Egypt’s savings certificates at banks, estimated at EGP 630bn and generating a generous interest rate of up to 20%, are now in review in light of expected further decline in inflation rates and the possibility of the Central Bank of Egypt (CBE) cutting interest rates at its meeting on 15 February.
It is expected that the term of some of these savings certificates will be completed in May after a year and half since their issuance.
With the high demand for platinum investment certificates at the National Bank of Egypt (NBE) with a 20% interest rate for 18 months, some have reported that government banks are close to stopping the 20% savings certificates, while the three-year savings certificates would continue with a 16% return, as some private banks have recently done.
The total proceeds of high-interest rate savings certificates from the NBE reached EGP 620bn since their issuance in November 2016.
Egyptian banks decided in November 2016 to issue savings certificates with a return of 20%, the highest ever at the time when the rates of return on deposit and lending amounted to 14.75% and 15.75% after the CBE raised interest rates 3% at once, parallel to the decision to float the pound on 3 November 2016.
Experts predicted that in the coming period and with the expiration of the first tranche of the 20% certificates in May, some of these flows will be directed to the stock market, especially as the government readies to offer shares of some government companies, expected to be offered in the second half (H2) of the current year.
Real estate experts and developers predicted that most, if not all, of this money would go to investment in the real estate sector.
Nevertheless, a number of developers stressed that they fear that the interest rate will be kept as it is, noting that this will affect the real estate market and cause a decline in sales during the coming period in the case of continued provision of these certificates.
Chairperson of Al-Ahly for Real Estate Development Hussein Sabbour said that the increase in interest rates decreased investments in the real estate sector over the past year and that the government should decrease the rates to avoid losing people who would otherwise invest in the real estate market.
Sabbour expected the CBE to decrease the interest rate, and thus help the sector to gain more achievements and grow.
Antoine El Khoury, managing director of Tameer, explained that the current interest rate places additional financial burdens on developers and customers, limiting finance for developers, as well as customer’s purchasing power. High interest rates also place the real estate sector in direct competition with the financial sector, limiting the attractiveness of investment in the sector.
For his part, Ahmed Shalaby, managing director and board member of Tatweer Misr, said that the second half of the current year may witness a boom in investments in the sector because of the ending term of high interest rate certificates in banks and that the sector would be able to absorb the huge amount of cash flow in the shape of investments.
Elite Real Estate Consultancy Managing Director Ali Gaber said that the decrease in interest rate will come soon due to the decrease in inflation and the improvement in Egypt’s ranking by international rating organisations.
Gaber expected that after the expiration of the certificates in May, the purchasing power may be increased by 20% in the market.
He further noted that the decrease in interest rates would also encourage investment in the sector, which would contribute to reviving the sector.
Most financial liquidity that will be available after the expiration of the certificates will be pumped as investments in the sector in line with the correction in price cycle, variety in projects, and the New Administrative Capital, which may all serve to increase real estate investments by 20%, Gaber added.
Capital Real Estate Chairperson Farouk Rashad said that certificate owners are likely to invest in real estate after acquiring money, attributing that to the fact that investment in the real estate sector is more secure and less risky than other sectors.
“Investing money in the Egyptian Exchange is more risky than real estate and this needs more development in the sector,” Rashad noted. “Although there are fears of a real estate bubble,” he added.
Meanwhile, Mohamed Beheiry, chairperson of Oscar Misr, said that investments in the sector will double after the expiration of high-return certificates in May.
Beheiry forecast the sales of companies will increase by 50% and may reach 100%, pointing out that the bubble cannot happen because there is real demand on real estate.