Real Estate investment has always been one of the safer investment options in Egypt with high potential for decent returns. This is mainly because while the Egyptian economy may be facing significant challenges on various fronts, it remains to be in good shape when it comes to Real Estate in particular. Add to that the fact that the Egyptian government is consistently providing support to the Real Estate sector and so, the result is a safe investment field for developers and investors alike.
Several other factors also play in favor of the Real Estate sector in Egypt such as the particularly unique mixture of the Egyptian consumer population as well as the country’s strategic location being a central hub for trade routes between Europe, Africa and the Middle East.
So in this article, we shall provide a brief overview on a few different financing options when it comes to Real Estate investments in Egypt as well as a glimpse on financing strategies that go along with such Real Estate investments.
Financing Options for Real Estate Investments in Egypt
There are several financing options when it comes to Real Estate investments in Egypt, below is a list of some of them.
Government Initiatives and Subsidies
The main goal for this particular option is the promotion of Real Estate development via offering financial aid and incentives for Real Estate projects that are affordable for the average consumer. Examples of such initiatives are Mortgage Finance fund and Social housing programs.
Traditional Bank Financing
Perhaps the most common form of financing when it comes to Real Estate investments in Egypt. How this works is that investors would ideally take out bank loans with competitive interest rates and invest the acquired money towards land acquisition, construction works and Real Estate project development. Taking out such significant loans however is subject to bank approvals which can involve complex and time consuming processes.
Peer-to-Peer Lending
Peer-to-Peer lending is a recent direct alternative to bank loans which allows companies to borrow directly from individual lenders. The short way of explaining how this usually works is that both borrowers and lenders connect directly through P2P platforms. The borrower would register their financial info on the platform after which they would submit their loan requirements. The platform would then analyze the borrower info and would assign the requested loan a risk level which decides the interest rate. The platform would then match the loan with suitable registered lenders. The borrower would then accept the offer which suits them the most.
Crowdfunding
Is basically the collection of small amounts of money from a large number of individuals through a crowdfunding online platform with the goal of financing a business venture. As such, it is a financing method that is more common among small businesses as opposed to large corporations. Because crowdfunding usually involves small amounts of money per individual, it as a result involves a small degree of a risk. In many cases, money raised via crowdfunding may be treated as a donation and would not be paid back depending on the agreements between the concerned parties.
Islamic Financing
Is a type of financing that is based on Sharia rules and principles which is a preferred option for developers that prioritize business compliance with Islamic Law. Perhaps the main difference between traditional banking and islamic banking is the absence of interest rates on loans. Islamic banks purchase assets from their clients instead of lending them money and they would then lease it or re-sell it to the client for a fixed price on installments. That price is normally higher than the initial market value which is how the bank makes its profits. Real Estate investments in Egypt have witnessed a recent rise in Islamic financial institutions that conduct Sharia compliant business such as Murabaha and Ijarah due to market demand.
Strategic Financial Planning for Real Estate Investments in Egypt
A solid strategy is absolutely key for developers and investors alike to maximize the potential earnings out of their Real Estate Investment. Below, we list a few factors that should help shape such a strategy.
Risk Mitigation
A solid financial plan would be incomplete without a bullet proof risk mitigation strategy that includes feasibility studies. Unexpected challenges are not as rare as one would like when it comes to Real Estate investments due to the amount of moving parts such as risk of property damage as well as interactions with clients, employees, tenants, and investors. Effective management of all those factors plays a huge role that influences the potential ROI of a Real Estate investment.
Market Trends
Market trends are quite dynamic and volatile in nature in the sense that they are unpredictable, and it is not always easy to predict when a trend would start declining and another would rise and replace it. A strong financing strategy should be agile enough to withstand such changes and adapt to them as they occur. Examples of helpful behaviors to help achieve such a state are consistent observation of economic indicators and general consumer behavioral patterns.
Funding Sources
The more diverse the sources of funding, the more resilient the financial situation is. This can be achieved via combining the financing channels mentioned previously such as bank loans, private equity and crowdfunding for instance.With that, we conclude our article discussing a General Look at Real Estate Investments in Egypt. If you would like to get more information and read various other interesting articles, we invite you to check out myBayut blog and stay up to date with the latest we have to offer.
