In September 2022, the Central Bank of Egypt (CBE) raised the maximum limit for companies to borrow from government banks by 100% to EGP 500 mn without referring to it. Any loan exceeding the EGP 500 mn limit will need to be first approved by the CBE. The decision aims to aid companies expand their businesses.
Since the onset of 2022, government banks were instructed to provide loans to companies at a maximum value of EGP 250 mn, where a prior approval from the CBE was a must if the borrowed amount exceeded such value.
Delving more into this, Deputy Research Manager at Zilla Capital, Aya Zoheir, discusses the effect of the new decision on Egypt’s real estate market, how would it support developers, and whether or not it will accelerate completion of projects nationwide, particularly in new cities.
Zoheir says that the new decision reflects people’s confidence in the Egyptian economy. The CBE continues to implement new procedures to facilitate the business ecosystem and promote companies’ continuity, in an effort to mitigate the ongoing global crisis.
She further elaborates that real estate developers need liquidity to accelerate the progress of existing projects. Thus, the new decision will help them to avoid the negative impacts of inflation in the near-term, speed up the process of obtaining the liquidity required to resume project execution and attract foreign investors.
The real estate sector, however, is still facing a particular challenge, represented in higher financing costs. This imposes a burden on real estate developers, Zoheir adds, revealing that further hikes are likely over the coming period, requiring the country to broadly intervene to facilitate stimulation of new financing mechanisms such as securitization, future flow securitization, and real estate financing.
Furthermore, the repercussions of the global economy, coupled with the Russian-Ukrainian War have taken their toll on the prices of construction materials and their availability amidst rising freight cost and disrupting delivery and supply chains, putting another heavy burden on developers and negatively impacting execution of projects.
Real estate prices are forecast to remain relatively unchanged in the remainder of the year after the substantial price hike recorded in H1 2022, according to the analyst.
Although impacts of the global economic circumstances affected profits and implementation costs, demand on real estate is still there, and to what extent can the CBE decision help real estate firms will differ substantially from a developer to another depending on the circumstances of each project and companies’ position. Other factors such as financial capacity, sales volume, awarding, and financing gap also count.
Moving forward, the real estate sector is expected to be more stable over the coming period as the government begins to move to the NAC and smart mass transport projects, including the monorail and new high-speed rail line complete.
The NAC is very promising and represents a great part of Egypt’s future. The Administrative Capital for Urban Development (ACUD) is a major real estate developer with a land portfolio of 230,000 feddans.
The general ecosystem of Egypt’s commercial real estate sector encourages investment, given the continuous development, the establishment of 20 new cities and the development of 23 new existing ones. The new fourth generation cities, including NAC, New Alamein City, and New Mansoura City offer attractive wide-scale opportunities to potential investors.
Zoheir concludes that foreign direct investment (FDI) is expected to remain a key investment driver in the market, expecting that recent reforms and decisions adopted by the authorities to improve the business ecosystem and increase private sector’s contribution to the economy, coupled to the country’s generation of over $25 bn in investment award from the UAE, Saudi Arabia, and Qatar will partially compensate the slowdown in the market.