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Egypt’s real estate sector is down, not out

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



The value of land sold to many firms must be recalculated, compensation schemes thought up and some plots re-auctioned in a public bid, said Ahmed Mekky, a judge and vice chairman of a Cairo appeals court.

Practically every major project and major developer, both foreign and domestic, has come under public scrutiny on how their land was purchased. Only smaller firms with more focus on middle-income housing look relatively safe.

Firms such as Madinet Nasr Housing and Heliopolis Housing who have older land banks and more exposure to middle-income housing in a country where millions lack a proper home, may also be safer.

INFLATION HEDGE

Mubarak’s cabinet sought to put legal battles to rest by promising to enact new laws designed to settle the uncertainty, but the uprising disrupted the plan before it was complete.

The new military-backed interim administration has been too distracted with other challenges to pay the attention needed to resolve the real estate crisis, analysts say.

Industry experts are calling for quick and and bold intervention, but worry the current government is unlikely to revamp the legal framework of Egypt’s real estate sector, leaving that task to a new government that would take the reins after September parliamentary elections.

“We need a new law that will resolve all these deficiencies that have been left unattended before,” said Judge Mohamed Hamed el-Gamal, a former head of the State Council, adding that the government should unilaterally review all its contracts before they are contested in courts.

Swathes of the industry are condemned to legal limbo without that. But it isn’t all bad news.

International real estate agent Coldwell Banker admitted that demand for property outside Cairo has declined.

“But inside the city, the trend is the reverse,” the firm’s Egypt president Mohamed Abdallah said. Coldwell’s sales can be used as a barometer for property sales in the capital.

He said the company’s Egypt sales halved after the uprising before recovering to a 30 percent drop on the year to mid-April.

“I was expecting a number close to zero but real estate is a very good investment when things are not clear,” Abdallah said. “There are fears of currency risks and the best way to hedge against currency hikes and inflation is real estate.”

He said commercial property sales have not been affected.

That could be a good sign for firms like SODIC, which is counting on commercial leasing to bring in 400 million pounds a year by 2014.

“There are still domestic savings, there are still people who need homes, there are people who are worried about potential inflation and are looking for hedges,” Maher Maksoud, chief executive officer of SODIC, told Reuters.

Optimists say Egyptian real estate will survive the turmoil because of pressure to provide housing for an overwhelmingly young population in a country where the lack of a home is seen as a major obstacle to marriage, giving bright long-term prospects to firms able to steer through the industry headwinds.

“If anyone wants to invest in this sector, they should look carefully at the balance sheet to see how long a company can keep going through this slowdown,” said Harshjit Oza, a research analyst at Beltone Financial in Cairo. (By Dina Zayed; Editing by Tom Pfeiffer)



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