Real estate company partnerships to overcome high land prices, construction costs

Shaimaa Al-Aees
4 Min Read
EGP 20.6bn are targeted in housing, utilities and urban development programmes. (DNE Photo)

Wadi Degla Developments CEO Maged Helmy said real estate company partnerships are a method to increase companies’ land portfolios despite high land prices. Companies can allocate capital that is not invested in the purchase of land to facilitate business development.

The CEO said public corporations should offer land holdings to the private sector to form ownership partnerships, claiming that public corporations do not have the requisite capacity to develop these lands. A partnership will increase profits and the rate of development, according to Helmy.

“Partnerships between the government and developers are a sustainable pairing for the real estate sector. However, this requires offering land and projects to experienced investors,” Helmy said.

The CEO of Sixth of October Development and Investment Company (SODIC) Maged Sherif also supports real estate company partnerships. Land sold in the latest auction prohibited development as the majority of capital was allocated for purchase rather than development, according to Sherif.

In early March 2016, SODIC and Heliopolis Housing signed a contract for co-development of 655 acres in New Heliopolis, East Cairo.

SODIC participated in Heliopolis Housing’s last auction as part of its strategy to increase its land portfolio and pursue new opportunities for growth.

Meanwhile, commercial director of Abraj Misr, Tarek Bahaa, said that it is difficult to implement real estate company partnerships due to a possible conflict of interests, ideas, and corporate development strategies.

Bahaa said land scarcity and the high price of land have forced real estate companies to exit the market, leaving workers without employment and certain homebuyer demographics without housing.

The director of Cityscape Group, Wouter Molman, said high land prices are challenging. Although the New Urban Communities Authority and the Ministry of Housing have offered new parcels of land, silent auctions are augmenting land prices, the rate of inflation, and the cost of raw materials.

“We hope that the mega projects are going to be developed through public-private partnerships to help developers to sustain their cash flow and acquire lands at affordable prices. Such partnerships would create more supply and achieve to strike a balance between supply and demand,” added Molman.

In an interview with Daily News Egypt, Madaar Development chief executive Gasser Bahgat said that the price of lands and lack of funding mechanisms may push companies to partnership. Therefore, Bahgat revealed that the company plans to put its shares in the Egyptian Exchange (EGX) as a mechanism to expand its shareholder base and to expand financing options according to a long-term plan.

Head of investment at ERA Commercial Egypt, Mohamed Gamal, said investors in Arabian Gulf countries are seeking partnerships with Egyptian companies in real estate ventures.

“As for the junior investors, they often go for partnership due to exposure to financial crises as a result of the economic downturn over the past years, in addition to the lack of sufficient financial liquidity to carry out the project alone,” said Gamal.

Gamal predicted an increase in the number of partnerships between Egyptian real estate developers in the next few years.

Mountain View has entered in alliance with Saudi Sisban Holding and CallisonRTKL, an international architecture firm, to design housing projects in 6th of October City and New Cairo in partnership with the Ministry of Housing.

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