Developers expect more sales stability, mergers in real estate market in 2019

Shaimaa Al-Aees
12 Min Read

Real estate developers predicted that in 2019 the real estate sector will witness a state of relative stability in sales as a continuation of the last quarter of 2018. They stressed that if fuel prices rise, this will reflect a 15% increase in real estate prices during 2019.

They also pointed out that despite the fact that companies achieved twice as much sales in 2018 compared to 2017, they did not achieve their targets due to weak purchasing power of customers. Furthermore, they called on the Egyptian government to reduce land offer rates, which saw large quantities, especially in east Cairo, for at least two years, in order to give the companies the opportunity to complete the implementing existing projects.

Moreover, they demanded from the government to develop a mechanism to provide mortgage finance with an interest rate that is commensurate with citizens’ income.

Tatweer Misr’s Managing Director (MD) and board member, Ahmed Shalaby

Egypt’s real estate market may witness mergers, rather than market exits

Tatweer Misr’s Managing Director (MD) and board member, Ahmed Shalaby, expected that the real estate market will witness a wave of mergers between big companies among themselves or with medium-sized companies to achieve reciprocity between them, both in terms of land and finance, in order to meet the current market situation.

Notably, Shalaby expected that the market would witness a hiatus in sales during the coming phase, especially with the continued focus on a specific residential segment, in addition to the lasting stability of customers’ purchasing power.

The government must reconsider the mortgage financing system, which currently is the most prominent option to revive sales operations in the real estate market, Shalaby elaborated.

Darwish Hassanein, CEO of the Saudi Egyptian Construction Company, said that the Egyptian real estate sector has faced many challenges since the flotation decision, but it succeeded in facing it based on a genuine demand. The increase in the payment period for customers may affect the developer’s financial solvency. There is also concern among clients who buy units for investment purposes, Hassanein pointed out

He called on developers to identify the types of customers he addressed, in the coming period.

Furthermore, he explained that the state’s plan to provide housing units for the benefit of low-income people is important, but the implementation of units for the middle-income segment, which is the function of developers, is a result of a certain shortage of units allocated to that segment.

Hassanein agreed with Shalaby that the real estate market may witness mergers, rather than market exits, and mergers either in investments or in entities.

Moreover, Hassanein said that a strong entity is a more solid instead compared to an individual entity and the cost of project’s construction in that entity is cheaper, and the speed of completion is faster. Since each party in this newly-established entity has an advantage, when they merge, integration creates a robust entity which operates to produce a high quality product in the shortest time.

The market will witness sales deceleration, especially in residential sector in east Cairo

First Group for Real Estate Investment Chairperson Bashir Mostafa said that 2018 witnessed a large increase in offering lands in a time of declined demand.

Mostafa predicted that 2019, will witness a deceleration in the real estate market sales especially in the residential sector, namely in east Cairo, which has recently begun to overshadow a number of companies that have begun to seek partnerships to complete their projects.

Managing Director of Al Ahly for Real Estate Development, Ahmed Sabbour said that land value must not exceed 25% of the cost of the project, noting that prices of current land offerings are exaggerated.

Sabbour added that the volume of land plots offered during the last period is equivalent to what was offered for decades, which contributed to solving one of the biggest real estate market crises, namely the shortage of land, however, continuing to deal with land as an opportunity to trade and not a means of development contributed to price hikes.

Meanwhile, Amr Soliman, chairperson of Mountain View expected that the sector will achieve growth in 2019, which reflects the strength of the market, especially with increasing competition and rising customer awareness about the importance of the property and the best ways to invest money.

Soliman elaborated that Egypt’s real estate sector has achieved EGP 35bn in sales in 2018, compared to EGP 110bn in 2017, an increase of 32%, with expectations to keep growing in 2019 thanks to the market strength, especially with increased competition and improved awareness of the importance of real estate as it the safest heaven to invest in.

“The real estate market was more stable in 2018 compared to 2017, which was the hardest year for the sector because it absorbed the large price increases of costs following the economic reform decisions, the most important was the liberalisation of the exchange rate and it is expected to continue to improve and perform better in 2019 at reasonable rates,” Soliman noted. “This year will see price hikes of 15% to 20% in real estate prices.”

Furthermore, Mohamed El Assy CEO of Edge Holding agreed with Soliman regarding the fact that the market will keep growing especially in Egypt, for example during the global recession in 2008 the whole world’s economies suffered, however, Egypt’s real estate sector kept growing and it had the fastest return of investments.

Developers face lack of funding and government has to consider mortgage finance
During the ‘Urban Development and Industrialisation’ session at the fifth Akhbar Al Youm economic conference entitled ‘Industrialisation…the road to the future’ held last month, Hisham Talaat Moustafa, chairperson of the Talaat Moustafa Group, said that the real estate sector has not yet played its purported role in the development of the country, pointing out that it needs long-term financing.

Moustafa added that one of the most important problems facing developers is the lack of funding and that the government must reconsider mortgage financing.

He noted that the real estate market is not suffering from a recession, however the market mechanism of supply and demand changes, most notably the state’s implementation of units for residential segments, which is the role that must be played by the private sector.

The government has to initiate further mechanisms to support the private sector through involving them in urban development projects carried out by the government, he elaborated.

Beta Egypt Urban Development Company Chairperson, Alaa Fekri, said that Egypt’s real estate market has entered a different stage in the current period, and became more diversified and mature, explaining that the market is going through a period of realignment and correction of a situation, re-filtering companies operating in the market.

Fekri added that the middle class represents the segment which most requests property, which is the very segment that incurred the bill for the liberalisation of exchange rates. However, the A class still buys property, but not for housing purposes, but rather for investment purposes.

He pointed out that overvaluation of land prices is counterproductive to real estate investment, which in turn raises unit prices, ultimately negatively affecting the selling operations.

Impact Commercial Real Estate CEO Ali Gaber denied what some people say that the real estate market is in a recession.

Gaber agreed with Fekri that the market is undergoing a re-filtering situation to achieve a balance, especially since real estate prices have increased over the past period, and some companies exaggerated in raising their unit prices.

He stressed that 2018 witnessed a correction wave in the real estate market, and will continue during the first half of 2019, accompanied by the exit of many small entities operating in the market, or a wave of mergers and acquisitions between small entities, which is the most suitable solution for those types of companies.

Tarek Shoukry, head of the Real Estate Development Chamber, said that the state’s strategic plan for 2050 aims to increase urban areas to reach 14% from 7%, the current area Egyptians live in, through launching fourth generation cities, including the New Administrative Capital, which is an indicator for the sector’s growth.

Shoukry elaborated that the devaluation of the Egyptian pound gave local property an added value and afforded developers an opportunity to open new markets during the coming period.

Intensive interest by companies for exporting property in 2019

Pyramids Developments Managing Director Tayeb Mohamed Tayeb said that the number of offerings by the ministry of housing in the recent period is good and he emphasised the state’s interest in urban expansion, which is irreplaceable in the case of overcrowding and population increase.
Tayeb expected that in the current year there will be great interest by real estate companies to export their property to increase their sales and gain cash flow to develop their projects, driven by the interest of the state to promote this file, and thanks to the Egyptian pound devaluation which encouraged foreigners to buy Egypt’s property.

Exit scenario of the investments should not be before two years

For his part, Ashraf Diaa CEO of ERA West, noted that the purchasing decision-making will be made on the basis of risk management as clients need to buy based on comprehensive comparison.

Diaa added that in 2019 the exit scenario of investments should not be before two years, as the resale will be very slow.

He noted that the quality and ethical level and codes of real estate stakeholders are supposed to be followed because of the high quality calibres who will survive.

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