Chairman of Al Ahly for Real Estate Development
Q: Can you briefly speak about your company's operations and investments?
Sabbour: The company was established over 15 years ago and is jointly owned by the National Bank of Egypt (NBE) -- 40% and the Sabbour family (60%). It has a paid in capital in the amount of LE 500 million and its operations span the real estate, retail and tourism sectors.
Our first project was Arcadia Mall after which we moved to real estate and the development of compounds. So far we have developed 15 compounds the bulk of which has already been delivered with four or five still in the delivery phase. Our first one was Katameya Residence in New Cairo.
We are also partners with Farid Khamis of Oriental Weavers in a hotel in Sharm El-Sheikh called Oriental Resorts. In the coming period we are venturing into many new different projects in the Red Sea resort of Ain Sokhna that will be delivered over the next two years in addition to Amwaj which is in the North Coast and will be delivered over four phases starting this year.
All our compounds are mainly comprised of villas and townhouses targeting the middle-income class; we are known in the market for providing relatively cheaper units than our competitors. We had never ventured into supplying apartments or very high end villas. However, this year we are currently acquiring construction permits for another residential compound in New Cairo called The Square which will be mainly apartments and a small section for villas.
Q: Do you think there is an over-supply of compounds and villas in the market while the higher demand is in lower-end units?
Sabbour: You are right in the sense that the real demand for real estate in Egypt is from the lower income segment, especially among the youth who are looking to get married and start their lives. However, the problem is that they cannot afford or don't have the means to buy real estate and that is why developers don't venture into this market.
On the other hand, people who do have the means usually do not just buy one unit but they invest in two or three houses. They do this because the appreciation in the value of real estate is much higher than the interest rates in the banks; so they find it better to keep their money in real estate rather than bank deposits.
When we were planning The Square for example, our sales department suggested that we should start investing in apartments, albeit high-end ones, due to the strong demand. At the last moment we also decided to add a small section for villas since we had gained a reputation in the market for supplying reasonably priced units. So the project is comprised of 2,400 apartments and 140 villas and you would be surprised that the first thing to be sold was the villas.
Therefore, our experience tells us that there is still demand for villas or townhouses as long as they are reasonably priced. Anyone who can afford to buy an apartment or a villa will usually opt for buying a villa as many have never lived in one before.
Q: Do you think the supply could become cheaper? Perhaps the developer could make a smaller margin in return for selling much higher volumes? Projects like Orascom's Haram City, for example, sell units for as low as LE 100,000.
Sabbour: In Haram City and similar projects the government sold the land to the developer for LE 70 per square meter (sqm) in order for the developer to be able to sell the unit for LE 100,000; it was a kind of subsidy for the buyer. Mind you, the unit area cannot exceed 63 sqm so when you calculate the price per sqm it is around LE 1,700; this is still considered expensive for low income housing.
There is a man called Sam Zell who is one of the biggest real estate researchers and investors in the US. He said that when comparing real estate prices in 30 countries across the Middle East, Egypt is the cheapest one from Morocco to Dubai. According to Zell, the price of square foot in Egypt is one-tenth of that in Dubai and half of that in Morocco, with the quality of the unit kept constant.
The fact that the average Egyptian is poor and cannot afford it is a different story. It is without a doubt [the notion that] a poor Egyptian can never own a house because his income is too low and not because the house is expensive. Here you can buy an apartment close to the beach for $100,000 (LE 603,200), which is a joke in countries like the US; you can't find an apartment close to the ocean, for example, for that kind of price.
Q: Is it just about affordability or is there a problem with informality? Many people find it difficult to acquire a mortgage, for example, because they cannot prove their sources of income due to the informal nature of their jobs.
Sabbour: In practice when someone is looking to buy a home and the developer offers the kind of unit he is looking for, they will help him prepare the required documents. The problem is more evident when the buyer and seller are informal, for example someone looking to buy an apartment in Shubra where there is no developer involved; this is what mortgage companies fear.
Q: What do you suggest as a solution to the housing problem in Egypt?
Sabbour: The housing problem in Egypt is a government policy problem. I believe that instead of subsidizing the energy sector, which will cost the state budget close to LE 120 billion this year, the government should direct this subsidy to housing.
Furthermore, why do you think we only buy land in New Cairo or 6th of October? It is because the required infrastructure such as utilities and roads are available. There is land all over the desert but it is useless without infrastructure.
The only producer of new land with infrastructure in Egypt is the government. Back in the day I would've been able to buy land from private sector companies like Heliopolis Housing or Maadi Housing. Today, all these companies are owned by the government and so there is no competition which leads to higher prices.
For years I have been calling for the government to allow private companies who are strictly Egyptian owned to develop or produce new land. This was only starting to happen during the time of former trade and industry minister Rachid Mohamed Rachid. He had introduced the idea in the industrial sector before he left.
Private companies were given development contracts to produce land for industrial purposes; I call for this to be applied in the real estate sector as well. It shouldn't be that land in Sinai is owned only by the Ministry of Tourism and in cities by the Ministry of Housing. There must be competition between Egyptian private sector companies and the government.
© Business Today Egypt 2012
