Emaar Invigorates Egypt’s Sluggish Real Estate Industry-from Almal special supplement 10 Sept 06

After a long year of recession in the Egyptian real estate sector, the local market opened up to foreign entrepreneurs after the government of the reform-minded Prime Minister Ahmed Nazif took office in 2004. Earlier, the property industry in Egypt had suffered from cumbersome bureaucracy and the dominance of the ownership system of the market and lack of funding. Since taking over, the Nazif Government has taken a series of measures to revitalize the property industry and attract investments. These measures have borne fruit as giant Gulf property developers, including the Dubai-based Emaar Properties of the UAE, have been attracted to the Egyptian market. Emaar stands out among property leaders worldwide in terms of market capitalization. Other companies have followed suit. They include Dubai Holding of the UAE as well as Saudi and Qatari property development firms. Emaar is leading the property investors in Egypt with five large plots of land.

In August, the company won a bid to own 6 million meters off the Mediterranean Sea in the Sidi Abdel Rahman Resort. Emaar bought the area for LE160 per meter, a price which some experts see as too high. The successful bid has also raised questions on Emaar’s approach to the Egyptian market and if this is harmful to the local firms in the sector. Emaar Egypt, a subsidiary of Emaar Properties, is developing six pieces of land it owns in Egypt. They include the Cairo Heights Project where it plans to invest 4 billion dollars, another for setting up a convention centre at the smart Village outside Cairo, a third for developing a residential, office and entertainment project on an area of 900 (feddans 1 feddan=1.04 acres) in New Cairo next to the new campus of the American University in Cairo, and a LE10 million marina project planned in the Sidi Abdel Rahman resort in the Northern Coast.

Mohamed al-Abaar, the Chairman of Emaar of the UAE had earlier said that his company plans to take over 40 per cent of the Egyptian property development market. “Egypt did not know a real estate market according to international standards in the past when haphazardness dominated the sector, a matter which drove potential investors away, “Dr. Shafiq Gabr, the chief of Egypt’s Economic Forum and the Chairman of Emaar Egypt, said in special remarks, He cites “remarkable” development of the property industry in Egypt in recent years. He refers to efforts made to streamline procedures, and transparency in land deals. “This will reflect positively on the consumer in terms of quality and the availability of funding, which makes it easy to own property after long years of supply-and-demand imbalance,” he said. Dr Gabr explained that his company plans to project a different view of Egypt’s property developments based on a host of factors. They are quality, giving potential customers a chance to own furnished property, making options available to clients, providing all services needed in new communities, setting up a private management company for each community, and providing necessary funding for property ownership. “Emaar Egypt also seeks to give each community a special environment,” he said, disclosing that the marina project planned in Sidi Abdel Rahman is modeled after a similar project in the Egyptian resort town of Sharm el-Sheikh. “The project will operate round the year, not in the summer only as is the case with resorts stretching along the Northern Coast,” he said.

To this end, the company has studied European tourists’ preferences and their interest in water sports. Property developments planned in the project will be diverse to include patterns inspired by Andalusian, Greek and Islamic architectural styles. He cited feedback from Greece, Italy and the Scandinavian countries. Dr Gabr denied that Emaar Egypt adopts a policy based on hiking up prices with the aim of controlling the Egyptian real estate market. “Our company cannot court losses by buying plots of land at too high prices,” he said, pointing to feasibility studies conducted by Emaar on future projects. “These studies cover the location and the environment, and depend on financial analysis of potential revenues to be generated by investment.” Real estate industry players have expressed fears that the “exaggerated” prices paid by Emaar in buying pieces of land, the latest being in Sidi Abdel Rahman Resort after a fierce competition, will trigger a price war at the local market, thereby driving the Egyptian rivals out of the business. But Engineer Hussein Sabour, the Chairman of Al Ahly Real Estate Development, which is a leading Egyptian property developer, says Emaar of the UAE has been successful in the home country and abroad expecially in the US, Pakistan and Japan. “The company offers quality property developments and is able to market its products in innovative manners.” He adds. He forecasts that Emaar’s presence in Egypt can open up fresh vistas for the local market, as it will galvanize the Egyptian developers into improving their performance and upgrading their products. Nearly one year ago, Sabour’s company forged an alliance with the Saudi group Al Sharbatly and set up the Arab Real Estate Development Company to pump more money into the market and develop a host of large pieces of land. Mr. Sabour is happy about vigorous entry of Emaar and Dubai Holding into the Egyptian market. “They will provide high-quality products, which will revitalize the Egyptian market after long years of stagnation. Most of their projects will be marketed abroad as part of what is known as the second home tourism, a matter which will boost Egypt’s earnings from tourism.” Mr. Sabour rules out the possibility that Emaar’s presence in Egypt will drive local companies out of the business. “The Egyptian market can accommodate a large number of giant property developers. No serous company, launching projects on the basis of good feasibility studies, will be forced to quit the market,” he argues. Meanwhile, Dr. Ismail Othman, an ex-chairman of Arab Contractors, believes that Emaar’s expansion in the Egyptian market and its pumping aof huge funds will attract more big property developers to Egypt. This is bound to whip up the frenzy of competition in Egypt,” he says. He, however, urges major property developers such as Emaar to give part of their attention and resources to the construction of low-cost houses. Dr. Othman suggests that the Egyptian Government should commit such developers to construct up low-cost houses in addition to their other projects- and that the local authorities provide them with land and infrastructure along with tax incentives. Egypt needs some 570,000 houses annually, according to the Central Agency for Public Mobilization and Statistics. Some 450,000 of these houses are needed for the newlyweds. The rest is needed for re-housing dwellers of shanty towns.

The Egyptian Ministry of Housing and Urban Development has recently adopted the aforementioned proposal for local property developers, who are interested in obtaining plots of land for constructing communities for big earners by committing them to set up low-cost houses. An Egyptian property investor, who declined to be named, has questioned the agenda of Emaar in Egypt. He wonders if the prices paid by Emaar in land deals are fair and accuses it of monopolistic practices in the Egyptian market. He remarks that land in the vicinity of Sidi Abdel Rahman Resort sells for LE40 to LE50 per meter. “How come the UAE firm paid three times higher, unless it plans market monopoly? These practices will throw the local market into disarray and prompt companies, which own coastal lands, to hike up their prices. This may move the Gulf property bubble into the Egyptian market,” he said. Nonetheless, he thinks that the enormous funds available to Emaar and other Gulf property developers, the devaluation of the Egyptian currency and the attractive local market combine to lure more Gulf developers to Egypt. Emaar Egypt’s paid-in capital reaches LE400 million while its licensed capital is estimated at LE2 billion. Its Board Chairman Dr Gabr has unveiled that the company plans to expand the construction of tourist property projects along the Red Sea Coast and in the Southern Egyptian cities of Luxor and Aswan.