Egypt: Recovery in real estate

Safeya Mounir , Tuesday 16 Feb 2021

A partial recovery is expected in the real-estate sector this year, helped by a substantial drop in interest rates

Recovery in real estate
Recovery in real estate

“The Covid-19 pandemic cast a long shadow on the real-estate sector in 2020, but its impact was not as dire as the repercussions of the global financial crisis of 2009 or the 2011 Revolution in Egypt,” said Mohamed Nabil, a real-estate analyst at Naeem Holding, a local investment bank.

According to data announced by listed real-estate companies, the impact of the Covid-19 pandemic has not been uniform. While the revenues of most companies dropped by varying degrees, some companies performed better than others in 2019, “including 6 October for Development and Investment (SODIC) and Madinet Nasr for Housing and Development [MNHD],” Nabil said.

SODIC’s newest projects saw an increase in net profits to reach LE537.8 million in the nine months ending in September 2020, compared to around LE506 million during the same period in 2019. New developments by MNHD raked in net profits of LE1.14 billion during the nine months ending in September 2020, compared to LE997 million during the same period in 2019.

The Talaat Mustafa Group (TMG) Holding, the largest real-estate development company listed on the stock exchange, recorded a 20 per cent increase in net profits in the first nine months of 2020 compared to the same period in 2019.

Nabil said these profits were due to the fact that projects contracted three or four years ago were now being delivered, since companies do not record their profits until they hand over units.

“We expect the sector to grow by 10 per cent in 2021 compared to 2020,” he said, adding that there were expectations of further growth in 2022.

There are still concerns as to how the current wave of Covid-19 will impact the economy, and there may even be a third wave, which could impact prospective buyers because disposing of property is more difficult during a crisis. This could cause some buyers to delay the decision to purchase.

Nabil said that the real-estate companies will want to take advantage of the current cash liquidity to buy more land for new projects.

The state is also working on new projects, building new cities and selling land to real-estate investors to build residential developments.

Walid Abbas, assistant to the minister of housing for the Urban Communities Authority (UCA) and supervisor of the planning and projects sector, said last week during a meeting with the American Chamber of Commerce that the UCA was working on 17 new cities and had completed 90 per cent of their first phase. 

He said that since 2019 the UCA has been working on 14 cities, with eight in southern governorates as far as Aswan to accommodate high population densities.

The recent decrease in interest rates and the expiration of the one-year National Bank of Egypt (NBE) and Banque Misr deposit certificates that were issued in March with a return of 15 per cent would encourage people to invest in real estate, he said. 

When the Covid-19 outbreak began last year, the NBE and Banque Misr issued certificates with a 15 per cent rate of return. With the successive drop in interest rates last year, the main interest rates at the Central Bank of Egypt (CBE) are 8.25 per cent for deposits and 9.25 per cent for loans.

Mahmoud Gad, a real-estate analyst at the Arab-African International Securities (AAIS) brokerage, expects the sector to become more popular during the second half of 2021, as Covid-19 diminishes and with the return of workers from overseas.

Several real-estate expos planned for the year will also contribute to increasing sales. Gad believes that lower interest rates will encourage individuals to invest in real estate, since buying one residential unit and renting it out can provide an owner with an income equal to revenues from bank certificates and deposits. The value of the property will also grow with time.

Nabil added that the drop in base interest rates would provide liquidity for companies that had previously taken out loans, since the interest was calculated according to base interest rates in addition to a percentage agreed with the lending bank.


*A version of this article appears in print in the 18 February, 2021 edition of Al-Ahram Weekly


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