CAIRO: The future is promising for Egypt, agreed a panel of local and foreign investors on Monday, but the exact timing of a recharged real estate boom, and the identity of the players involved, remain debatable.
“We’ve been selling the Egyptian story for many years,” said Michael Katounas, director of investment banking at Credit Suisse. Fundamentally, the very basics of supply and demand are strong and unique for the region, he added.
The panel was part of this week’s CityScape Real Estate Summit, taking place concurrently with the Cityscape Egypt-Next Move real estate exhibition in Cairo.
On the one hand, Katounas noted steady population growth, indications in disposable income and real estate demand; while on the supply side, world class operators are ready to deliver high quality products, with affordable housing in some cases.
While the environment is favorable for investors, he said, the real questions were those of risk: “when versus if” and “‘what I think” versus “how much.”
Katounas particularly highlighted that any unrest — whether real or perceived — has to be out of the system before any meaningful, sizeable investment can take place.
“Whether it’s real or perceived, if you’re a fund manager in Europe, perception is reality,” he said. “Do I go to an investment committee with an Egyptian investment opportunity today? For now the answer is no.”
However, he expects that could happen within six months, after real or perceived risks calm down. He foresees a real pickup for long-term investment by the first quarter of 2013.
Cadena Group’s CEO, Chris Jolly, agreed. “The fundamentals of Egypt’s market are very strong,” he said, pointing out that 50 percent of the population is below the age of 25, is very aspirational, and sought brands and shopping.
Daniel Broby, chief investment officer of Silk Invest, warned of another caveat, albeit external: the struggling global economy. With scarce capital and competing investments fighting for attention, “real estate isn’t a liquid asset and it’s hard to pick up,” he said.
There is also a particular risk associated with Egypt. “Even if you have a 15 percent yield, is that a compensation for a country with high inflation and many unresolved political issues, many disputes over previous real estate contracts? You have to look at all that together and ask if it’s a fair price.”
While the trade-off is reasonable, he said, it is not necessarily competitive.
“The country’s running out of money,” he said, especially needing capital to build homes and schools, but that more had to be done to make it compelling enough to attract Americans and Europeans.
Broby said the GCC countries had a better chance of investing because they understood these risks.
Meanwhile, Karim Helal, board member of CI Capital Holding, agreed that investors were “there and not going anywhere.” However, he warned of smug attitudes towards investors.
“What we missed out on over past years is that we tend to think of Egypt as the only great investment location … [and forget] that we need to compete with other destinations,” he warned. “The attitude is like we’re doing you a favor to invest here.”
In addition to other Arab countries, Helal said Egypt is also in the race with Turkey and Eastern Europe. “What are we doing to attract more foreign investors?”
In addition to settling all pending socio-political issues, when it comes to real estate, Egypt also has to confront serious credibility concerns, particularly “revoking contracts due to previous corruption.”
Confidence is important and has to be maintained, he said, but the current approaches are “naïve and short-sighted … If international investor community has doubts about sovereign credibility of their partners, that’s a very serious problem.”
The focus on dispute settlement was also important to Broby, who remarked that allowing for negotiated settlements away from courts or arbitration led to confusion regarding transparency.
Noting the lack of leadership in Egypt as a top concern, Helal said he’s “never seen a transitional government that lasts for a year or more.”
“They’re not mandated to make long-standing decisions,” he said, additionally warning of a ‘fear factor’ responsible for dwindling reserves and other critical factors.
The country’s ruling military council in place since Hosni Mubarak’s ouster is often criticized for a slow and mismanaged transition process, whose negative effects have spilled over into the economy. Several Cabinet reshuffles have meant that ministers’ time in office is unpredictable and doesn’t come with much decision-making power.
On politically stability, Jolly put a similar estimate as Katounas’, by the fourth quarter of 2012.
He warned of the strong likelihood for currency devaluation, prompting Gulf countries to take necessary precautions, a note which Helal somewhat objected to.
“There’s tremendous social pressure,” Helal noted, and believed any future devaluation would only be gradual, “because there can be a sudden drop and flare things up.”
On a brighter note, Helal said that once things stabilize, real estate “will take off like never before.”
“We need to make the tools to mobilize local and then regional liquidity,” he said.
