CAIRO: Palm Hills shares hit a seven-week low on Wednesday on news of a lawsuit challenging one of the firm’s land deals, the second such case recently, heightening worries about investing in Egyptian real estate.
The Palm Hills case emerged amid a wrangle over the flagship development of Talaat Moustafa (TMG), Egypt’s biggest listed developer, whose stock has been under pressure since a court ruled in June that its Madinaty contract was illegal.
Shares in Palm Hills, which builds mostly in Egypt’s luxury segment, closed down 4.4 percent. TMG finished 11 percent lower, after falling 7 percent a day before. Other real estate firms also slid. Egypt’s benchmark index dipped 0.7 percent.
"Real estate companies are coming under scrutiny and the possibilities of similar scenarios taking place with other developments is generating a great amount of panic in the sector," said Khalid Khalil, real estate analyst at Beltone.
Hamdy Fakhrany, the engineer who filed the case against TMG, said he submitted a suit against the Palm Hills’ deal for a 960,000 square meter plot of land in a Cairo suburb.
"I presented on July 14 a lawsuit against the Minister of Housing to annul the contract signed by Palm Hills," he told Reuters, confirming a report in Al-Mal newspaper.
The suit challenges the sale value. Fakhrany said the land was offered at below market prices by the New Urban Communities Authority (NUCA), a ministry body. He said this wasted LE 15 billion ($2.63 billion) of public money.
No plans to hear the case in court have been announced.
The firm said it had no comment because it had not received any legal notice about such a filing. There was no immediate comment from the Housing Ministry about the Palm Hills case.
"The Ministry of Housing is the busiest building in the country because they need to fix this. The Talaat Moustafa case opens the gate for destabilizing the entire industry. There are a number of projects that could be at risk," said one analyst, who asked not to be named due to political sensitivities.
The High Administrative Court on Tuesday upheld the June ruling that NUCA broke the law by selling land to TMG without putting it up for public auction.
TMG Chief Financial Officer Jihad Sawaftah said on Wednesday the government had "announced more than once its commitment to respect all its contracts and pledges to all investors, and to the completion of all real estate projects."
TMG would contest the latest ruling, he said in a statement.
Reflecting the government’s commitment to address the issue, the state news agency said Prime Minister Ahmed Nazif was forming a committee to preserve the rights of citizens and investors in Madinaty. The agency did not give details.
"Foreign investors who look for quality stocks with medium and long-term value have been selling TMG given that it looks so risky," said Amr El-Feky, head of technical analysis at Cairo Capital Securities.
Analysts said the TMG court rulings could slow the firm’s home sales and increase cancellations. Legal experts said the government was likely to adjust terms of the Madinaty deal without affecting clients.
Analysts said the Palm Hill’s case was of a much smaller scale than TMG’s Madinaty suit.
"Any of Palm Hill’s land that could be affected by changing NUCA regulations constitutes around 7.4 percent of the company’s total landbank, so at this point of time, a TMG scenario is not going to take place," he said.
Building has started on the TMG’s multi-purpose Madinaty project on Cairo’s outskirts, a project a 2008 valuation by CB Richard Ellis estimated was worth about LE 17.8 billion. –Additional reporting by Alexander Dziadosz