Tatweer Misr, a real estate development company established in 2014, has significantly found its place in the market among many existing, dominant companies. Its two projects, IL Monte Galala in Ain Sokhna and Fouka Bay in the North Coast, have already gained thousands of clients due to the company’s credibility and innovation.
IL Monte Galala is not only going to offer well-designed architecture on top of a mountain, but also aims at creating a first-home environment in a picturesque location while offering many services. Fouka Bay is a more exclusive destination designed specifically for vacationers.
We talked with Dr. Ahmed Shalaby, Managing Director at Tatweer Misr and PhD holder, to gather insight on the real estate market as well as his plans for these projects.
How would you say the real estate market has changed over the past few years?
The real estate market in Egypt is very resilient, and is one of the most thriving industries in the country. Even when the market was a little quieter between 2011 and 2013, it was still functioning. Starting from 2014, things began picking up again. The prices remained stable at first, but then the market grew significantly between 2014 and 2016.
Real estate generates a lot of jobs and labor opportunities. It is also a safe haven for people who want to invest, but do not have the desire to put their money in stocks or banks. This was evident after the floatation of the pound; most people saw that real estate units that they had previously bought had gone up in value. Even if it did not highly increase in price, it still provided a value that was not lost in the previous years.
It is an industry that contributes greatly to the economy of the country. Last year, 16% of the country’s GDP was from real estate, and so it plays a large role that we can’t overlook.
How stable is the market then compared to the Arab World?
I believe Egypt is more stable than many other countries. Perhaps the only other real estate market that competes with us is Dubai. Dubai has started exporting its real estate units and has managed to sell internationally last year for 20 billion dollars. We hope to reach this sometime in the future, because we believe real estate in Egypt could be a very important source for direct foreign investment. If we can sell real estate properties to foreigners, whether in the Arab World or abroad, we can generate what Dubai has achieved, which can be more than the foreign currency income generated from the Suez Canal, for example.
We are in general more stable because even in Dubai, for example, after the financial crisis in 2008, prices went down drastically. We never saw this in Egypt. Also, our business model here is built on real money, not on mortgage or credit from banks or the re-evaluation of property, like other countries.
Given the economic situation in Egypt, how would you forecast the demand in the market for the upcoming years?
Let us say that after the floatation of the Egyptian pound last November, the market was stagnant for a short while. Many developers increased their prices, due to the increase in direct and indirect costs, which in some cases has been raised by an average of 40–50%. However, during December and January, sales in the real estate market were back to normal and maybe even higher. All launches by different developers during these two months were successful, which means that people have confidence in the real estate market, and trust in the value of what they are buying.
One of the main difficulties that we, as real estate developers, face especially after the floatation is the financing mechanism of our industry. Developers in Egypt must raise the initial investment then use the cash generated from sales to develop their project. This means that we sell before building and with the cost increase due to the floatation, this has affected our forecasts in a negative way, however, developers with larger land banks can adjust their studies according to the new market prices.
What advice would you give real estate businesses starting up?
Whether new companies have a small or large land bank, I would advise them to split the project into phases, even if it is a small project. Whenever a phase is sold, they should start construction immediately, and not wait for the rest of the phases, to avoid any fluctuation in prices of materials and labor. That is the most important piece of advice for companies starting up, and that is what we do at Tatweer Misr.
Whether the pound increases or decreases compared to the dollar, this definitely affects us as developers. In a real estate company, you make forecasts based on costs that end up changing. When the dollar decreases, it should mean that we have higher profits and returns, however, this means that we need to review our prices or our payment facilities. The most important thing for us is stability because our business model is built on three to five years.
It is also very important for newly established companies to conduct their market research and narrow down their business plan as well as their clients’ needs. Requirements in one location can be very different in another.
Does high competitiveness in this market and the availability of many businesses affect how each company prices its units?
First of all, competition always benefits companies as well as clients. Secondly, all companies scan the market to see other competitors’ prices, and then position their product accordingly. A company may build a project in the same location as another, but depending on the name the company has built for itself, the quality and the facilities it offers and the construction costs, prices vary. An example of this would be our project in Ain Sokhna, IL Monte Galala. There are many other companies building in the same location, however, our costs may be a little higher because of the nature of the land we are building on and the advanced engineering techniques we use, as our construction is mostly on a mountain, which of course differs from building on flat land.
It is very important for the client to understand the product that he or she is buying to understand how the cost and price correlate.
Every company looks at competitors in the same area. However, in the end, there is a price range that each developer works within. Prices should be competitive, but at the same time, the product needs to be competitive as well, and this is what we have been seeing in Egypt in the past two or three years. The competition now is in the product and its advantages. Social media now plays a large role in proving that.
How different are residential projects in Cairo to the touristic or vacation projects in Ain Sokhna and the North Coast?
First-homes always have different requirements than second-homes. Usually, second-homes do not require as much thinking when buying the unit. Buyers usually care about the price and the availability of minimum facilities, but in first-homes, they are considering a property they will live in, and so buyers look for a higher level of facilities. Also, second-homes are usually sold as finished projects, unlike the trend of first-homes that sell as unfinished units. This is something I hope to see change in the near future. The idea that buyers do not have a deadline to finish their homes and having construction work done, regardless of their neighbors, is something I am very much against.
I am hoping that during this year, we can present fully-finished first-homes, for at least a section of a project. People now find it as a hassle to buy a home that they have to finish themselves.
IL Monte Galala, being close to Cairo and the administrative capital, is considered as a first-home destination project. The level of services that it will present definitely makes it an all-year residential option. The company in charge of property and facility management has already been established and has begun planning for the services that we will provide in our project.
Second-home projects usually have lesser numbers of units, and accordingly less residents, larger spaces for landscape and touristic services, and the units are usually smaller than first-homes. In Egypt, second-homes are generally more expensive, for example, houses in Sokhna and the North Coast usually have higher prices than some first-homes in New Cairo and Sheikh Zayed, mostly because they are finished products.
How different are the development projects IL Monte Galala in Ain Sokhna and Fouka Bay in the North Coast? Do they appeal to the same segments?
The target audience is almost the same because we are working towards the medium-high to high-end segments for both projects. Fouka Bay, however, is slightly more exclusive as it is smaller in size and so there are less units. Competition in the North Coast is slightly higher than in Sokhna because Egyptians have gotten used to spending more time at the North Coast, meaning that people seek larger properties and facilities there. In Sokhna, people can think of buying a studio or a one-bedroom chalet as it is a weekend destination that they can go to many times a year, but for short durations. Therefore, even if the audience is the same, the product and demand is different.
For IL Monte Galala, we believe that it will soon become a first-home destination, and so we are planning to have a business park, a design school that would focus on different types of design, like interior, fashion or food design to fit the general mood of our project, conference and waterfront wedding facilities, as well as wellness retreats and sports activities.
To build in a location like Fouka Bay, or the North Coast in general, as a home that people will spend their entire year at, is a little difficult at the moment, but it is in our long-term plan, as the government has already announced a plan for the New Alamein City, which aims to transform the North Coast into a development area made use of all year long. In Fouka Bay, we are planning to have a commercial area on the main road to serve our clients and also the entire area around us.
I hope that the North Coast will one day become an international hub for conferences and events. This will help transform the area into an all year destination. Cannes, for example, though a resort, hosts events and conferences throughout the year. Our climate in Egypt is even better during the winter than many other cities, and so it is an excellent place for these types of services.
What other areas would you regard as ideal locations for future projects?
Gouna is an excellent location, Sharm El Sheikh likewise, but both are more long-term plans. We already have two second-home projects, so our priority now would lie in developing a first-home project.
We have recently announced an initiative to establish international universities in Egypt, and have signed an agreement with the ICSB (International Council for Small Business) to work together on this project, and accordingly, we are working on acquiring a large piece of land in either New Cairo or Sheikh Zayed to include a university and international schools as well as residential zones.
The number of international schools and graduate programs in Egypt is still not enough to cover the demand, and by investing in education we are also supporting the Egyptian youth.
Are there any steps or decisions the government should take that can help the real estate market in Egypt develop further and overcome any difficulties?
Speaking of the positives first, is the reassessment of building terms in new areas. For example, the government has allowed building up to eight floors in the new administrative capital, that in turn has increased the utilization of land.
We need to reassess the process of offering land to the highest bidder, which results in a huge increase in the price of land. The government needs to work on different sales mechanisms to reach the development rate it targets during the coming 20 years.
Also, the more projects each developer works on, the more the country will benefit. For that to happen, we need to change the regulations to allow banks to invest in real estate projects, as that will increase the cash flow spent on construction. Dubai, for example, has their banks step in to help in the initial land investments. With the increase in development, more job opportunities will be available.
During the pound floatation, many issues for real estate projects and developers arose. The market was not observed and controlled. For example, we bought land in US dollars from the General Authority for Tourism Development, which at the time of sale was equivalent to around seven pounds, and when the dollar went up to nineteen Egyptian pounds, we reached a point where the budget was much higher than what we forecasted for the land installments. Perhaps a good alternative would have been to offer a fixed dollar price for the lands already bought before the floatation.