We speak to Aqarfunder founders Hany Gomaa, Anwar El Garhy and Nadin Mustafa about bringing investment into the internet age and redefining the way Egypt does business...
As Egypt’s economy gets back on its feet, “investment opportunity” is the phrase du jour as citizens, businesspeople and employees all look towards a brighter future. The real estate industry is one that many turn to when looking to bolster their personal portfolios and put their money away in a reliable investment for a rainy day. One revolutionary new Egyptian company is making real estate investing easier and more accessible. Aqarfunder brings investment into the internet age by using the crowdfunding model to finance upcoming projects, giving potential buyers the opportunity to profit from commercial and residential real estate from the get-go, however big or small of an investor they may be. Founded by three finance and economics pros, Hany Gomaa, Anwar El Garhy and Nadin Mustafa, Aqarfunder is changing the way we do business.
“I personally see that the opportunities are endless when it comes to real estate in Egypt. Egyptians have always felt the need to live in close vicinity to their families and loved ones, hence why Egypt has grown vertically for the last four decades and only 7% of Egypt’s land is developed. This ideology however, is ever changing with Egypt’s large young demographic as they have felt the need for open spaces and a different lifestyle,” says Nadin Mustafa who joined Aqarfunder after over six years of experience as an equity sales manager. Working with Hany Gomaa, a professional hedge fund manager with over a decade of experience in Egyptian real estate, and Anwar El Garhy, a seasoned investor in the MENA and GCC real estate markets, the three are well-positioned to usher in this new investment model. “I strongly believe that real estate crowdfunding in Egypt will boom for many reasons, the most important being that the majority of people in Egypt don’t possess adequate capital to individually invest in attractive real estate assets. Furthermore, the ability to build a diversified portfolio will enable everyday investors to participate in a multitude of real estate projects while limiting their exposure to a particular investment- this is where we add significant value,” explains Gomaa before describing exactly how Aqarfunder works.
So this is how it goes: a real estate developer looking for funding will approach Aqarfunder. The Aqarfunder team then examines the property in question to determine if it has potential as a long-term investment. “While we do not have a crystal ball, we ask questions such as: what is the age of the building? Is it a newly developing suburb or is the neighbourhood in decline? And, what is the current demand for units of a similar type?” reassures Gomaa. This vetting process is done in the interest of any potential investor, however small or big, to protect any funds they commit. “Once we get confirmation that all is in order, we proceed to negotiate the final listing price before the project or property is offered on the Aqarfunder Market Place.” When a project makes it to the market place, it must – based on the principles of crowdfunding – reach its funding goal before any financial transaction takes place. “The minimum or maximum amount one person can invest varies from one project to another based on the total deal size. The maximum at the moment cannot exceed 30% participation on one deal, to ensure that no single entity can enforce their opinion on the crowd. Investors can invest as little as 50,000 Egyptian pounds,” says Mustafa.
While in Egypt’s recent turbulence real estate and land deals have been viewed with some suspicion, the Aqarfunder team goes to great lengths to conduct the necessary due diligence, working with Sarie Eldin Legal Advisors, a prominent Egyptian law firm, to verify the legal standing of any project or development company. “Having said this, nothing prevents an external party from filing a lawsuit against ANY property owner; this does not mean that their claim is valid. In fact, a great majority of the challenges brought by public prosecutors against ‘controversial’ land deals were settled in favour of the private owners,” says Gomaa. Highlighting the security of the asset class, El Garhy adds that “When the Egyptian stock market collapsed by over 50% after the 2011 revolution, a lot of people were wiped out due to margin calls. Other investors who weren’t trading on margin had their principal “trapped” hoping for a rebound to their entry levels. On the other hand, real estate, according to both broker and developer surveys, was barely affected, with prices and rents simply stagnating, easing any tensions we had about the stability of the industry.”
If you invest in a project that fulfills its funding aim on the Aqarfunder Market Place, all you need to do, as El Garhy explains, is “go to any CIB branch in Egypt to sign all legal documents and then sit back and monitor your investment on the Aqarfunder portal’s investor page.” Aqarfunder estimates investors should see an average of 15 – 18% total return on their hard earned cash. “The minimum hurdle rate of 15% total return is just the mathematical result of an investment paying 8% rental yield in the first year and escalating at an average rate of 8% annually for the duration of a nine-year lease—these opportunities are available in the market,” explains Gomaa. Meanwhile, Mustafa reassures that “historically, real estate has proven to be a relatively safe investment. Political and economic factors most certainly play a role, but overall, medium to long-term holding periods have seen real estate increase in value due to capital appreciation. With the CBE reporting inflation of 10.13%, commercial real estate investors are seeing gains from rental contracts and annual rent escalation.”
But what does that mean to you and watching your money pile up? Well, it depends on the type of investment, as El Garhy explains. “I always like to sort them into three categories; Development, Vacant or Occupied. Development usually takes a year or two before investors start to see yield on investment. Development projects often yield the highest returns compared to the other two categories. Vacant units come in second in regards to returns but shorter time period to see monetary gain, which brings us to the third category. Occupied properties realize monetary yields as soon as the transaction is finalized. This type of investment often has the lowest yield out of the three categories but is still considerably higher than other asset classes.” Gomaa also offers an insider tip to real estate investments. “In my experience, investing in vacant properties in prime locations is where the returns are best—but it’s also risky. On two occasions I’ve waited almost a year to locate a quality tenant. This is a trade-off each investor has to weigh based on their own risk tolerance, since vacant properties can be purchased for a significant discount to those already leased, which will in turn lead to higher profits when the unit is sold.”
When it comes to the risks and potential gains on different property investments, Gomaa sums it up best: “I think developers are the only people who make robust risk-adjusted returns on residential properties. At best, unleveraged residential units can be seen as a better alternative to bank deposits or bonds. The low prospective rental yields and frequent tenancy issues leave investors just treading water. Plus, emotional ties to a home coupled with prices that do not make sense based on rental returns mean investors are left waiting for new buyers to pay more in order for them to book a profit…what if this new buyer never shows up? On the other hand, commercial real estate is only about the location and the realised rental income. Superficially, it seems riskier, but if you’re working with Aqarfunder, it’s not.”
Find out more about Aqarfunder and make your first investment on www.aqarfunder.com