Mirroring a global pattern, Egyptian real estate developers are increasingly becoming bullish on property-focused investment funds, in an attempt to bring liquidity to the market and revitalize delayed development projects. Early this month, four Egyptian real estate developers unveiled plans to set up investment funds, local news platforms reported.
The move came on the heels of the launch of "Real Estate Investment Fund 1" by Banque Misr, in partnership with Banque du Caire, Misr Insurance Holding Company, and Allianz Egypt, with a target capital of EGP 500 million.
The fund, launched late last year, aims to invest in commercial projects with recurring revenues so that it can generate higher value for participant investors since the division of risk is fairly balanced, according to a statement by Banque Misr.
The statement added that the fund already concluded its first transaction by purchasing commercial real estate assets from Talaat Moustafa Group in the cities of Al-Rehab City and Madinaty.
Before this, Egypt had only a single fund, which has not yet been fully activated because of the absence of laws regulating real estate investment funds.
With the country now waking up to the benefits of embracing this type of investment, real estate funds will likely be a force to be reckoned with, but challenges still abound.
OPPORTUNITY FOR EGYPT
High inflation and rising interest rates have all made investors globally risk-averse, and the impact of that has reverberated down to nearly every economic activity, including real estate. That said, real estate funds are considered an important investment vehicle across global markets, one that can bring much-needed private equity financing to the sector.
That also holds true for the Egyptian market.
"Real estate funds are now extremely important, allowing for fresh funds to flow into the country. That positively reflects on the entire economy and not just the property market, ultimately positioning the country as a globally competitive economy," says Ayman Sami, country head at real estate consulting firm JLL.
He also asserts the importance of lowering barriers to entry for investors to guarantee a free flow of capital.
The establishment of real estate investment funds is considered a step forward for the entire property sector. Yet Gasser Bahgat, CEO of Madaar Development, argues that these funds can’t operate in silos and that other measures should also be factored in to bring about a well-rounded value to the sector.
"Certainly, they [real estate funds] are part of the solution and a contributing factor, but it is important to take a holistic approach to support the sector’s long-term growth. Therefore, other factors need to be considered as well, including putting land up for sale at lower prices.
“Also, banks have an important role to play when it comes to offering credit facilities," Bahgat says.
MAKING FUNDS EFFICIENT
For real estate funds to operate efficiently, a robust regime of taxes and legislation must be in place. The imminent launch of new funds will undoubtedly help accelerate the activation of legislation needed to govern real estate funds.
By the same token, Sami also asserts that economic uncertainty would still hinder the expansion of real estate funds. “The value of rents depreciated in half [as a result of the devaluation of the local currency], and tenants are no longer willing to sell projects in EGP.
“So having the right market conditions and the right product are essential components to luring investors.”
Real estate funds primarily aim to invest in cash-flowing commercial projects, so the market needs to feature high-value projects to be attractive to institutional investors. Sami also adds that such projects should incorporate sustainability practices so as to secure international funding.
He also points out that trophy assets like hotels and office hubs are among the top-performing segments in real estate, which can lay the groundwork for creating massive investment opportunities.