Wednesday, 1 February 2023

As macro conditions weigh on real estate players, what’s the gov’t doing to help?

What is the state doing to support the real estate sector? A perfect storm of economic headwinds — rising inflation, the devaluation of the EGP, and a shortage in construction and building materials — has led the country’s real estate sector to suffer from liquidity and operational challenges. Faced with these conditions, real estate players have lobbied authorities for intervention and support. Industry sources Enterprise spoke to all agreed that government support — in the form of financing facilities, deadline extensions, and other measures — is a necessity to help the sector cope with unfavorable macro conditions.

The government has already taken some steps: Prime Minister Moustafa Madbouly tasked a new committee with preparing an action plan to boost mortgage financing and setting a clear framework for real estate “exports” (i.e. granting foreign citizens access to purchasing local real estate units) to help the state secure some much-needed foreign currency. The committee will move forward with these plans with the central bank, the Housing Ministry, and real estate developers. Cabinet also recently called on the relevant authorities to look into funding issues the sector is facing as part of its efforts to support the sector.

And the CBE did its part before a changing of the guard: The Central Bank of Egypt (CBE) was helping construction companies take out loans on the cheap through its subsidized loan initiatives, which allowed construction players to take out loans at a preferential rate of 8%. The initiatives — which were also extended to tourism companies, among other borrowers — were designed to improve access to finance for key areas of the economy. The CBE axed its support for these initiatives at the end of last year and offloaded the funding responsibility to the housing and finance ministries.

What about buyers? The CBE also had a mortgage finance initiative for low- and middle-income earners, with some 480k borrowers taking advantage of the initiative, according to data from the Housing Ministry’s Mortgage Finance Fund. The initiative allows would-be homeowners to tap mortgage finance at a subsidized rate of 7-3% and offers a 30-year repayment period.

Who’s doing the lending? Some 22 banks and eight real estate finance firms are taking part in the CBE’s mortgage finance initiative. So far the banks have coughed up some EGP 52.1 bn, while NBFS firms disbursed some EGP 2.3 bn.

The initiative has run its course but industry players want more — and the government is working on it: Real estate players are demanding that it be extended in efforts to help the sector. The finance and housing ministries are currently working to launch a new initiative for real estate, offering players in the sector financing at a subsidized interest rate, government sources told us. Mortgage loans currently carry a 19% interest rate, May Abdel Hamid, head of the Mortgage Finance Fund, told us.

Real estate players have submitted a number of proposals requesting more financing initiatives for still under-construction units, ensuring the rights of all parties involved — including clients, banks, and real estate firms, Ahmed El Shenawy, a member of the Egyptian Real Estate Council, told us. El Shenawy suggests that this move would help breathe life into the sector.

There may be some additional measures, too: The state is looking to reduce the amount of administrative fees imposed on loans granted for real estate companies and imposing a unified 1% administrative fee, sources tell us.

Industry players warn that there’s a risk of falling out of the market without affordable funding options, as the current high interest rate environment makes it prohibitively expensive for many companies to take out loans, Beta Egypt Chairman and member of FEDCOC’s real estate investment division Alaa Fekry told Enterprise. Interest rates are currently at 17.25%, which — when paired with hefty administrative fees — pushed real estate prices to skyrocket, Fekry said. The state also needs to forgo any late delivery fines in light of the current rise in material prices, says Daker Abdellah, a board member at the Egyptian Federation of Construction and Building Contractors.

And on the consumer side, aspiring homeowners need financing assistance, too, Fekry said. Offering financing options for real estate companies and consumers will help shield the sector against what he described as an “imminent crisis.”

Mortgage lenders need to shake things up: Mortgage lenders need to extend their loans from the current 10-year period to 15 years in efforts to help them keep up the rise in real estate prices, which are expected to see a 30% increase over the coming year, Al Oula MD and Vice Chair Ayman Abdel Hamid told Enterprise.

A potentially helpful measure: Greenlighting the use of real estate units as mortgage collateral, which would allow banks to expand their financing base and ensure cashflow for projects, Fekry said. This would allow banks the right to reach out to the real estate developer in case the buyer fails to pay his installments on time. The real estate developer would then have to pay back the bank and put the buyer’s unit back on the market.

What’s at stake: Egypt has a wealth of real estate projects, with market appetite generally going strong as consumers see real estate as an appreciating asset, our sources explained. We’re also starting to see appetite from foreign consumers, who could be a source of FX income for the country. Industry players want to take advantage of this uptick in foreign appetite by hosting marketing exhibitions abroad and reeling in international customers.

Private sector wants in on social housing projects: The proposals submitted include one that calls for private sector participation in state-owned social housing projects to provide liquidity for real estate developers, El Shenawy said.

Your top infrastructure stories for the week:

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.