Real estate prices are expected to rise by 40% by the end of this year because of the high cost of construction materials as a result of the high price of the dollar, according to Ali El Shorbany, CEO of Tabarak Holding for Real Estate Development.
El Shorbany said in his interview with Daily News Egypt that the land prices are expected to increase by 50%, so the net profit of the real estate developer will decline to 5%.
How do you see the investment climate in the Egyptian market, especially the real estate sector after the flotation of the pound? And how has the flotation of the pound affected the cost of the implementation of the projects? Have you adjusted the selling prices of your projects? What is the expected increase?
The liberation of the pound’s exchange rate against the dollar was necessary in order to apply the economic reform programme in accordance with the plan of the Egyptian government, but this decision had positive and negative effects on the real estate sector.
In terms of the positive effects, the decision led to good financial surpluses for Egyptians holding dollars inside Egypt, as well as the decline in the value of property by 50% for Egyptians working abroad who get paid in dollars—as its value almost doubled—encouraging them to inject their financial surpluses into the real estate market.
This happened for two reasons. The first is that they believe investing in real estate is the best and safest option at the present time, as the rest of the sectors are impacted by the flotation of the pound. The second is the fluctuation of the dollar prices and the convergence of the official price to the parallel market price.
This is what made the hoarding of the dollar not feasible, and that’s why it encouraged the holders of the dollar to inject their financial surpluses to buy property, fearing the decline in the value of the dollar in the coming period.
In terms of the negative effects, the flotation of the pound significantly increased the construction costs of projects due to the high prices of building materials at rates that reached 20% to 100%, excluding the cost of the price of land.
This actually encouraged some companies to increase their units’ prices at the beginning of 2017—the prices having increased by 20%. The prices are also expected to increase by a similar ratio by the end of the year to 40% and may continue to increase if the dollar price continues to increase against the pound. The real value and fair price of the dollar against the Egyptian pound does not exceed EGP 15 in all cases.
I guess that land prices were not affected by the flotation of the pound, but the price of the land is expected to increase, perhaps by 50%, in the coming period. I mean that the real estate developer can address this problem by reducing the net profit margin in its projects to reach 5%.
This percentage will possibly increase in case the developer launched new projects to be implemented on the lands obtained before price hikes.
In terms of the prices of construction material, which increased significantly, we are still working on increasing prices by 40%, which is expected to be affected by the decline within three months.
The flotation or stability of the price of the pound will help real estate companies in preparing the feasibility studies of new projects, along with setting the high risk ratio.
What are the main features of your plans during 2017?
We are targeting to deliver 1,000 units in all projects of the company and also achieve a profit growth rate of 40% in 2017 compared to 2016.
Are you considering purchasing lands in the New Administrative Capital or New El Alamein City?
Fifteen companies provided technical and financial offers to compete in the initial public offering (IPO) of lands in the New Administrative Capital on an area of 1,500 feddans (1,557 acres). I believe this announcement emphasises that there are many inquiries and comments encouraging many developers to refrain from applying for the IPO of these land plots.
We have obtained the conditions booklet, and it stipulates that the completion of the development of a plot of land on an area of 50 feddans (51.89 acres) is to be within three years, with 20% of the price of the land to be paid in advance and the rest of the cost to be paid in five years. In this case, the real estate developer will face two main problems: the financing process for the project and the shortage of skilled labour.
I’m calling the state to adopt the systems that are already followed in many countries around the world and its definition to the general developer with respect to offering lands in new cities, in order to bring about urban development. This will happen when the state connects all the infrastructure works and then divides the land and offers it to the real estate developer at affordable prices, in order to prepare the investment climate for the implementation of the urban projects.
What is the position of the 90 Avenue project?
In March, we launched the third part of the first phase of 90 Avenue, which was met with great success in sales for its special services and construction methods that were implemented for the first time in Egypt. The group has cooperated with the American company WATG to create architectural designs and locations. It has also cooperated with the British company Crankel to design the landscape, in addition to a group of international engineering advisory bureaus, in cooperation with the engineering department of Tabarak Holding for Real Estate Development to produce a new vision that was not present in Egypt before.
90 Avenue is presented to society as a global community on the highest level with all its details. It is divided into three areas, where each is different from the other. It is located on an area of 200,000 sqm, where the first part was completed and the finishing work is currently being carried out. About 25% of the second part is being worked on.
A’aaly Al-Riyadh is your first project outside Egypt. What is its executive position? Are there other projects you are studying to implement outside Egypt? What are your expansion plans outside Egypt? What are the areas you are expected to expand in?
Since 1996, we started implementing real estate abroad where we established several offices in Kuwait, Jeddah, Riyadh, and Abu Dhabi. This made Tabarak Development have a good client portfolio of more than 35% of its total clients. The company also had two offices in Bahrain and Qatar, but as a result of certain conditions, the company had to shut them down and consider opening new offices in America and England.
A’aaly Al-Riyadh is a residential compound through which we aim to transfer the concept of Egyptian architecture abroad. We have already obtained the approval from the Ministry of Trade to start selling, and delivery will take place in June. The project consists of one phase, with an investment cost of EGP 250m. Repeating the experiment depends on the conditions of the Yemeni-Saudi war. If the situation stabilises, we will continue our Saudi projects, especially since we have received several partnership offers.
What are the company’s total investments in the Egyptian market? What are the target investments in 2017?
The company’s investments are currently worth EGP 8bn in real estate, industrial, and agricultural activities. The amounts aimed to be injected in 2017 are estimated at EGP 1.2bn.
What is the operational position of the Capital East Residence project in Nasr City?
In February 2017, we launched Capital East Residence with investments worth EGP 800m. We have used special systems in Egypt to serve our customers. We have six payment systems in order to help our clients reach the most facilitated way of payment. This came after the success in the sales of Capital East Residence. The flats range from 84sqm to 150sqm and suit all levels, with special services, including landscape, a corridor for walking, a mall, and a play area for children, as well as finished integrated entertainment centres.