(Sherif Raafat’s office)
Egypt’s real estate sector has room yet for more clarity, according to Sherif Raafat, former head of Egypt’s Stock Exchange who currently heads a real estate fund managing firm, told Daily News Egypt.
Raafat added that it is in need of laws and policies to both boost and regulate it.
“There are policies that remain unclear in the market,” said the Chairman of Capstone Advisory Services. The company manages two offshore real estate funds operating in Egypt’s real estate market, with a collective capital of $250m.
Raafat said the lack of long-term mortgages, flaws in regulations pertaining to securitisation of funds or insurances against defaulting, are some of the aspects which need to be tackled. He was speaking with Daily News Egypt at the recently held Economic Summit in Sharm El-Sheikh earlier this month.
“The real estate sector is very promising,” he said. “[However] there is a housing crisis. There are also not enough office buildings, and malls have only recently been made available. Developers also largely focus on Cairo while suburbs are neglected. Basically, there is not enough supply to meet the market’s demands.”
Real estate grew by 2.5% in the first quarter of the current fiscal year, according to the General Authority for Investment and Free Zones.
Low mortgage
“Mortgage is very low in Egypt compared to GDP. It is less than 1%, which is nothing,” Raafat said.
According to World Bank figures, market-based mortgage loans rose in volume from EGP 300m in 2006 to EGP 4.5bn in 2011, while maturities expanded from seven years to 16 years in the same period of time.
According to a report issued in May 2013 by the World Bank, companies providing mortgage finance rose from two in 2006 to 12 in 2011. Despite this rise, mortgage financing remains largely limited.
Commenting on the two funds which his firm manages, Raafat said they both operate in commercial and office buildings in New Cairo and west of the capital.
“Investors in the two funds are institutions,” he said.
“Worldwide message”
Raafat said the summit was a “message worldwide, to say that there is a new milestone event, that Egypt is turning the page and that Egypt has opportunities for investments”.
Another message the conference delivered, according to Raafat, was that there is a new environment facilitating investments, noting that newly-issued laws still need to be clearly explained.
“The recent announcement stipulating a tax ceiling of 22.5% is one of them. We need to understand and clarify what exactly it encompasses. There are a lot of elements of taxation that need to be streamlined and classified, and clarified for the investors,” he noted, adding that the government needs to also encourage savings.
“Only if you have savings, will you get long-term investments by local institutions. You incentivise them by giving them ways to defer taxes over a number of years, and then get a balloon payment at the end, and these accumulated savings become a venue for investment. It’s exactly what retirement saving plans in foreign countries is,” he said. “The problem in Egypt is that our banking system has 90% or more of its funds in short-term deposits and that cannot finance long-term investments.”
“Committed capital”
Talking a day ahead of the conference, Raafat said that securing pledges of $10bn in foreign direct investment (FDI) during the Economic Summit “would be classified a success”.
“Don’t forget that we went down to a FDI of $400m,” he said, referring to post-2011 years when political turbulence drove away foreign investors and drastically affected the influx of FDI. This forced Egypt to eat into its foreign reserves, which dropped from $36bn at the end of 2010 to a current $15.4bn.
“It’s not a matter of making announcements. It’s about showing that there is identified committed capital that can be dispersed, because we have to get away from making announcements that don’t occur,” Raafat said.
