Real estate developers resort to selling real estate portfolios to accelerate implementation rates Ayman Abdel Hamid, Deputy Chairman and Managing Director of Al-Oula Real Estate Finance Company said that the company aims to provide EGP 3 billion in real estate finance during the current year to expand its financing portfolio.
Abdel Hamid added to “Al Borsa” that the company’s financing reached EGP 2.6 billion in 2023, exceeding the target of EGP 1.6 billion, and profits reached EGP 160 million compared to a targeted profit of EGP 126 million.
He explained that real estate portfolios accounted for about 90% of the total financing of “Al-Oula” during the past year, pointing out that an increase in demand for real estate portfolios accompanies the rise in interest rates.
Abdel Hamid said that real estate developers resort to selling real estate portfolios to obtain the necessary liquidity to accelerate construction and implementation rates in their projects, especially in light of the real estate sector’s challenges from rising building material prices.
He added that development companies prefer to sell real estate portfolios to cope with the continuous increases in implementation costs, leaving real estate finance companies responsible for collecting customer installments.
EGP 1.5 Billion Existing Facilities for “Al-Oula” with Banks
He explained that the rise in interest rates has led to individuals refraining from real estate finance, in contrast to the increase in the size of real estate portfolios.
He said that “Al-Oula” company decided to postpone the securitization program at present due to the high cost of financing, explaining that the company has existing facilities with banks worth EGP 1.5 billion, and the target is to increase them to EGP 3.5 billion during the current year.
He added that the non-performing loan ratio of the company’s customers reached approximately 1.5% during 2023, considering it a small percentage due to the efforts made by the company with the defaulting customers and the keenness to deal with customers who can pay.
Abdel Hamid explained that the company could sell assets transferred to its ownership worth EGP 30 million through auctions, pointing out that the company still has assets worth EGP 6 million, most of which are residential units.
He said that several mechanisms and solutions guarantee the financing of under-construction units, the most prominent of which is putting a computer system to inquire about the units to prevent double funding. The second solution is to put guarantees in the contract that oblige all parties to bear the cost of financing in case of non-compliance with the contract terms.
Abdel Hamid added that 95% of real estate unit sales in Egypt fall outside real estate finance due to the lack of financing for under-construction units since 2007 to prevent double financing. He explained that the main reason for stopping the financing of under-construction units is the problems that real estate finance companies face with customers. Due to some developers delaying their commitment to delivery dates, the customer stops paying.
He pointed out the necessity of including a guarantee from the developer in the contract to bear the cost of financing in case of non-compliance with the delivery dates agreed upon in the contract.
He said that “Al-Oula” company has three hedging mechanisms against default: customer checks, the developer’s commitment to bear the payment if the customer refuses to pay, and insuring the financing portfolio against non-payment risks.
He added that the continuous increases in prices have led to a rise in the financial burdens on individuals and, thus, a decline in purchasing power due to the rise in debt burdens and the increase in the installment value compared to the monthly income.
“Al-Oula Real Estate Finance” Targets EGP 180 Million in Profits in 2024:
He explained that the increasing rise in the prices of all types of real estate, residential, commercial, and administrative, with the burdens of financing, pushed many customers to invest in other investment channels, such as gold.
He said that despite the current circumstances that hinder the ability of individuals to obtain bank financing, the company’s targets for the current year are based on 30% of the financing portfolio for individuals and 70% for real estate portfolios.
