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Will the real estate and banking boom continue?
Published in Daily News Egypt on 23 - 12 - 2008

As soon as the US and Europe began reeling from the financial crisis, analysts were quick to gauge the ripple effects on Egypt's top two performing sectors: real estate and banking.
The immediate aftermath of the crisis witnessed bleak expectations and even panic as individuals feared for their bank deposits and property owners lamented a probable decrease in the value of their real estate assets.
Egyptian officials and industry insiders moved swiftly to ensure the public that both the financial industry and the real estate sector are healthy. This crisis, they said, could even be considered an opportunity as the world realizes its dependence on emerging markets to deliver growth.
According to the International Monetary Fund (IMF), US growth is expected to slump to 0.1 percent. As for growth in the Euro zone, the fund said it was set to slow to 1.3 percent in 2008 and 0.2 percent in 2009.
Egypt, on the other hand, enjoys a "luxurious position during these turbulent times, Minister of Trade and Industry Rachid Mohamed Rachid said in October. The government, he said, is maintaining its growth target at 6 to 7 percent for 2008/09.
"Seven percent growth rate in 2009 will be equivalent to 10-11 percent in normal conditions, he said.
The banking climate
Aftab Ahmed, Citibank Egypt country officer, agrees, saying that the Middle East region will continue to be the bank's most significant market. "We certainly see opportunities across all banking sectors, especially in investment banking and consumer markets, he said.
The financial crisis has impacted world markets in varying degrees, which means a different effect on respective consumers, whose instant reaction seems to be concern over their deposits and their abilities to repay loans.
"Over the last year, and in this immediately unfolding chapter of the global credit crisis, we at Citi have contributed to efforts to maintain confidence in global financial markets. Given Citi's role as a counterparty, an imbedded business partner and clearing agent in many markets (including Egypt), we have been deeply involved in a widespread industry effort to ensure an orderly transition, Ahmed said.
Hisham Khairat, Citi Egypt's marketing director and head of consumer lending, said the bank "responded aggressively to the dislocated credit markets with a clear objective to solidify our balance sheet to serve clients and counterparties during this uncertain environment from a position of strength.
Akram Tinawi, commercial banking director for Barclays Egypt, said that the Egyptian market has proven to be more resilient as a result of the measures announced by the Central Bank of Egypt (CBE), which guaranteed deposits of all banks operating locally. This, Tinawi said, was key to assuring customers and calming markets.
"The positive reaction to these measures has been fairly quick. Customers became more confident in transacting with banks and deposits came back to their normal levels, Tinawi told Daily News Egypt.
Egypt's banking sector also enjoys high levels of liquidity, which is expected to support vital sectors and projects that contribute to GDP growth. This is becoming increasingly important as analysts predict a slowdown in foreign direct investment.
"The banking sector plays a critical role in supporting the nation's development and GDP growth, being the backbone in providing facilities to various customer segments whether individuals or corporate, Tinawi said.
As the challenges of the global credit crunch become apparent, the government has recognized the vital role of the banking sector in keeping GDP levels high.
"Banks are expected to step in and support sectors that contribute favorably to the economy. One of the main sectors that positively contribute to the national economy and creates real job opportunities is small and medium enterprises (SMEs), Tinawi explained.
Another key pillar is consumer banking where the services provided support the purchasing power of individuals, helping avoid market stagnation, he said.
With low loan-to-deposit ratios across the board, banks operating in Egypt still have the flexibility of granting loans, particularly to the private sector to maintain local and foreign investment interest.
In its report titled "Egypt Banking Sector Analysis, marketing research company RNCOS predicts that with the increase in demand for corporate loans and expected decline in interest rates, the total bank loans in Egypt are projected to grow at a rate of about 9.5 percent from fiscal year 2007/08 to 2010/11.
The study found that businesses in the country are attracting local and foreign investment, which has resulted in a high demand for loans from the private sector. At present, nearly two-thirds of economic investment is attracted by these business units. Of these, a majority of the investment is directed into manufacturing and oil products, mining, transportation and real estate.
"With an annual growth of about 10 percent, we expect that loans to private business sector will account for over 70 percent of total loans extended by the Egyptian banking sector by June 2011 end, the report said.
Real estate development
The US subprime crisis sent real estate prices on a downward spiral as foreclosures turned cities into ghost towns, triggering wider financial turmoil that was felt around the world.
But when it comes to Egypt's real estate sector, local analysts and industry insiders seem unnerved. While there will likely be a relative slowdown in the once booming sector, there is apparently a bright side: consolidations will weed out weak companies and there will be a readjustment of unreasonably hefty price tags.
In fiscal year 2007/2008, real estate was the pride and joy of Egypt's economy, constituting 8.6 percent of GDP and absorbing some 11 percent of Egypt's labor force.
"During this current economic climate there will be adjustments, but it is difficult to quantify. Although the rate of growth will slow down, we believe that the real estate market will continue to grow as a result of population growth.
"Egypt has genuine organic growth, and as a result there is demand for new homes, offices and retail spaces, Youssef Hammad, chief commercial office at Sixth of October Development and Investment Company (SODIC), told Daily News Egypt.
The argument is that as the most populous Arab country, Egypt will continue to see growth in the housing market, where there is a demand for 360,000 units annually.
Total investments in Egypt's real estate market have amounted to more than $52 billion in some 16 mega projects.
Housing Minister Ahmed El-Maghraby said in November that the Egyptian real estate market enjoys 99 percent real demand that is mostly cash-driven and does not rely on mortgages
The value of built-up real estate as of last February stood at LE 200 billion, according to Prime Minister Ahmed Nazif.
"The size of built-up property has grown by 41 percent in 2006/07 and estimates indicate that around 5.3 million housing units have to be constructed between 2005 and 2017, Investment Minister Mahmoud Mohieldin said in May.
Analysts argue that growth in Egypt's real estate market is the ultimate solution to housing and unemployment problems - where some 60 percent of the population is under the age of 30, which entails an increase in housing supply as well as job creation.
Hammad agrees, saying that although the real estate market in Egypt will "go through booms and troughs.even in difficult times, we feel there will always be demand resulting from population growth.
Tight measures in place by the government coupled with low mortgage penetration and a healthy exports-to-GDP ratio means that Egypt's real estate sector will continue to see strong growth in the coming years.
"The country cannot suffer the full effects of the economic crisis if the causes of this crisis do not exist within the local economy. Loans-to-deposits ratios stand at 55 percent compared to 150 percent in some developed countries. Mortgages comprise less than a quarter of one percent of GDP, and exports are below 32 percent of GDP; split evenly between developed and emerging markets.
"All these factors will play an important role in diluting the effects this crisis will have on the country, Mohamed Abdalla, president of Coldwell Banker Intercontinental Affiliates and chairman of the real estate committee at the American Chamber of Commerce, told a conference recently.
The market is considered to be in the infancy stage, so while there is the expected slowdown in upscale projects, there is rising demand for middle- and low-income housing.
"We plan to expand our product offerings to address the demand in the market. As a customer-centric company we seek to develop products that meet a variety of customer needs. We see opportunity in the middle-income sector as well the retail and commercial space, Hammad said.
Following the crisis, real estate developers maintained the same pricing policies, especially for projects with units sold prior to the economic turmoil. "However, we are proactively adapting our product offerings and payment terms to meet the changing market conditions, Hammad said.


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