The Central Bank of Egypt’s (CBE) Monetary Policy Committee raised interest rates last week by one per cent, marking the first such increase in four months and the sixth in 18 months.

Egypt’s interest rates now stand at 19.25 per cent on deposits and 20.25 per cent on lending. The recent increase is meant to address risks of a surge in inflation rates, projected to peak in the second half of 2023.

The CBE decision has prompted analysts to predict that the public sector banks may issue high-yield certificates to attract liquidity to the banking sector. Prior to the CBE’s announcement of the interest rate raise, several banks had introduced certificates offering high returns in the local currency and dollars.

There have also been questions about the potential ramifications of the changes on the real-estate sector and its ability to cater to middle-class groups seeking real estate for residential or investment purposes.

Mohamed Samir, an expert on real-estate financing, said the sector had been slightly affected by the rise in interest rates but that it remains stable due to the demand for housing. This has remained constant due to population growth and the government’s urban expansion initiatives.

Even with the recent escalation in prices that have exceeded the purchasing power of many income segments, real estate financing remains available for developers and people in need of housing.

An initiative to guarantee financing for middle-income housing is facilitating the access of middle-class groups to housing units for residential purposes by maintaining a low interest rate.

Ayman Mohamed, head of the real estate finance sector at the United Bank, agreed that the demand for middle-income housing under the initiative remains strong. There has been an upswing of late, with developers engaging with real estate finance departments in the banking, government, and private sectors to facilitate the sale and purchase of housing units through the real estate financing framework, he said.

Despite the surge in prices over the past two years, demand for middle-income housing units intended for residential purposes continues to grow, Mohamed added. This is attributed to the fact that real estate financing, complemented by subsidised interest rates and extended repayment schedules, is an optimal solution for obtaining housing units for residential purposes.

There continues to be extensive demand for housing in Egypt due to new marriages and the desire of large families to secure more spacious living accommodations, he said.

The initiative supporting real estate financing for middle-income housing aims to fulfil the constitutional obligations of the state by providing suitable housing for each economic group. This group is different from that in search of real estate for the purposes of investment.

Ayman Abdel-Hamid, head of Al-Oula Real Estate Finance, said the real estate finance sector could have been negatively affected by bank initiatives to attract liquidity from the market, but in the past two years the opposite has in fact happened.

He said that this was because real estate in Egypt is still a valuable investment.

Over the past year, real estate prices have increased by 50 per cent, higher than any other sector, Abdel-Hamid said. Another increase of close to 40 per cent occurred in the market in the first half of 2023, meaning that the value of some real estate has doubled in two years, making it the most profitable investment sector.

For people looking to buy housing units for residential purposes, there are initiatives that offer loans of up to LE2.5 million and interest rates of between three and eight per cent. The demand for such initiatives is high because they are regarded as the best means to buy a unit due to the subsidised interest rates.

Despite escalating real estate prices and the removal of some properties from the financing initiative, supply and demand remain strong. The sector is seeing the introduction of new properties into the financing initiative, testifying to the expansion of the market, substantial population growth rates, and rising demand for housing.

More and more loans have been taken out to acquire housing units under the financing initiative over the past four years, exceeding the number registered between 2008 and 2018.

* A version of this article appears in print in the 10 August, 2023 edition of Al-Ahram Weekly