The Promise of Real Estate Funds and REITs for the Egyptian Market
Egypt currently faces a number of economic challenges that have created hurdles for property developers. As a result, developers have begun looking at novel strategies for financing new projects and attracting investors from around the globe. One of the proposals gaining a lot of traction involves establishing real estate funds and real estate investment trusts (REITs), both of which are becoming increasingly common in international property markets. These vehicles represent a great way to open the Egyptian market to a larger number of investors while generating more funding for the continued development of the nation’s new urban centers.
The Clear Benefits of Real Estate Funds and REITs
One of the reasons why real estate funds have had difficulty taking off among investors in the Egyptian market is the instability of the local currency. Real estate funds allow people to invest directly into a collection of properties and reduce the risk they are exposed to as a result of the investment. Purchasing real estate comes with significant risk as it has limited liquidity. Investing in a fund removes the liquidity problem while also reducing the access threshold. Minimum investment in a fund is far lower than purchasing a property outright and the fund comes with the added bonus of diversity. Creating a diversified real estate portfolio as a single investor would require much more capital. However, investing in the fund does come with inflation risk and an unstable currency highlights that issue.
At the same time, real estate funds do not only benefit investors. Developers can use them to raise capital for new projects and expand their own portfolios. Thus, bringing these funds to Egypt would also serve the goals of the Egyptian government as development brings more global attention and foreign investment. Luckily, Egypt has recently approved a number of legislative amendments that make the market a more amenable place for real estate funds and REITs. Similar to real estate funds, REITs enable investors to bet on real estate without requiring them to purchase entire properties. However, shares in REITs trade on exchanges much like a stock whereas real estate funds function more like mutual funds. The return you receive from these funds is proportional to the amount of money you have invested. Legislative changes in Egypt will facilitate the operation of both models.
Developing a Solid Strategy for Real Estate Products
Now that legislative foundations have been laid and there is a general consensus that real estate funds and REITs will help drive development in Egypt, there must be a strategic plan for how to introduce these opportunities to the country. Recent economic shifts have created a lot of opportunities for developers in Egypt, but they have also revealed some key challenges that will need to be overcome if the market is going to continue to thrive. A clear strategy can help avoid these pitfalls while increasing foreign investment in Egypt, which is key for ensuring that developers keep their momentum. One of the key parts of this strategy is the implementation of the Egyptian Exchange, which can serve as a regulatory body to boost investor confidence in these opportunities. The exchange can ensure consistent governance, including fair pricing and liquidity guarantees for REIT shares.
Creating such a strategy will aid in the diversification of real estate products in Egypt at a time when real estate funds and REITs are becoming increasingly popular across the globe. Introducing products that are reliable and vetted will ultimately make Egypt more appealing to foreign investors at all stages, not just ones with the capital to fund entire projects. In truth, not many foreign investors will put that much money into a foreign market with an unstable currency. However, these products make investing much more accessible by spreading out that risk among many people. In turn, developers have a new potential exit strategy and can feasibly take on more projects without worrying about making a large enough profit. These products also open up opportunities in entirely new sectors for many investors. For example, real estate funds and REITs are how many investors now put money into the hospitality industry without funding an entire hotel.
The Path Forward for the Egyptian Real Estate Market
As this plan is created, many leaders in the industry have made suggestions about how best to support these unique types of assets. For example, several people have called for tax relief among investors who choose to hold these assets. Providing these benefits could become a primary strategy for increasing foreign investment. While tax benefits have already been introduced for real estate funds, REITs should have the same relief since the assets are so similar. Moreover, as REITs are a strong tool for hedging against inflation, tax benefits could also lay the foundation for greater economic stability by attracting investors despite rising interest rates. Beyond taxes, industry leaders have called for more large-scale promotion of these unique real estate assets to drive domestic investment and have pushed for greater regulation of the industry. For example, there should be specialized registries for properties that can help investors feel more secure in their real estate fund and REIT investments.