Real estate development companies are actively exploring new financing tools, as experts and developers differ on the best strategies to support liquidity in the property market.
While some believe securitization is now essential for sustaining projects, others see it as a costly option best suited for specific situations.
As for interest rates, some argue that lowering them is the best way to narrow the gap between pricing and financing, while others emphasize the importance of alternative funding tools such as cash discounts and selling future rights.
There was general agreement that real estate companies’ actions do not conflict with the mortgage finance system when it comes to property pricing.
Securitization as a Liquidity Solution
Hani El-Assal, founder of Misr Italia Group and representative of the Real Estate Development Chamber at the Federation of Egyptian Industries, explained that the real estate market is essentially based on the equation of supply, demand, and development costs. He said developers must secure a profit margin to sustain long-term installment-based sales.
He noted that developers typically obtain financing from banks to execute construction, selling units to clients in exchange for postdated checks that are submitted to banks for funding.
This structure means construction is financed using clients’ money via bank financing—at high interest rates—driving up property prices in the market.
El-Assal proposed securitization as the solution, whereby the right to the unit is transferred to the bank, allowing direct transactions between the client and the bank. This enables the developer to preserve liquidity and sustain operations.
He stressed that what is often called a “discount rate” on checks cashed at banks is actually an interest rate, not an accounting discount, and that bank interest rates play a major role in determining property pricing.
He further explained that unit prices are influenced by several factors, including land acquisition costs, construction material prices, bank interest rates, and finishing costs, in addition to an estimated 5% annual interest added to the developer’s pricing.
According to El-Assal, the greatest returns in this system go either to the bank or the client, especially when interest rates reach 32%, forming a substantial part of the unit’s final cost. He argued that the public perception of rising real estate prices stems mainly from inflation and broader economic challenges.
He emphasized that securitization has become necessary to ensure liquidity and support expansion plans. Other solutions include activating the role of mortgage finance companies, easing lending conditions, and implementing the real estate registry system to simplify property registration.
El-Assal also recommended shortening the developer’s capital cycle to just 4–5 years, noting that under current circumstances, developers should not be responsible for both development and financing roles simultaneously.
Samir: Cash Discounts Reach 49%; “Interest-Free Pricing” is a Myth
Mohamed Samir, CEO of Elite for Marketing and Commercial Consulting, said there’s no conflict between how developers and banks operate in terms of pricing.
He noted that many developers now offer cash discounts of up to 49%, especially for unbuilt units. This practice, he said, has become common in the market, allowing developers to obtain immediate liquidity instead of waiting for future check payments.
Samir explained that developers don’t cash checks at a “discount,” but instead use a process known as check discounting. He pointed out that mortgage finance companies don’t finance units still under construction—they finance handed-over units with outstanding installments.
These financing mechanisms allow developers to receive money at present value instead of future value, enabling them to launch new projects. All parties—developers, banks, and clients—benefit.
In cases where clients delay installment payments, the developer retrieves the defaulted check and submits another one to the financier as a guarantee. Without this, the amount received by the developer is lower, encouraging timely payments.
Samir stressed that no developer prices units without factoring in interest rates. Any pricing that omits interest is considered misleading marketing, as developers include prevailing interest rates in their pricing to avoid losses.
He compared developers and mortgage finance providers, explaining that mortgage finance is based on bank interest rates, with prices adjusted accordingly. In contrast, developers apply a fixed rate to unit prices, even if bank rates later decline, making mortgage finance more cost-effective for clients in the long term.
Abdel Hamid: Lower Interest Rates Needed to Bridge Pricing and Financing Gap
Ayman Abdel Hamid, board member of the Egyptian Mortgage Finance Federation, stated that developers typically don’t need immediate liquidity during the early phases of a project, as construction and delivery can take 3–4 years.
He said installment-based sales are more beneficial at this stage because the unit price includes future interest. Developers usually begin selling their portfolios as handover approaches to fund new projects, selling only as much as needed.
Abdel Hamid added that developers often forgo a portion of their profits—not through direct discounts to clients but by partnering with finance companies to obtain liquidity, instead of personal borrowing. Check cashing includes a discount to account for the cost of money and prevailing interest rates.
He explained that developers resort to securitization in two scenarios: when they hit borrowing limits or need urgent liquidity. However, securitization remains expensive.
Some companies offer cash discounts, while others—especially during construction—don’t, due to a lack of immediate liquidity needs.
He concluded that the solution to reducing the pricing-financing gap is lowering interest rates, easing the burden on mortgage-financed buyers.
El-Kahky: Selling Future Rights Supports Liquidity
Mohamed El-Kahky, Managing Director of Tamweel for Mortgage Finance, explained that developers sell future rights to secure immediate liquidity and prefer to offer discounts to cash-paying customers.
He emphasized that mortgage finance isn’t tied to property pricing, as funding is offered only after construction is complete. Developers offer limited discounts to clients.
El-Kahky added that mortgage finance benefits clients, especially amid rising property prices that may not match their financial capabilities. It allows for longer repayment periods and eases the financial burden at handover—including maintenance, finishing, and furnishing costs. It also facilitates resale and enhances sales opportunities.
He noted that the mortgage finance sector is regulated by the Financial Regulatory Authority (FRA), which brings significant expertise and oversight. In contrast, the investment and development sector lacks a similar regulator, giving developers full control over pricing.
