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Egypt’s real estate sector to decelerate in 2020 - Daily News Egypt

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Egypt’s real estate sector to decelerate in 2020

2H19 to be stronger, driven by new project launches toward the end of the year


Beltone Financial Investment bank expects the real estate sector to decelerate in 2020 as real estate sales have lost pace or are coming flat, driven by continued oversupply risks in upper middle and high-end project offerings, and slower price increases due to slower inflation readings and stabilisation in the cost base.

Beltone analysts continue to list tier-1 developers, namely TMG Holding (TMGH), Palm Hills Developments (PHDC), Emaar Misr (EMFD), Orascom Development (ORHD), Sodic (OCDI), and Madinet Nasr Housing (MNHD), as they capitalise on their names and track record to drive new sales versus the small and medium sized new entrants. These tier-1 developers also deliver 7k-10k units per annum combined, which is relatively low compared to the target client segment, representing 2%-3% of Egypt’s growing population as well as the number of marriages of up to 900k per annum.

Real estate sales grew by 2% year over year (YoY) during 1H19 to EGP 31.7bn, compared to 53%  YoY growth in the first half of 2018 (1H18) versus 1H17, which looks to be the only slight growth due to existing projects nearing completion, thus slowng down tier-1 developers YoY from launching new real estate. However, Beltone analysts expect 2H19 to be stronger, driven by new project launches toward the end of the year, reaching total sales of EGP 67.2bn, higher by 18% y-o-y.

Throughout 2019, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) cut interest by 650 basis points , followed by another expected 300 bps cut in 2020, according to Beltone analysts’ expectation. This led tier-1 to extend payment schemes to reach an average of eight years in 2H19, up from seven years in 2018, to fuel new sales, maintain current growth, and avoid lower prices YoY.

Most importantly, Beltone analysts believe that lower interest rates will push the resale market out of stagnation, which has been pressured by lower disposable income since the Egyptian pounds floatation. The plan is to offer affordable mortgage products for real homebuyers who intend to buy delivered homes in cash.

Beltone analysts added that reviving the resale market therefore should stabilise the local real estate market by attracting new buyers for the primary market. They also positively view that the latest joint venture including TMGH, EFG Hermes (HRHO), and GB Capital (AUTO) to fund ready-for-sale units in TMGH’s Madinty and Al Rehab Projects, to be followed by funding units in other projects with target sales of EGP 450m-EGP 500m in 2020, to capitalise on lower interest rates and offer a new product to the market.

They also believe that, the beneficiaries from interest rates cuts in 2H19 and 2020 based on size of debt on their balance sheet are PHDC, TMGH, ORAS, OCDI, HELI, MNHD, ORHD, and PORT.

On the other hand, EFG Hermes Investment Bank expected real estate stocks to have underperformed in the general market indices in Egypt. Market conditions have been challenging, with companies facing difficulties to increase their contracted sales, selling prices, with developers offering extended payment terms, if possible, to encourage sales along with new product offerings across various projects.

They added that a number of macro initiatives failed to reflect positively on the sector’s activity and in turn respective stock prices. In Egypt, a series of interest rate cuts did not encourage more activity or demand on new launches, given the insignificance of the mortgage activity in the sector’s performance.

Moreover, there have been extended payment terms for new projects across most developers, with a minimal positive impact seen. They expect real estate stocks in general to underperform the general market index in Egypt 2020, with a few expectations that they will relatively outperform their peers.

Although they have a cautious outlook on the real estate sector and think the stocks will reflect the operating environment, they think that there will be some outperformers and underperformers, on a relative basis in 2020. They prefer exposures to companies with solid recurring income stream asset bases and strong balance sheets, with a significant debt and local obligation dues. Their key ideas for the year are Orascom Development Egypt and Emaar Misr Egypt.

Moreover, Pharos Holding expect a decline in sales with 10% increase in cost and 5% increase in prices, which lead to lower margins. They believe that there is no further extension of installment scheduled or an increase in debt.

Pharos analysts hope that, interest rate cuts to sustain demand, stability in costs in light of weaker commodity prices, and a rise in consumer demand on the back of suburban migration. While they fear deacceleration or decline in demand due to affordability issues, further extension of installments schedule, significant jump in prices, and emergence of installment schedules in the resale market and compete with development companies. They prefer ORHD and TMGH.

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https://wwww.dailynewssegypt.com/2019/12/26/egypts-real-estate-sector-to-decelerate-in-2020/
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