CAIRO: Established in 1989, Orascom Development Holding has grown to formidable proportions. Part of Orascom’s strategy throughout these 20 years has been maintaining a diverse portfolio.
“We are diversified. We have different projects in different parts of the world,” Abdallah El-Nokrashy, president of the development and real estate division of the holding company, told Daily News Egypt.
“It doesn’t put pressure on us to ever cut a corner in terms of the quality of service, the quality of materials or final build because we can make it up in some other area,” he added.
Currently, the company has operations or has completed projects in seven different countries: Egypt, UAE, Oman, Jordan, Morocco, Mauritius and Switzerland. With the project in the Swiss Alps, Orascom managed to penetrate the European real estate market. The Alpine town called Andermatt will launch sales of its 800 units soon.
Switzerland, however, was not the first highly competitive market where Orascom found success. In the UAE, Orascom developed the resort town Ras Al Khaimah and despite the crisis, the project was a success.
“We were extremely lucky that we got in very early and sold the project before the crisis. When the crisis hit, we had something like 10 units unsold. So we were under no pressure to do anything stupid like drop prices,” El-Nokrashy said.
Apart from its international reach, Orascom is able to offset market fluctuations (such as the ones that occurred during the crisis) by diversifying its portfolio of operations. The company is engaged not only in construction and development but also in hotels, town maintenance, tour operations and mortgage finance.
“Having the hotel arm of the business, allows [the real estate division] to depend on someone else to generate revenue and profits,” El-Nokrashy said.
“We do have another revenue stream in the business [real estate] model which is the operational side of the town. We don’t seek to get rich from it. It’s a little bit better than breaking even,” he explained.
Orascom was the third recipient of a mortgage license in Egypt. Its mortgage finance subsidiary, Tamweel, was launched in 2006, providing the majority of mortgage deals for Orascom properties, as clients are highly encouraged to apply for mortgages. According to El-Nokrashy, about 80 percent of the homebuyers of their low-income housing take out mortgages.
Budget housing is another element of Orascom’s diversity strategy. Being one of the few companies to venture into the lower-cost segments of real estate, the company has a project in Sixth of October city for 50,000 units called Haram City, and one in Fayoum for 20,000 units.
In cooperation with the government and the nonprofit sector, Orascom will also be developing the social infrastructure of these new residential areas.
“This is a hugely-overlooked segment. People think that they can only make money on the high end, which makes sense because the margins are a lot better,” El-Nokrashy said. “The problem with going after the lowest segment is that you have to sell a lot. There aren’t too many developers looking at that segment.”
He explained that the low-end segment of real estate hides a bit of a risk. Companies have to know what they are doing to be able to do it. The average developer-investor is probably going to shy away from doing business in this segment. Orascom has been involved in budget housing for a while and therefore, has the know-how and the experience to minimize risks, El-Nokrashy said.
Orascom is also eyeing the middle-income segment of property development, which, like the lower end, has been chronically undersupplied in the Egyptian market.
According to El-Nokrashy, the company will also continue to work on its main area of expertise — the integrated towns. Its flagship project, El Gouna, developed 20 km north of Hurghada, was established 20 years ago and has since been expanded dramatically. With 10,000 permanent residents and more than 200,000 yearly visitors, the resort boasts 15 hotels, 2,400 residences, 100 restaurants, two schools, a hospital, a golf course, a water-purification installation and a power plant.
Orascom’s path towards this highly integrated diversified portfolio has encountered its share of hurdles. “There is a lesson learned for every economic situation. Even in good times, you have to know how to capitalize on opportunities, make the best of them and not to spend them. In bad times, the basics are: keep your reins very tight on your expenses and your costs, you watch your cash extremely well, and you do more for less,” El-Nokrashy said.
In his words, one mistake Orascom has avoided is lowering prices. “When we sell something to a customer, there is a promise there. Part of the promise is that at the time you bought, this was the best price possible. And there’s an upside — there’s an appreciation. The day I drop prices, I break this promise. The integrity that I’m known by as a developer goes [away],” he explained.
In his opinion, a mistake the government should not make in the future is allocating land to companies with no track record of delivering results. Small-scale developers, in for just one project and a stack of profit money, bear risk for themselves and for the market.
“It would be a problem if land is given to the wrong people,” he said.
A view of the marina at El Gouna resort.