The Central Bank of Egypt (CBE) decided on 7 February to amend the financing regulations for the real-estate sector. Loans may now be disbursed to the private sector to pay for land, provided that the land on which housing units are to be built is the property of the borrowing company or was allocated to the company from the original owner.
The decision also allows grants to be made to finance real estate projects implemented jointly by real estate companies and a state entity or other private sector companies. This is conditional upon the creditworthiness, good reputation, and high financial solvency of all the parties involved.
The CBE decision is an amendment to previous regulations regarding the financing of real estate development companies building housing units.
The move will help to stimulate the sector because earlier regulations had stated that funding for companies excluded loans to buy land, said Alaa Fekri, a member of the Real Estate Investment Division at the Federation of Egyptian Chambers of Commerce.
With the latest amendment, companies will be able to pay the price of the land to the state, since 95 per cent of land is bought through the government, he added. The decision will allow companies to pay instalments regularly, and the state will be able to collect more money regardless of circumstances that may affect the payments.
The CBE decision is a return to a policy that was in place two decades ago, but that had been annulled because land was being bought for the sake of hoarding and selling at a higher price later. Now that almost all land sales are conducted via the state, the CBE amendment will help investors to pay off what they owe to it.
“All the monetary policies and regulations the state has adopted in the past two years, such as lowering interest rates and the CBE real estate initiatives, are in favour of supporting the real estate sector,” said Mohamed Al-Bostani, deputy head of the Real Estate Investment Division and head of the New Cairo Developers Association.
In April 2019, the CBE issued a set of regulations to stimulate the real estate sector and pump liquidity to developers. It allowed the transfer of clients’ debts or remaining instalments from the companies to the banks, provided that the banks paid the value of the debt to the companies in exchange for a set return.
This was to help ensure that the companies had the necessary liquidity to complete their projects, instead of waiting for instalments to be collected over many years. Meanwhile, the CBE stressed that the banks should not disburse more than LE50 billion collectively for real estate financing.
In February 2020, the CBE decided to double the maximum limit for the banks to finance real estate projects to 10 per cent of their total loan portfolio. The Egyptian Arab Land Bank and the Housing and Development Bank were excluded from the decision.
Al-Bostani added that these decisions had allowed investors to commit to paying their instalments on land. The recently issued decisions are in line with the state’s development vision for 2030 and 2052, which targets increasing Egypt’s inhabited land from the current seven per cent to 12 per cent.
He anticipated that the real estate sector would achieve more growth this year than in 2020, given the many projects the state is building in New Alamein, the New Administrative Capital, Ain Sokhna, and Galala City.
Real estate developers now need more banking facilities, Al-Bostani suggested, such as scrapping the interest on paid instalments.
The construction sector has also achieved high growth rates over the past four years. According to CBE data, the sector grew by 8.7 per cent in the period from March to July 2020 during the first wave of the coronavirus pandemic.
Tarek Shoukri, head of the Real Estate Development Chamber at the Federation of Egyptian Industries, believes the CBE’s latest decision is a limited move, however.
The sector needs more financing in the coming period to bridge the gap between the companies’ available liquidity and the instalments they have to pay for their land or to move ahead with their projects, he said.
The real estate sector, he added, contributes largely to GDP and employs a large number of labourers.
Shoukri pointed out that more facilities for financing procedures were needed, just as was the case with the facilitated loans available to buy vehicles. Banks and real-estate companies have sufficient guarantees in case payments falter. In the European countries and the US, real estate financing is set at 97 per cent, while in Egypt it stands at three per cent, Shoukri added.
The CBE should also instruct the banks to facilitate procedures related to the documents customers need to produce in order to prove incomes, since these can sometimes be difficult to acquire, he said.
*A version of this article appears in print in the 25 February, 2021 edition of Al-Ahram Weekly