Translation: Amal Abdel Wahab 

The National Bank of Egypt (NBE) and Banque Misr issued new one-year maturity certificates of deposit (CDs) in January 2023 with an annual yield of 25%. The certificates were also available at a 22.5% yield for monthly disbursement. These yields are the highest in Egypt on record. The offering came in an attempt to curb inflation and enhance local currency by attracting USD proceeds.

Since their issuance, the CDs saw demand from different customers, posing the question of whether or not these certificates pressure real estate investment to take a hit by affecting customers’ or companies’ turnout.

At an expert level, Invest-Gate talked to experts who shared different views on the matter. For example, one of the specialists says these CDs did not produce the desired result as customers opted for premature withdrawal of low-yield certificates in order to buy the new ones, which means that liquidity is available in the market. Another expert notes that real estate investment evolves based on people’s needs, whereas the third expert expects real estate lending to be affected following the increase in loan pricing.

Has the Real Estate Sector Been Affected by CDs?

Ezz El-Din Hassanein, Economist and Banking Expert, says that: “Real estate investment has not been heavily impacted following the launch of the certificates as per the statement of Mohamed El Etreby, Chairman of Banque Misr, in which he revealed that 30% of the total value of CDs purchases came from outside the banking sector. However, I myself think that the percentage could be less.”

In November 2022, the Egyptian market’s liquidity grew by EGP 650 bn, whilst the said CDs attracted a sum ranging from EGP 120 bn – EGP 130 bn from outside the banking sector, and the remaining proceeds came from the premature withdrawal of low-yield certificates, like the 11%-return ones, Hassanein adds citing data by the Central Bank of Egypt (CBE).

Accordingly, there is still ample liquidity in the Egyptian market that is directed to different sectors, including real estate, which ranks first in terms of safe medium-term investments in Egypt and might be followed by gold and the dollar which have been hit due to the ongoing global events, Hassanein highlights.

“Who can take a loan with up to 30% cost to offset banking fees? That’s why the issuance of treasury bills (T-bills) may be considered,” Hassanein states when asked about the chances of partially using the collected liquidity in the real estate portfolio.

For his part, Fathallah Fawzy, Vice Chairman of the Egyptian Businessmen’s Association (EBA) and Head of the Construction and Building Committee, says that there are two categories of people thinking of real estate. The first group is led by the need and will not be affected by prices or the temptations of other investment tools. However, the other category may be affected by 10%-15%. Given the fact that the certificates mature in one year, their value may return to real estate investment. Housing is a years-long safe haven saving option, if not the safest, Fawzy adds.

On the other hand, Abdel Nasser Taha, Head of Egypt’s Office at the International Real Estate Federation (FIABCI), emphasizes that the CDs’ launch and turnout will affect all aspects of real estate sales, purchases, and investments. “Given the 25% return to customers, what are the advantages that will be given to real estate developers upon obtaining a loan? Taha asks, adding that if loan interest rates go up, developers will be under greater pressure.

Moreover, Taha explains that the investors’ segment will suffer when comparing their return from CDs to other investment tools, putting in mind that investing in CDs is considered safer and easier in providing liquidity through redemption and that raising the return could hurt the economy, as the lower is the return on a loan, the higher is the economic activity.

The Need for Real Estate

Recently, real estate investment turnout has been declining as investors need a quick harbor for cash. This can also be ascribed to the fact that real estate investment is mostly sought by those who need medium- or long-term investment, those having big financial surpluses, as well as those willing to relocate to new cities, Hassanein reveals, stressing that real estate is considered the best, safest investment with its price growing from 25%-30% annually.

Hassanein further attributed the high turnout on real estate to the long payment periods, a perk that is favored by real estate developers and allows different segments of customers to buy units with less difficulty.

Likewise, Fawzy reiterated that there is demand for 500,000 units annually in Egypt with the growing population and that housing in Egypt is considered a strategic commodity that might be exposed to pressures, albeit always in demand.

Incentives Required

Hassanein illustrates that the real estate sector needs new low-yield financing initiatives for buyers or real estate developers such as the EGP 150 billion initiative launched recently by the government for the agricultural and industrial sectors at an 11% interest rate. This is because previous initiatives, such as the 3%-yield one launched by the CBE for real estate financing, have not taken effect. The new initiatives will further keep the sector flourishing, active, and special.

In a separate context, Taha clarifies that the sector is facing problems such as difficulty liquidating assets or resale. Some investors own properties they want to resell to invest in CDs or gold. He adds: “The real estate sector is part of the country’s entire economic base and now, the country aims to improve its economic base internally and externally. The successful maintenance of stable inputs and outputs of the economic system will reflect on the economic and investment activity across all of the sectors and not only the real estate one.”

Taha explains that real estate financing is not considered a solution that can help the sector recover at the moment. However, economic activity, whether industrial or commercial, coupled with the current solid infrastructure, will become key pillars that will drive up real estate activity.

Finally, the experts note that despite the sector’s need for incentives, including country-driven support and financial aid, CDs cannot but only help attract part of the existing liquidity, given the diverse investment instruments, exemplified by real estate on the medium to long term.