Calls are increasing within the Egyptian real estate market to reconsider project financing mechanisms, with warnings that the current crisis is not only related to rising construction costs or exchange rate fluctuations, but extends to the financing model adopted by some real estate developers, amid demands to oblige developers to have independent escrow accounts for each project to protect buyers' funds.

Experts who spoke to Al Arabiya Business believe that part of the challenges facing the sector is due to some companies relying on the proceeds of sales of new projects to finance the completion of previous projects, a model that allows construction to continue as long as sales continue, but becomes more fragile when demand slows.

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Sales finance previous commitments

According to experts, some developers rely on cash flows from launching new phases or projects to cover existing obligations in projects that have not yet been completed, which practically means transferring part of the funds of new buyers to finance the execution of previous obligations.

Experts warn that this model works efficiently during boom periods, but faces significant pressure when sales decline or the cost of financing rises, which may affect the pace of project execution.

Escrow account for each project

To address this issue, market experts have called for the implementation of an independent escrow account for each real estate project, in which all buyers' funds are deposited, and their use is only allowed to finance the project itself.

Proponents of this proposal believe that the complete separation of financial flows for different projects enhances transparency and protects buyers' rights, and also prevents using the proceeds of one project to finance another.

The crisis is not just about liquidity

Experts emphasize that the essence of the crisis is not just a lack of liquidity, but also governance and oversight of project fund management, considering that having clear controls for managing cash flows has become a necessity to maintain market stability.

They also point out that when an investor or buyer pays installments for their real estate unit, they expect that these funds will be used to execute the project they contracted for, and not to fill funding gaps in other projects.

Restoring confidence

Specialists believe that implementing the escrow account system could contribute to restoring the confidence of buyers and financiers, especially amid the challenges facing the real estate sector, by providing greater transparency and oversight on the use of funds.

They add that enhancing governance may be a more influential factor than providing new financing sources, as it boosts investor confidence in the market and reduces risks associated with project execution.

Challenge of the next phase

As pressures continue on the real estate sector, attention is turning to the regulatory measures that the relevant authorities may take to enhance buyer protection and improve project management efficiency.

Everyone is awaiting regulatory measures at a time when observers believe that restoring confidence has become no less important than providing financing, and that the market's success in the next phase will largely depend on developing governance and financial disclosure rules within the sector.

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