Despite the political turmoil of recent years and the harsh economic reform plan set by the government, the Egyptian real estate industry stays strong. As we approach the fourth quarter of 2017, recent international and domestic figures show the market picking up steadily. Invest-Gate sits with one of the industry’s icons, Mohamed Banany, Vice President of Coldwell Banker and Coldwell Banker New Homes in a thorough discussion about the status of the real estate market in general and the dynamic role Coldwell Banker New Homes plays as a market consultant and broker specifically, presenting its “One-Stop Real Estate Shop” strategy. Banany also puts an end to the “Real Estate Bubble” misconception.

How do you assess the real estate market of Egypt today?

Now that we have passed the tough patch, we are at the end of the trough stage of the economic cycle, which took seven years, when the economy hits a low point in growth,  like in any economy,  from which a recovery can begin.  We have passed those seven years of trough following the political turmoil and the harsh economic reform. Today, the market is picking up at a steady pace but we are still lagging behind. As an economist, I believe that the economy is to grow at a faster rate as of 2018 in terms of GDP and, of course, real estate.

Our climate is promising and the biggest indicator to us is the number of foreign and Arab investments that poured into the country. Had our climate not been attractive to them, they would not have invested at all!

Even among the locals, there are a number of Egyptian investors, who have invested in this sector. We are approaching a new cycle especially in real estate although obstacles remain evident and we have turbulences but this does not mean that the overall picture is bad. In fact, it is very promising.

What do you mean by turbulences?

I mean some developers or new investors to the market will face some obstacles in terms of cost and end-prices. I specify those, who have not studied the market well and have not done a lot of research. I expect those people to face some obstacles in construction, material costs, land allocation, and pricing. Some developers will stagnate while others will shine…Again, this is natural and it will take its course until real estate is stable again.  We always say that this market is driven by “deep pockets”, meaning those who know the market well; unlike others, who have not studied it at all and have little experience in such types of investment.

How do you view the current flexible payment plans marketed by many, if not all, developers given the harsh reform plan and following the pound float?

I find it very healthy to the market so long as it is aligned with the developer’s cash flow. Such currently marketed payment plans substitute the lack of a strong healthy mortgage market due to the fact that today’s mortgage rate has reached a high interest rate of 20%. Thus, such plans are diverse marketing tools that differ from one developer to the other yet, I find them healthy alternatives.  

How do the ups and downs of monetary policies affect real estate?

Monetary policies are, without a doubt, harsh on the market. However, those, who understand the market well, know that these policies are divided on short-, medium-, and long-terms. It can be seen negative on a short-or medium-term, leading to inflation for example; but it is definitely very beneficial on the long run. In more simpler words, we can say that we are “a very sick patient” and we need a long treatment plan to recover. It is severe medicine but we all need to take it to survive! I do not have a doubt that this will lead us to better and more stable economy in the future.

Our economy was based on many wrong strategies and, unfortunately for us all, it needed an entire makeover and was reformed all at once but again it is for the better future. We need to be patient and wise because finally we are on the right track.

Mind you, our previous strategy was solely based on subsidies, giving a positive indication on the economy. However in reality, this was all fake as we had two different prices on products like the value of currencies, for example.  No strong economy subsidizes any commodity.

Given this reform plan, what challenges did/does Coldwell Banker face? And how did it change the purchase power?

To be honest, Egypt’s survival depended entirely on the so-called “grey economy”, which experts believe to be triple the size of our actual economy. We heard on several occasions of cash squeeze or the lack of cash in the country, when we find nothing of that sort and people are still buying. This is another mishap of being a subsidy-based economy especially on the EGP. Let alone, no tax monitoring.  Yes, there was a struggle among some developers and purchase power but nothing evident or can be put in a study due to the so-called “grey economy”. Now with our reform plan, order has been set and we are to have a proper healthy economic growth.  In the past six months, reports state that approximately EGP 220 bn were deposited in banks across Egypt. Of course, this is in regards to classes A and somewhat B, although I find class B is currently demolishing.

We have seen recently, some mortgage plans and investment plans catering to classes C and D like that of the Central Bank, giving individuals residential loans of upto 8 and 9% for investments of EGP 600,000 and more. This is  a great step to cater to such classes; however, many developers and industry experts have called on the CBE to raise the ceiling on this amount even if they prolong the payment plan; as due to price increase on everything, developers cannot give out a product of good quality at this price point. They are asking to raise the ceiling to EGP 1.5 mn to meet market demand and cater to today’s purchase power. I believe the CBE will soon approve such a request.

Also, today we see the government catering to the lower classes and has partnered with a number of big developers to build housing units for such classes; this is a huge step and I applaud Minister of Housing Mostafa Madbouly on that.

Speaking of banks, with their high-yield certificates and new saving plans, do you find them competing with the industry as real estate has evidently remained the safe haven for investment?

We cannot prove or deny such a statement. There might be minimal effect on the market but it can never create a threat or an actual competition.  As a general rule, property ownership is crucial to Egyptians and it is inherited from one generation to the other. It is part of our culture unlike any other nation.  We are a cash market. Some have gone to banks for investment but this new investment scheme is a short-term plan for banks to collect money but it will not last long. Sooner or later, they will decrease their interest rates to go back to normal; however, people will still put their money in real estate, which is a long-term saving plan with increasing appreciation year after year. Even among foreign and Arab property owners in Egypt, real estate in Egypt is and will remain to be a safe haven. You will rarely find one selling.

Why do people claim that we live in a real estate bubble in Egypt?

People read headlines and ignore the content of any article… Well, scientifically speaking, Egypt can never have a “bubble” for a number of reasons. To begin with, we are a cash market. Unlike Europe and USA and the great recession of 2008, we do not rely on credit and foreclosure. The bubble is only a “media bubble”.

Another thing is the real demand in the market. Our population increases by a million each year and we have about 250,000 marriages on average each year and yet, I believe that the production of this industry cannot exceed 150,000 units yearly nationwide, of which class A only consumes roughly 20,000 units. So our demand in Egypt is high and will continue to be so. We are far behind saturation.

Finally, we, as a nation, consume only 7% of the Egyptian land and we have now five new cities being developed by public and private sectors.

Real estate is an industry that links around 100 to 150 other industries together, including residential, of course, as well as medical, commercial, infrastructure, services, and roads, etc. So by all means how can there be a bubble!

How do you view the IMF loan?

The IMF loan is the biggest warranty of the Egyptian economy. Again, by removing all subsidies or at least the major subsidies, you limit the room for corruption. Having a “grey economy” and two prices for each and every commodity eats your GDP. If we go back to history, the 2011 uprising was because of people not seeing the economic growth Egypt had reached back then. This was because of those dominating the many industries, pricing services, and commodities to their benefit and not as planned by the government. Egypt had previously spent over EGP 150 bn on subsidized commodities that profited distributors and traders and not the end user. One of the biggest economic problems we had was subsidizing services and commodities and, thankfully, this phase has passed.

Where the IMF is concerned, it is the Central Bank with its governor, Tarek Amer, along with the Ministry of Finance that put a strategic economic reform plan for Egypt and this plan was presented to the IMF and hence our loan was approved. The IMF loan, to us, is a “trust guarantee” that we are moving on the right track and it creates discipline for all entities. The IMF conducts quarterly reports to display the performance of economies in general and, from what we find so far, we are one of the booming economies. Maybe most people do not know that part of the reform plan to get the IMF loan was to ensure a better quality of life to all individuals, which is what the government is continuously working on. Today, we have a number of social reforms to meet the IMF standards and to improve the livelihood of Egyptians. So according to the plan, Egyptians for the first time in modern history are to profit from Egypt’s GDP.  A year after the IMF loan, we have reached growth rate of 5.2%, which is very good. The unemployment rate is also decreasing and this is an excellent indication. I believe that in the near future, the common man will feel this growth as taxes decrease and the monthly income increases. We just need some patience.  

When will real estate be stable?

Real estate in Egypt will never be stable as the demand continues to increase annually. However, where prices are concerned, it is becoming more stable. Prices and value of lands are not to see a jump like that of last year but it will gradually go back to a stable higher fragment. Meaning that from 2016 to 2017, we saw a price hike of up to 30%. In 2018, the rate of increase will be of about 10 to 15% and gradually the percentage of increase is expected to decrease yearly.

How does the brokerage market work? What are the services Coldwell Banker New Homes provide?

The real estate market is divided into a number of sectors. We have a primary market that is direct sales (off-plan) by developers; and secondary market and that includes resale, cash market, and where brokers play their roles.  We have also the commercial market that includes any business that exceeds six or seven apartments to put it in a simplified way and consumes industrial, administrative, and medical, etc.

As Coldwell Banker, we started as a broker in the market renting and selling residential units. In 2008, we founded Coldwell Banker New Homes. It is the first subsidiary of Coldwell Banker worldwide with its scope of business. This business is all about real estate consulting. Now we present 135 developments by Egypt’s major developers. We found that the brokerage market is diminishing in Egypt so we created this new company to cater to clients’ needs; by clients, I mean the regular investor.

What is the relationship between Coldwell Banker and developer? In other words, when do developers seek brokers given their existing sales teams?

The idea behind Coldwell Banker New Homes is to present a real estate “department store” to clients. We follow a zero commission model from clients. Units are sold according to prices and payment plans provided by the developer. We get commission from the developer.

We consult and present 135 projects to clients and guide them through the best options that meet their needs. We take projects by developers, who have a profound track record to guarantee a proper investment.

We are very selective in our portfolio. We assess the client’s needs and budget, and cater to those needs. We filter all projects to meet the desired criteria. Then we display units and projects until we make a sale. We consult for free and our profit is from the developer as we help them make more sales.

Why would a developer seek our services? Well it is because we pioneered in presenting many projects under one roof for clients. We sought after an anchor and we took off with a few leading developers and we succeeded in that. Our networking added an indirect sale to the developer. As to our services to the developer, we get him new clients through a third-party credibility. To some developers, the indirect sales by brokers consume about 60% of their sales. This concept proved success and added revenues to developers and is currently adopted by many other brokers and agents in the market.

And how do Coldwell Banker New Homes team remain unbiased to certain projects?

Our challenge was to gain developers’ trust. We managed to get a market key player as an anchor. Our anchor got us followers until we reached our- 135- project portfolio. Today, we have around 3,000 trained agents graduated from our academy and we manage to deliver only objective consultation to clients. Our target is to cater to the clients needs so we never look at the projects we present but what the average individual is looking for when buying a home. We have a fixed commission from all developers in order to eliminate any possible bias. The profit the agents get is the same from any developer we represent. This is the only way we function.

How does resale of units compete with those of developer’s given the attractive payment plans?

Real Estate is about location of a unit within a project and the location of the project itself. Given that now the elite locations across Egypt are sold out whether we speak about 6th of October and New Cairo in Greater Cairo, the North Coast, the Red Sea, and Ain Sokhna. Sooner or later, the market will change back to the secondary market and resale will boom again as people will only seek the location.

Resale has its own clientele. Indeed, it is a clientele seeking investment, but are more keen on ready to move in now, and are entirely targeting a specific location. Their numbers today, of course, are not high when compared to those who go to developers for their shortage of cash and flexible payment plans marketed everywhere.

What are the challenges you face today as a broker and consultant?

We are in need of a regulatory system that monitors and gives license to credible and experienced brokers to protect the real estate market in general and the individual specifically. We need something like RERA in the UAE. In Egypt, most people become brokers, without experience, seeking profit. A regulatory system will end the grey economy in that aspect and monitor corruption as well.

Brokerage online, is it a tool that can be used today in Egypt?

We are not there yet due to the lack of transparency and no regulatory body that protects brokers, developers, and, of course regular individuals. In Egypt’s online brokerage market, people claim prices according to their preferences and not based on the actual value of the property and its neighborhood.  

What advice do you give to those who want to sell their units today?

We say that speculators in the market have decreased tremendously in recent years. Buyers are after the long-term investment and those in need now. Those, who are only after the investment gain, we always tell them to wait until the project is fully delivered as you will always find those after this exact location for a greater profit margin.