Egypt’s real estate sector is down, not out
Firms risk losing more land, paying higher compensation; Strong balance sheets key through crisis; Analysts favour SODIC, Amer, smaller property firms; Cairo commercial property looks relatively strong
May 18, 2011 3:10 by Reuters
There seem to be plenty of good reasons to avoid Egypt’s battered real estate sector, yet some investors are tiptoeing back into stocks seen as less exposed to legal probes of questionable state land sales.
The industry, a motor of Egypt’s decade-long investment boom, was undermined by crony capitalism. Now it is bearing the brunt of widening corruption probes after a popular uprising swept President Hosni Mubarak from power in February.
It could take years for an outcome to legal challenges targeting companies such as Palm Hills and Talaat Moustafa , which focused on high-end property for Egypt’s wealthy elite.
That may be too long for some investors who see value in the sector. Analysts say firms such as SODIC and Amer Group may have been oversold given stronger balance sheets that should help them weather the storm and a presence in sectors beyond high-end homes such as commercial property.
“Companies like SODIC are emerging cleaner, making them a play on both value and growth,” said Ankur Khetawat of HC Securities.
Conflicting laws governing the sale of state land are at the heart of the legal wrangles, which have already led courts to nullify sales to Palm Hills and Egyptian Resorts . TMG’s ownership of one of its biggest projects is also at risk.
Shares in Palm Hills are down 75 percent this year and Egyptian Resorts and Talaat Moustafa have both slumped 61 percent, more than double the 30 percent drop by the benchmark EGX30 index.
The crisis of confidence has infected the whole sector.
Bulldozers and cranes on the desert outskirts of Egypt’s sprawling capital lie idle as firms review sales outlooks and brace for potential investigations of their land holdings.
The challenges to state land date from before Mubarak’s departure and gathered pace with the revolution, which channeled popular anger at officials who sold land for pennies in a country where most of the population struggles in poverty.
Land has been withdrawn from at least three firms and two former housing ministers are locked up in jail. The cases revolve around a 1998 law that stated that all state land must be sold via competitive bidding.
“The biggest problem the state is facing now is the lack of clarity on the legal status of all of Egypt’s land,” said Samih Sawiris, chief executive of Orascom Development .
“If this issue is not resolved, there will be no development in this country in any field,” he added. “The problem is the rule can apply to any land which has been sold in Egypt.”
Analysts warn that new investment in the sector will be dampened by the protracted court battles, messy compensation schemes and international arbitration.
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