Egypt Real Estate Report Q2 2010

Egypt’s real estate sector is unique. Favourable demographics, combined with decades of under-supply of all kinds of development have produced massive pent-up demand. This demand is being met through the construction of enormous integrated communities – essentially new cities – to the east and west of Cairo and, to a lesser extent, elsewhere. The country’s strengths in tourism – in terms of climate, resort locations, antiquities and proximity to major markets – also provides opportunities.
Opportunities are not exploited unless there are organisations that can seize them. In Egypt, the undersupply of real estate is – as in many other countries – because high political risk. Bad government decisions, pervasive poverty and widespread corruption have produced an inclement business environment. What sets Egypt apart from the vast majority of other countries with these problems is that there is a well established community of local real estate development companies that can tolerate the risks and navigate the hazards of doing business in Egypt.
The operations of companies such as TMG Holding, Egyptian Resorts Company, Palm Hills Development, Nasr City Housing and Development, and SODIC vary. What the companies typically have in common, though, are strong brands, a clear focus on areas of strength (eg hotels or upscale residential developments), and large landbanks that could not be duplicated by any foreign developer that was looking to enter the market. Most of the companies have visibility through a listing on the Egyptian stock exchange. Palm Hills Development stands out for its listing in London. More crucially, though, the cashflows of most of the developers are underpinned by large backlogs. They have sold properties prior to construction and will deliver the new houses/apartments and be paid for them over the coming years. The latest corporate results indicate that the industry has emerged more or less unscathed from the global financial crisis. There have been very few cancellations of orders from clients – although at least one major developer has had to respond to a slight softening in conditions by reducing the size and prices of the units that it is offering. Construction costs have fallen, with the result that several developers are looking to accelerate building programmes, even though many of the major projects in east and west Cairo are already ahead of schedule. The major hotel developers and operators have not had to contend with a substantial downturn in inwards tourism.