Egypt’s real estate sector back in the spotlight

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CAIRO: With Egypt’s political landscape seemingly stabilizing, investors are gradually making their way back into the market, with the spotlight focused on the country’s once thriving real estate sector.

Whether you were looking for a small getaway on the coast of the Mediterranean, something more luxurious on the Red Sea, or an upscale residence in one of Cairo’s new communities, Egypt was the destination of choice for real estate investors, both local and foreign.

Since last year’s winter uprising pushed Hosni Mubarak and his cronies out of power, the once attractive sector plummeted as investors shied away from long-term commitments, and also as some of the sectors leading names were linked with corruption cases or land disputes.

A number of lawsuits forced some of the biggest real estate developers to return land to the state as a form of settlement, after being scrutinized for purchasing thousands of acres at undervalued prices directly from the government as opposed to through a public auction.

Property prices, however, are starting to stabilize as land disputes are resolved. Companies like Palm Hills and Talaat Moustafa Group (TMG), which are the two largest developers in the country, are starting to recover.

“Prices are starting to stabilize again, the confidence is back, and land issues are being resolved. TMG is fairly out of its land disputes and that was a big relief for them as well as the whole sector and investors,” said Harshjit Oza, real estate analyst at Beltone Investment Bank.

The shortage of housing supply in Egypt remains, with a rapidly growing population and an increasingly high number of youth augmenting the need for primary housing units.

“As long as people are getting married, the real estate sector will always be in demand in Egypt,” Hisham Halaldeen, senior investment analyst at Naeem Holding, told Daily News Egypt.

“Primary housing is the area of interest, secondary housing is not happening right now, whereas before the uprising people used to look for second getaway homes in Marsa Alam, for example,” he said.

The sector, which tumbled along with tourism and foreign direct investment (FDI) in Egypt, is looking more hopeful.

Real estate developers are starting to sell more properties that are in demand, priced at LE 1 million or below, according to Halaldeen. A couple of years ago, upscale housing was the main focus for investors and developers, overshadowing the more pressing need for low-income housing.

Oza said that Palm Hills will be able to deliver properties this year, seeing fewer cancellations, which means more positive balance sheets.

“There will definitely be more sales than last year, less cancellation, overall better management of collections, because all of these companies have a huge inventory that was not delivered last year. They will start delivering now and this will be reflected in the [financial] outcomes for 2012,” he said.

Many real estate developers only calculate property sales after delivery, which is a reason why the financial results for these companies were less than rosy last year.

With private business dominating the sector, making up almost 90 percent of the properties market, the government has made it a point to reach out to investors.

“The government has announced several times that they want to work with the private developers in Egypt to sort out all these land disputes. You have the private sector contributing to most of the market, the public sector’s investment in real estate is less than 10 percent,” he pointed out.

According to Oza, as the political risk subsides, the sector can expect to see positive effects in the third and fourth quarters of 2012.

Sector showcase

Kicking off the year on a positive note, investors and real estate professionals are convening for a large-scale real estate investment and development summit in Cairo.

Cityscape Egypt, in association with Next Move, opens its inaugural exhibition and conference on February 20, at the Cairo International Convention Center.

The conference will showcase the developments of SODIC, Palm Hills, TMG, Citystars, Hyde Park (DAMAC), Al-Futtaim Group, Orascom Hotels and Development and Emaar Misr for Development.

Egypt’s East Real Estate Summit will also run concurrently to the exhibition, providing a forum for delegates to hear from leading experts who will be analyzing the country’s sector and economic outlook.

With real estate magnates from all over the world coming to scope out Egypt’s market, Chris Jolly, chief executive of Pradera, a London-based retail real estate fund, told DNE that he sees high potential in the country’s property sector, especially when it comes to commercial developments.

Pradera, which is involved with 48 shopping centers and retail parks across Europe from Turkey to Luxembourg, with a value of LE 16 billion of assets under management, will eventually have an office in Egypt, according to Jolly.

Jolly, who has been coming to Egypt for about two years with plans to invest and will speak at the summit, has not lost confidence in the country’s market. Egypt is in fact, too “big” for investors to resist, which sets it apart from several other markets in the Middle East region.

“There are fundamentals that attracted us, in spite of what happened a year or so ago, there is a very large number of people in Egypt, Cairo alone is one of the largest cities in the world, and yet the number of shopping malls is quite small,” he said.

With a youth segment making up about 50 percent of society, a growing middle class, and a population of more than 80 million people, Jolly added that Egypt is fundamentally a “very good” market.

“We are taking a medium-term view here, over the next three to five years, the Egyptian economy will continue to grow and consumers are going to be interested in good quality shopping malls, and big international brands are very underrepresented here,” said Jolly.

This is where Pradera comes in.

“Our medium-term target is to set up a fund, using both international and domestic money, which will raise equity to invest in a portfolio of Egyptian shopping centers in Cairo, and potentially in Alexandria as well as other places,” said Jolly.

Currently, Pradera has already set up a small team in Cairo and are working with owners of Dandy Mega Mall as the center’s asset managers.

While many experts have a relatively positive outlook for the sector in Egypt, the future of real estate will essentially depend on the political clarity and the state’s ability to reestablish business laws.

“The real estate sector is one of the most important for Egypt and will continue to be. So in terms of GDP contribution and employment, it was one of the hardest hit…because of the political situation and the state revoking land deals,” said Karim Helal, board member of CI Capital and speaker at Cityscape.

Helal predicts that at a later state in the real estate sector’s gradual, yet anticipated progression, commercial, retail and tourism properties will see improvements, respectively.

“Once we have some clarity and stability, it will be one of the fastest sectors to recover because the demand is so great right now, it attracts opportunities particularly on the low- to mid-income housing as priority,” he added.

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