonable safety margin to protect against market fluctuations, but in times of war, we face variables that cannot be accurately measured.”
Event Details
Mohsen added that excessive application of hedging strategies during these periods could lead to unrealistic pricing of real estate units, negatively impacting customers' purchasing power. This situation affects the pace of sales and creates a slowdown within the market. He confirmed that the market cannot bear the burden of all potential risk scenarios at once, as this undermines the competitiveness of the real estate product.
He also emphasized that the real challenge facing real estate development companies under such conditions lies not only in protecting profit margins but in achieving a delicate balance between business sustainability and maintaining demand. He clarified that pricing flexibility has become a necessity rather than an option.
Background & Context
In light of the economic and political crises many countries are experiencing, it has become essential for real estate developers to reconsider their pricing strategies. Sudden market changes require rapid and effective responses, making it necessary to adopt flexible pricing models.
Mohsen noted that some companies may need to periodically reassess their pricing models at short intervals instead of relying on long-term pricing based on assumptions that may change drastically over a short period. This approach requires companies to be more open to rapid market changes.
Impact & Consequences
These statements serve as a call for real estate developers to rethink their strategies under current conditions. The challenges facing the real estate market require innovative and flexible solutions, which may affect how real estate units are priced in the future.
Moreover, the negative impacts of excessively applying hedging strategies could lead to a decline in demand for properties, adversely affecting the economy as a whole. Therefore, maintaining a balance between prices and customers' purchasing power is vital to ensure market continuity.
Regional Significance
In the Arab region, where many countries suffer from political and economic crises, it becomes crucial for real estate companies to adopt flexible strategies that align with changing circumstances. The challenges facing the real estate market in these countries require a quick and effective response to maintain market stability.
In conclusion, Engineer Mustafa Mohsen's statements highlight the importance of precise market analysis and the necessity of making flexible decisions that align with current conditions. Rapid responses to market changes may be the key to success amid crises.