As the population explosion in Cairo has experts worried about a potential meltdown of the megacity, Egyptian real estate developer Sixth of October for Development and Investment (SODIC) has embarked on the ambitious project of building two mixed-use city centers in Cairo’s suburbs: Eastown and Westown.
The two projects together will cover 2,060,000 square meters of land offering a healthy mix of residential, business and commercial properties.
True to their names, the two projects are located respectively East and West of Cairo, 50 km apart. Eastown is situated in Katameya, New Cairo while Westown is at the center of Sheikh Zayed, Sixth of October City. Both projects entailed extensive preliminary research in sustainability and urban planning to ensure their quality in the long-run.
The idea for the projects came up in 2006 as SODIC acquired new management that began observing the economic developments in Egypt closely.
“In the last few years, the private sector has been really allowed to run with the economy. The private sector share of the GDP has been going up significantly, which has resulted in private sector companies making money. Employees of the private sector are now earning salaries that allow them to buy their own home, to go do their shopping, to travel, etc,” Ahmed Dabbous, chief financial officer at SODIC, said.
“The impact on real estate was that there were new demand patterns,” he added. This economic boom not only increased the demand for residential properties but also for new retail and office space. Malls started multiplying, offering new imported goods that flooded the country as tariffs were removed. Private companies also saw the need for expansion into new markets and new office spaces.
“All these things are happening and we saw an opportunity. We saw an opportunity to diversify,” Dabbous said. Today, of all the projects SODIC is developing, only 30 percent are residential; 70 percent are either retail or business properties.
“We said, well, we have suburbs emerging. We have strong demand for offices. We have strong demand for retail. Let’s [build] city centers. So we started with these two projects: Eastown and Westown,” explained Dabbous.
Planning began in 2006 and a 2008 launch was projected. However, due to the financial crisis and its impact on real estate, it was postponed. Eastown and Westown were finally launched at the end of last year.
The two projects will be developed over phases. Polygon is first in line, a complex of nine office buildings, a business hotel and serviced apartment buildings. Half of the 70,000 square meters will be sold and the other half will be leased.
Leasing is one of SODIC’s strategies for long-term revenue generation. “We have 25-30 percent of the property we are offering over the next five years for lease. You can make a 30 percent return on your investment by renting. So who wants to sell?” Dabbous said.
Another finance scheme introduced in both Eastown and Westown is sub-developing. Through this operation, SODIC is offering part of the city centers’ land for development to other companies. The company has already contracted three major Egyptian and Middle Eastern companies to develop their own projects within the two city centers.
“This [sub-developing] helps in two ways. One is strong cash flows at incredible valuations; the land component in those transactions is valued at $1,000 per square meter. Also, it creates a pull factor because if you are looking for office space and you hear that so and so is here, you also want to be here,” Dabbous said.
Another strong source of cash for SODIC has been Allegria, an upscale residential project in the vicinity of Westown. Extending over 2.38 million square meters of land, it contains 1,300 villas. A signature Greg Norman golf course also stretches within its borders. The residential areas have already been sold out and new units are expected to be delivered ahead of schedule by the end of the year.
The company has achieved sales revenues topping LE 4 billion and LE 900,000 alone in the last year, despite the crisis. This year to date, SODIC has reached LE 700,000 of revenues.
With these revenues, the company plans to continue work on Eastown and Westown as well as expand in the long-run into other major cities in Egypt and the region.
Construction work on the Allegria development.
Villas in Allegria overlooking the signature Greg Norman golf course.