Omar: Participatory financing may increase market activity between 10 and 15%
The Financial Supervisory Authority approved the implementation of the “participatory real estate financing” system, according to a statement issued by the Egyptian Real Estate Finance Federation.
The step aims to enhance the financing capacity of real estate financing companies and keep pace with successive increases in real estate unit prices, allowing the financing of deals and projects of high values through the participation of more than one company in financing.
The new system allows two or more companies to participate in granting real estate financing to the same client by pooling the financing capabilities of the participating companies. This provides greater liquidity to the market and enhances the sector’s ability to finance high-value real estate projects and units, in light of the continuous increase in real estate prices in recent years.
Mohamed Al-Kahki, Chairman of the Board of Directors of the Egyptian Federation for Real Estate Finance, said that the approval of the Financial Regulatory Authority represents an important step towards developing real estate financing tools in the Egyptian market, noting that participatory real estate financing is one of the flexible mechanisms that support the sustainability of activity and helps distribute risks among participating companies instead of concentrating them with one financing party.
He added that the new mechanism came in response to the changes taking place in the real estate market, especially with the rise in unit prices and the increase in financing needs for major projects, which enhances the ability of real estate financing companies to meet the growing demand for financing and gives them greater flexibility in implementing large operations.
Al-Kahki explained that the new system relies on the use of unified contracts approved by the Financial Supervisory Authority, which ensures clarity of the relationship between the various parties and preserves the rights of customers and participating companies, in addition to enhancing levels of transparency and discipline within the market.
The step comes at a time when real estate financing activity continues to record growth in the value of financing granted despite the decline in the number of clients.
The data showed that the value of real estate financing granted during the first quarter of this year increased by 17.52% to reach 13 billion pounds, compared to 11 billion pounds during the comparative period last year.
On the other hand, the number of clients benefiting from real estate financing declined during the first quarter to 3,807 clients, compared to 4,838 clients during the same period of the previous year, with a decline rate of 21.31%, which reflects a trend towards financing larger operations in size and value.
Ihab Omar, Managing Director of Qastali Real Estate Finance Company, said that the authority’s approval to implement the participatory real estate financing system represents a positive step that will stimulate a specific segment of the market, especially financing operations with large values that exceed the ability of one company to bear.
He explained that the new mechanism allows the implementation of deals worth between 100 and 200 million pounds or more, through the participation of more than one company in financing, which opens the way for financing projects and deals that were facing difficulties in obtaining the necessary financing. He added that financing ranging between 20 and 40 million pounds does not represent a challenge for most companies operating in the sector, while the need for participatory financing appears in larger operations.
Omar pointed out that the impact of the decision on the individual segment will be relatively limited, given that the mechanism primarily targets customers with large financing needs, companies and real estate developers, and does not directly reflect on the middle class, which represents the largest percentage of real estate financing applicants.
He added that participatory financing is not a new experience in the non-banking financial sector, as it is already being applied in financial leasing activity, which prompted the Egyptian Federation for Real Estate Finance to demand that the same mechanism be made available within the real estate financing sector to keep pace with the large jumps in real estate asset prices and the arrival of some deals to hundreds of millions of pounds.
Omar expected that the implementation of the new system would contribute to increasing real estate financing activity by between 10 and 15% during the coming period, driven by the increase in the ability of companies to finance real estate developers and corporate clients, pointing out that the financing portfolios of companies accounted for about 78% of the total financing granted during the past year, which makes participatory financing an effective tool for expanding the volume of business and increasing the volume of financing in the market.
It is likely that the impact of the decision on the individual financing market will be limited, and may not exceed 15 to 20% of the total activity, given that the majority of clients do not need the huge financing targeted by the new mechanism, while the greatest benefit will go to companies and major real estate projects that require high financing that is difficult for one company to provide alone.
Al Suwaidi: Greater flexibility for companies in designing financing programs
Walid Al-Suwaidi, Chairman of the Engineering Consultation Committee of the Egyptian Businessmen Association, said that implementing the participatory real estate financing system represents an important step towards developing the real estate financing system in Egypt, especially as it allows more than one company to participate in financing a single transaction, thus reducing the burdens and risks that were borne by one company when financing major deals.
He added that the new mechanism will enhance the ability of real estate financing companies to finance high-value units and major projects, in light of the significant increases witnessed in real estate prices in recent years, which have raised the value of many operations to levels that may exceed the financing limits available to some individual companies.
Al Suwaidi explained that participatory financing contributes to distributing risks among participating companies, provides greater liquidity to the sector, and also gives companies greater flexibility in designing financing programs and providing solutions that suit the needs of customers and investors, which supports market efficiency and enhances their ability to absorb the increasing demand for financing.
He pointed out that the decision would stimulate actual sales in the real estate market by expanding the base of customers able to obtain financing, which helps real estate developers convert a larger portion of the latent demand into actual sales. However, he stressed that the size of the benefit will remain linked to a number of other factors, including interest rate levels, available repayment periods, speed of procedures, and the efficiency of credit and real estate evaluation mechanisms.
Al Suwaidi expected that the application of participatory real estate financing would contribute to increasing the volume of new financing in the market by a rate ranging between 10% and 20% during the first one to two years of application, as long as clear mechanisms are available to distribute risks and enhance coordination between participating companies, ensuring maximum benefit from the new system.
