Capital Group Properties (CGP) real estate development company aims to sign construction contracts during the first four months of 2017 worth EGP 1bn for implementing units within the first phase of the Borooj project. The company is considering large tracts of land development in a number of coastal and residential areas.
Chief projects officer at CGP and member at the Real Estate Development Chamber affiliated to the Federation of Egyptian Industries (FEI) Amgad Hassanein said that the company plans to sign three tender contracts for implementing units within the first phase of the Borooj project. The value of contracts increased to EGP 1.3bn since the company’s founding.
The company also assigned construction projects worth EGP 300m to other companies in October 2016.
CGP assigned the implementation of 250 townhouses of the first phase of the Borooj project to Hassan Allam Contracting Company, which took over the site and began construction in October. Units are scheduled to be completed and delivered fully finished with utilities to customers within 30 months from the start date of the implementation of the project.
Borooj project is constructed on an area of 1,212 acres (5m sqm), in the area between Suez and Ismailia desert roads. It is an integrated urban project comprising of 28,000 housing units, as well as commercial, administrative, and recreational activities. The project will be developed in four phases over 10 years with investments worth EGP 50bn.
Hassanein explained that the company will decide on the first tender in the coming weeks. Three contracting companies are contesting within a limited tender.
The company is running behind schedule in assigning works that were planned to be done in the last months to companies, due to the difficulty of determining the financial cost of the work by contracting companies due to the volatility in prices of raw materials and the foreign exchange gap.
The negative consequences of the Egyptian pound’s flotation directly reflected on construction inputs, as did the value-added tax (VAT) and price hikes on oil products.
The company is seeking to increase its investments in the Egyptian market and is considering a number of investment opportunities that include large tracts of lands in the North Coast, Red Sea, and cities west of Cairo, especially Sheikh Zayed. Opportunities vary between partnership with government agencies and direct purchase of lands. The company is waiting on the Ministry of Housing to launch land partnership projects in the coming period.
He stressed that the market will see a change in companies’ ideas during the next phase after the liberalistion of the exchange rate, and CGP has started to notice that. The company has adopted a different ideology since it started to operate in the market in terms of designs and unit construction. It has hired European consultants to help the company achieve this.
The cost of construction rose by roughly 30-40% following the flotation of the Egyptian pound, given the proportion of Egyptian components, which adds extra costs on companies.
Hassanein mentioned that the company has only signed one contract, but it considered the probability of the US dollar price increase against the pound, which was clearly expected. Therefore, the company wasn’t significantly impacted.
He pointed out that the company increased its unit prices by 20%, as well as extended repayment deadlines to comply with the customer purchasing power—which is measured by customers’ ability to repay the value of the instalment, not the total price of the unit. This requires companies to find financing alternatives to help them provide long repayment periods for customers.
The source added that the high value of the dollar reduced the value of the real estate market globally. Real estate has become very attractive, and companies must exploit that opportunity through external marketing. This should be organised by all Egyptian companies together, not individually.
Hassanein expected companies to increase their prices by 30% this year to reach 100% over four years amid the growing demand and the increased prices of construction inputs.
He said that the old way of thinking in the real estate sector and the reliance on cash flows from sale proceeds and customers’ monthly instalments in project development is no longer compatible with the new changes recently witnessed by the market. Companies are required to search for financing alternatives and to accelerate implementation works.
Hassanein added that the Real Estate Development Chamber presented an important initiative to the Ministry of Housing to ensure residence is granted to foreigners who buy property worth $250,000 or more. This will increase cash flows of foreign currency as well as improve market activity despite the global decrease in the value of real estate.
He stressed the importance of amending the Mortgage Law to include units under construction, in order to deal with major and serious companies and undisputed land, which allows many customers to own housing units in light of price hikes.
He added that the chamber is preparing an initiative to present to the Ministry of Housing and the cabinet for the development of small- and medium-sized real estate developers by providing lands in line with their development ability on areas of 5-10 acres at affordable prices. It also includes financing small- and medium-sized enterprise (SME) projects at low interest rates, and providing technical support from major, experienced companies.
Hassanein said that the chamber has started holding meetings with SMEs to get to know their demands and problems, and to find an integrated mechanism for the development of SMEs. The chamber will submit its findings through a memorandum to the Ministry of Housing and the cabinet.
Hassanein also called on the state to resolve the tourism companies’ crisis, which obtained lands in dollars and are required to repay in accordance with current foreign exchange prices—which represents significant pressure and has led to losses. The chamber has received many complaints from tourism developers, and it seeks to study the problem as a prelude to communicate with the Ministry of Tourism to solve their problems.
He expects the real estate sector to achieve growth in the current period, due to the demand on housing units, particularly medium categories, in light of the accumulated deficit from previous years; along with an annual demand of 500,000-600,000 housing units per year according to marriage requests. This requires doubling what companies offer in order to cover these requirements.
Hassanein stressed that the Egyptian market is the highest in terms of investment returns, and that the current period is the best for receiving new Arab and foreign investments, despite some difficulties experienced by the companies.
He explained that the Sustainable Development Strategy: Egypt Vision 2030 prepared by the presidency aims to raise the proportion of developed land in Egypt from 7% to 13% over the coming 14 years, which requires major effort. The state can’t achieve this rate alone, which makes the private sector a main player.
He pointed out that the chamber is also interested in the problems of the industrial developer, and that four out of 11 companies operating with this system posses lands, while the other seven companies are facing the spectre of closure as the state has not offered lands to industrial developers in recent years.
He pointed out that the partnership between the Ministry of Housing and developers allows companies to inject capital into construction rather than paying the value of the land, which accelerates development and contributes to achieving the state’s strategic and development plans.
He stressed the importance of returning the general developer system, which obtains large tracts of lands of 5,000-10,000 acres without utilities to renovate them, then sell them to SMEs. Regions such as Heliopolis, Mokattam, and Nasr City implemented this system in order to eliminate monopoly and provide multiple alternatives for lands offering.
CGP ownership is distributed equally between Abu Dhabi Capital Group and Al Ain Properties. The parent company has implemented several projects in a number of countries around the world, including the Hard Rock Hotel in Dubai, New Scotland Yard in London, Capital Plaza in Montenegro, and Rowdat and Capital Bay in Abu Dhabi.