Chairperson of Hometown Developments Diaa El-Din Farag has stated that the real estate sector faces some challenges, including increase in prices of building materials, and shortage of some raw materials, due to low production and importation difficulties, therefore the construction works have been declining for more than two years.
During the 6th edition of Think Commercial roundtable, titled “Egypt’s Real Estate Market: Mechanisms to Overcome the Global Economic Crisis”, on Tuesday, Farag highlighted that there are some mechanisms that must be completely different from existing ones in order to preserve the real estate sector and its companies in the current period.
He added that the industry is currently facing a new challenge, including a lack of financial liquidity and high costs that threaten the completion of projects that have been sold to clients.
He further pointed out that the sector needs a new model to deal with the current crisis, starting with the process of offering land to providing a ready-to-move final product to customers. In addition to, reconsidering land prices, which currently represent approximately 40% of construction cost, which is a very exaggerated percentage, so it should not exceed the 20% of the total cost, as well as the reconsideration of payment periods.
He added that there are other models for sale other than the traditional method that we are accustomed to, and there are many models that exist in the rest of the countries. For example, a bank may be a main partner for a developer and finances the developer directly from the first day after the developer prepares a feasibility study for his project and provides appropriate required guarantees.
“Real estate companies must devise new real estate tools and products that suit the financial solvency of customers that meet their requirements and needs, as well as find non-traditional financing facilities that are recognized. In addition to, providing initiatives to facilitate the payment process for customers so that they can invest in real estate. Besides, creating non-traditional financing facilities, as well as providing initiatives to facilitate payment processes for customers so that they can invest in real estate. Additionally, banks should also start working on a decision of the Financial Regulatory Authority by financing customers to purchase units under construction, when working with this decision the market will be bolstered,” Farag explained.
Chairperson and Co-Founder of The Land Developers (TLD) Ahmed El Tayebi stated that controls regulating the local real estate sector enable serious companies to develop new projects, protect consumers and contribute to expansion of the export of Egyptian real estate abroad.
El Tayebi added that serious developers are able to adapt to any developments in the real estate market, and we may witness an increase in real estate prices during the coming period.
Country Director of JLL’s Egypt office Ayman Sami said that Egypt has achieved high economic growth rates added, “However, the real estate market witnessed great challenges, the sector was able to overcome them.”
Sami pointed out that construction cost has been subjected to successive increases as a result of an increase in raw materials prices by 18-20%, and prices have increased by between 15-30%. Moreover, some developers are dealing quickly with the situation, but the market is witnessing a state of uncertainty, and some of them have stopped selling permanently, or postponed offering new phases of projects.
Alaa Fikry, President of Beta Egypt, said that the controls recently approved by the Cabinet are necessary because they are in the interest of the buyer, and the market is the buyer, and providing guarantees to buyers enhances growth and strength of the market.
Fikry added that there is part of the crisis that developers bear, as a result of the expansion of projects as a result of the sale under construction, which is a deceptive model. With crises, the situation of companies is revealed, developers have to turn to more precaution, and success is not in selling, but in delivery according to specified dates.
Fikry said that all offered projects are commensurate with categories of purchasing power A, added, “Due to high prices of raw materials and land price increases, there are no projects that serve class B and C, which represent about 90% of the Egyptian society.”
Hesham Helal, Founder and CEO of Criteria Design Group, said that the real estate sector is one of the most important economic sectors in Egypt, as it serves housing and tourism, and the sector faces great challenges during the current period, and architectural designers cannot be isolated from the sector and its challenges.
Helal added that architectural designers always look for the best and develop solutions to problems and challenges and do not reflect them, but rather work to find solutions to them, and most of the challenges represent economic and investment challenges.
He elaborated, “If negative changes appear on real estate products as a reflection of bad political and economic conditions, randomness appears, and design is a reflection of society and its conditions, but it must devise solutions to problems and challenges and not express them.”
He highlighted the need for architectural design to contribute to the development of solutions to the rapid social and economic changes, and architectural design must be compatible with the buildings according to changing needs and requirements of customers’ purchasing needs.
Architectural designers should work to create a sustainable product that is low in cost and low in operation, compatible with needs of customers by making use of available natural resources such as ventilation and natural lighting, he concluded.
Meanwhile, CEO of Saudi Egyptian Developers Mohamed El-Taher said that Saudi investment has an optimistic view of the Egyptian markets in various fields, including the real estate development sector, due to Egypt’s position and weight in the Arab region.
El-Taher noted that decisions recently taken by the state are good and serious but their problem is timing, because the time is currently difficult and inappropriate, added that the market is witnessing special challenges with high interest rates and inflation rates. Moreover, some real estate development companies burn prices, and in case they falter, distort the reputation of the market as a whole.
Gasser Bahgat, CEO of Madaar Development, said: “There are no strong alternatives for companies. If companies sell the entire project, the project will be delivered in full, and it is better that the company not sell the entire project, even if the demand is high. Many make this mistake. Whoever still owns part of the project in light of current changes will manage to cover costs and develop projects.”
Bahgat explained that obstacles to activating the mortgage-financing system are represented in two axes, the first is the high rate of interest, which represents a large financial burden on client, and the second axis is represented in judicial procedures in case client defaults and is unable to pay the installments.
During one of the sessions, Ashraf Ezz El-Din, Managing Director of Al-Futtaim Group Real Estate, stated, “The Egyptian real estate sector has continued to demonstrate its stability while facing the challenges that have emerged across all sectors. Coinciding with the intensive efforts to enhance the market’s performance and create more investment opportunities.”
Ezz El-Din said that the problem of price hikes including spikes in prices of building materials by up to 18% on average, and there are materials that have increased by 30% and others by 60%, accordingly, companies have increased property prices by 20% in two phases since last April and it is expected increasing it by a new 10% during the coming period.
Ahmed Amin Massoud, Chairperson of Menassat Developments commented that the developer bears the entire development cycle at his own expense, starting from the purchase and development of land to financing entire project construction.
Massoud disclosed that New Administrative Capital needs more marketing for projects in which it is located to form a true picture of the scale of development that is being implemented in it.
“If there is a good publicity about the volume of work in the New Capital, this will attract large foreign investments during the coming period,” he concluded
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