Jump-starting real estate

Safeya Mounir , Tuesday 10 Nov 2020

Can the new deals being offered to customers by Egypt’s real-estate companies save the market from a slump, asks Safeya Mounir

Jump-starting real estate
Jump-starting real estate

Egypt’s real-estate companies have been offering a host of lucrative deals in an attempt to attract clients and save the market from the stagnation that hit the sector hard following the Covid-19 outbreak earlier this year.

The Cityscape Egypt Conference, held from 4 to 7 November in Cairo, saw this platform that facilitates contacts between real-estate companies and clients make offers that were new to the Egyptian market, such as extending monthly instalments to 12 years, introducing interest-free instalments, and offering large discounts on cash payments.

The maximum number of years offered for monthly instalments earlier stood at 10, and a few years back it stood at a maximum of eight years.

Alaa Fekri, a member of the real-estate investment division at the Egyptian Federation of Chambers of Commerce, said these offers could harm the real-estate market, however, because they did not always fully cover the costs shouldered by developers, particularly with the rise in interest rates and the price of plots of land.

Other deals, he added, had included real-estate companies offering yields of up to 16 per cent to clients on down payment, making them resemble the kind of Ponzi schemes offered by money management companies in Egypt like Al-Saad and Al-Rayan in the 1980s.

A number of companies had offered clients deals of 20 per cent down payments and the rest in monthly instalments, the first scheduled three years after the delivery of the units, he said. Other companies had promoted increasing the number of instalments, under which clients pay a small monthly instalment that gradually increases.

A number of real-estate developers taking part in the Cityscape event said that the banks had allocated considerable sums of money to financing real-estate companies that had earlier stated they were able to acquire funds estimated at more than LE10 billion, in addition to non-financial tools, such as sukuks and bonds, to fund their activities.

The developers added that such moves would revivify Egypt’s real-estate market. Sukuks are non-interest-bearing financial instruments compliant with Islamic Sharia Law.

With the onset of the coronavirus crisis, the Central Bank of Egypt had lowered interest rates by three per cent, facilitating access to funds for real-estate companies concerned about high interest rates, they said.

However, some of these initiatives aiming to attract clients did not really benefit them, Fekri said, since they could be misguided by such initiatives. Units bought on long-instalment plans did not necessarily increase in value as much as units bought in cash, he said.

Palm Hills, a real-estate developer listed on the Egyptian Stock Exchange, has increased monthly instalments to be paid over 12 years, lowered down payments to 2.5 per cent of the price of units, and diversified the price of instalments so that clients pay 70 per cent of the total price of units in the first six years.

The company has offered this deal to clients buying property at its projects in Alamein, New Cairo, 6 October, and Sheikh Zayed cities.

Mohamed Al-Bostani, a member of the real-estate investment division at the Egyptian Federation of Chambers of Commerce, said that there was purchasing power for real estate in the Egyptian market, but this had been suspended for six months due to the coronavirus outbreak.

He said turnout at Cityscape had been the same as in previous years and that the offers the companies had made had encouraged clients to buy units. The number of contracts agreed during the event would be determined within a month when deals were signed between companies and clients.

Real-estate companies in Egypt often prefer to be paid in cash in order to provide the liquidity needed to finish their projects, pushing some companies to offer a 40 per cent discount on units to encourage customers to pay in cash and immediately receive their units, Al-Bostani said.

Mohamed Nabil, a real-estate analyst at Naeem Brokerage, said the multiple offers being made by the real-estate companies had also been used by small developers in the past. The coronavirus crisis had led leading companies to follow suit, he said.

Increasing the number of monthly instalments was meant to attract clients who could not afford to pay a hefty sum each month, Nabil said, adding that increasing the years needed to pay off the property on an instalment plan could help to rein in price rises, especially given the loans available from banks to finish construction projects.

However, increasing the number of instalments for customers could also lead to a liquidity crunch for companies, he added.

The majority of Egypt’s real-estate companies recorded a retreat in revenues or profits during the first half of the year due to the coronavirus pandemic. Palm Hills’ revenues shrank to LE2 billion in the first half of the year, down from LE2.5 during the same period of 2019.

The developer’s net profits recorded LE282 million from January to June 2020, down from LE470.4 million in the same period the previous year.

Talaat Moustafa Holding registered a loss in net profits of 16 per cent, recording LE1.13 billion in the first half of this year. SODIC’s revenues decreased to LE1.07 billion in the first half of 2020, down from LE2.02 billion during the same period of last year.



*A version of this article appears in print in the 12 November, 2020 edition of Al-Ahram Weekly


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