The pressures of high costs triggered by inflation, which averages 13.8% in 2022, weigh on developers, urging them to resort to receivables securitization more than bank debt, Invest-Gate reports, citing HC Brokerage.
In its latest report, HC says that the inflationary pressures have a negative impact on developers’ operating margins.
The brokerage expects the market to continue on that trajectory in 2023, predicting an average inflation of 21.5%.
Mariam Elsaadany, real estate analyst at HC Brokerage comments: “Soaring inflation is pressuring affordability and leading to cost overruns; in our view: A high inflation environment, causing negative real interest rates, has historically served the Egyptian real estate sector well, as investors usually view it as a safe haven.”
The introduction of high-yielding certificates of deposit represents tough competition with the real estate sector.
That competition slowed down the growth of pre-sales to 8% in the first nine months of 2022, while volume slipped 5% YoY, compared to a 59% surge a year earlier.
Developers could not extend payment plans further, as previous years’ extended payment plans had already stretched their cash flows, raising concerns about affordability, HC’s report highlights.
“Tourism recovery and EGP devaluation lead us to prefer developers with hospitality exposure; while we keep an eye on M&A targets: Given the currency outlook and a recovering tourism sector, as evidenced by higher occupancy rates, we like companies with significant hospitality operations, namely Orascom Development Egypt and Talaat Moustafa Group Holding,” Elsaadany adds.