Real estate developers expect housing demand to improve in Egypt after the central bank cut interest rates on Thursday, but some industry analysts say real estate will see only a relative improvement.
Egypt's central bank cut key interest rates by 150 basis points on Thursday for the first time since February. The overnight deposit rate fell to 14.25 percent from 15.75 percent and the overnight lending rate to 15.25 percent from 16.75 percent.
Hesham Talaat Moustafa, managing director of Talaat Moustafa Group Holding, the largest listed real estate developer in Egypt, said that “cutting interest rates is a positive decision that will have an impact on the recovery of the sector and increase demand for buying. Whenever there is a cut in interest, liquidity retention decreases, spending increases and markets improve, especially real estate.
Many real estate developers in Egypt have suffered from the slowdown in demand for luxury housing units recently, which has led companies to devise new marketing methods such as increasing the repayment periods to between 10 and 15 years, among others.
"The rate cut will stabilize prices in the market," said Tarek El Ghamrawi, head of real estate portfolios at Palm Hills Development, the second-largest listed developer. The impact will not be noticeable on companies, ie there will be no sales boom because the market purchasing power is still weak. The positive impact of the rate cut may be seen in the second half of 2020 after the cost of projects has been reduced.
Sohar al-Damati, managing director of Heliopolis Housing, agreed that the rate cut "will generate demand in the real estate market, but not at the expected rate because the sector faces many problems."
A number of businessmen and analysts expect the central bank to continue cutting interest rates at its next meeting in September, which could further help stimulate the real estate sector, especially the initial housing sales facing a relative recession in the market.
Nimatullah Shukri, head of research at investment bank HC, said the rate cut would spur “the performance of listed real estate companies traded at low price levels with an average net asset price multiplier of about 0.4 times”.
Most real estate stocks were down by 1141 GMT on the Egyptian bourse, after rising strongly in early trade.
Palm Hills fell 3.7 percent, Porto Group 5.7 percent, Talaat Moustafa 1.96 percent, SODIC 1.2 percent and Emaar Egypt 2.5 percent.
Analysts expect the stock market to return to stability during the rest of the week after it witnessed selling pressure during trading on Sunday, affected by the decline in global markets and trade war between the United States and China.
"The real estate sector is not going to see a big recovery, but rather a relative improvement in sales in the coming period after the rate cut," said Adham Hesham, real estate analyst at Beltone Investment Bank.
"Whenever the central bank cut interest rates, there is an improvement in the real estate sector," he said. "The market needs to cut interest rates further in order to expect a recovery."
The decline in the prices of some vegetables in the market may help to continue the downward trend of inflation rates in the country during the next month, which could pave the way for the Central Bank to continue to cut interest rates, especially as it had raised by about 700 basis points after the exchange rate liberalization in November 2016 in three stages .
"The decision was late, but we expect an increase in corporate sales," said Mohamed Assal, chief executive of Misr Italia Real Estate. "I don't expect an increase in prices but developers will seek to sell large volumes of units they have."
A number of Egyptian businessmen told Reuters they welcomed the central bank's cut in key interest rates in a move they called positive to stimulate investments, but stressed the need for the business environment in the country to further cut in the coming period.
"The supply of housing units in the real estate market is abundant," said Radwa El Swaify, head of research at investment bank Pharos.