Why did Travco decide to enter the real estate market via the secondary home market along the north coast?
Honestly, it just made sense as part of the natural progression of the company’s growth to have a real estate arm since the company already owned a land bank and because it already had and operated hotels. The land was initially bought from Egypt’s Tourism Development Authority (TDA), specifically selected during a helicopter ride, picked because the land was beautiful with pristine sands and had a bay, hence the name Almaza. And that's how the story started. Travco developed hotels and conducted deals with tour operators, partnering with the biggest tour partners abroad to gain the muscle and leverage to be able to bring in tourists from abroad. The company started planning charter flights to Marsa Matrouh airport, and developed all the infrastructure to operate independently off the grid at the time (we are connected to the national electrical grid now, but still off the grid when it comes to water). Then the company developed hotels, where it now has five hotels, five stars, four stars, and three stars, with over 1,000 hotel rooms. At some point, the company decided it needed to have real-estate arm to pursue a model envisioning a combination of real estate with hospitality. In 2014, Travco Properties decided to launch the real estate division, which went very well. Thus far, we have sold over 1,100 homes. We have only developed about 25% of the land in Almaza, which is spread across a total area of six million square meters with a beachfront of around six kilometers.
What are Travo Properties’ next plans? Does Travco plan to enter the primary home market in either East or West Cairo? If yes, how do you plan to differentiate your offering to stand out from your competition?
Our next area of focus is Ras Soma, where we recently acquired land and even already built a 400-room Steigenberger luxury hotel. We will work using our same existing business model. We're already masterplanning the launch of our real estate as well. This would be our second project.
We have been focusing on just the secondary home market given we are developing real estate property near where we have our hotels, which have been along coastal areas.
That said, we do eventually plan to move to the primary/residential home market in Cairo and are looking at and shopping for land right now. We have no preference, East or West Cairo, depending on the land we find and its integration within our business strategy and objectives.
We would like to differentiate ourselves by offering the same luxury resort experience, even when we are in Cairo. We offer specific services at our projects, including housekeeping, laundry group services in Almaza already, and we will do the same in Ras Soma. We want our services to continue providing our homeowners the sense that they live in a resort, even if they do live in the middle of the city.
We also want to position ourselves so that the more we move forward, the more we try to become more environmentally conscious. We do not claim that we will be fully green, but we working our hardest to ensure that being as green as possible is an integral part of the company’s ethos, to be as sustainable as possible when it comes to landscaping, when it comes to water usage, when it comes to the way we build, for all of this to become an integral part of the design.
Because of increased competition, real estate developers are offering various payment flexibility options, from super low down payments to long-term financing at very attractive or even zero interest rates. What is Travco’s approach to remaining competitive?
Travo Properties does not currently offer anything like that. We are very committed to being a strong real estate developer and do not want to squeeze ourselves when it comes to payment terms especially with what's happening now in the market. Others in the market in their attempts to sell units have become mortgage lenders. This is usually very unhealthy for real-estate developers. For us, cash out is typically over four years –– because this is how we deliver, on average four years from the date of sales — and cash in is within the range of six to seven years maximum.
Those that have issues with their cash flows, this could affect their margins or ability to pay contractors, which could then delay projects. We try to uphold payment terms that are as lenient as much as possible, but that at the same time that will not harm the business or eventually turn in a ticking time bomb. We have seen it happen with big market players where they have offered very attractive terms –– zero down payment, payment over 10 years, immediate delivery. But then what happens? They start defaulting as a developer on their timelines, they start having issues with cash flows so they cannot pay their contractors, and the repercussions become much worse.
We would rather offer our units at our terms, but in turn we uphold all our commitments and deliver on time or sometimes even ahead of schedule, and avoid any unforeseen surprises from our side as the developer. This is what we have been able to do with Almaza. Will we will be able to do the same when we go to Cairo? We are not rigid with our strategies, and we could always be a bit more malleable and adopt new strategies.
For us, our current strategy has been been working quite well, and and it's allowed us to deliver on time, and we haven’t seen our homeboys default and instead they pay on time.
In addition to residential sales, many real estate developers are looking into recurring revenue streams via the rental/leasing of commercial property and other services. Is this something Travco is looking into?
We started with hotels, and now are in real estate. Once you are in real estate, you have to create amenities. Part of the amenities we offer are F&B experiences, retail, etc, and that's exactly what we've been doing and are continuing to do. We have, for instance, Pier 88, with venues in Almaza, as well as in Cairo on the Nile, and on the Red Sea, and so this is a part of our model. It is important to us to offer these F&B attractions and experiences, and we usually work with revenue share schemes. We also have The Cookery, which is another concept. We have over 20 concepts right now. We actually built an entire village at the back end of the project, inspired by a Myconian town that you would see typically on the Greek islands, where people can spend the day by the beach, and then in later in the afternoon or after sunset can go shopping. So we have furniture shops, clothing stores. We also opened various F&B outlets and bars, offering everything from burgers to ice cream, we have pharmacies and hairdressers, and we were very keen on choosing good tenants.
We are focused on creating these recurring revenue retail concepts for two reasons, one because you have perpetual income and second obviously is to provide these diverse services to our residents. It is very important to us to create an actual sense of community and see our residents satisfied above and beyond.
Since COVID-19, we kind of redirected our strategy from hosting events, parties, and festivals to focusing more on wellbeing, so we have kids’ camps, tennis camps, swimming academies, paddle tennis, workout stations, and other things to create a holistic sense of wellbeing.
Speaking of COVID-19, has the pandemic affected your deliveries, construction plans, and/or pricing, budgeting, marketing activities, etc?
For us COVID-19 has been a blessing. When people couldn’t travel, we actually experienced a surge in sales as people saw value in buying real estate in resort areas where they could spend their summers or work remotely. The rate of people defaulting on payments was very, very low. We made sure to keep open line of communications with our residents and buyers, assuring them that we would not stop or delay construction and would uphold our commitments as a developer and continue to deliver on time. We expected all our paying clients to do the same. Obviously, we had a few cases here and there that we had to deal with, but overall, in the grand scheme of things, the default rate was really low.
Can you give us a general outlook on the real estate market over the next few years?
Let me start by saying that most of the market outlooks provided by experts, whether in the financial industry or in the real estate market, have never been really accurate. The Egyptian market is kind of an outlier. If you want my two cents on the matter, Egypt is mostly a cash economy and we are a bit debt averse. People that have cash are generally the people that can afford to buy. So usually when people commit to buy, they know that they are able to continue with their payments, and the default rates are very low. The mortgage market is not yet very developed in Egypt. We do not really have subprime markets, and we do not really have the same circumstances that brought on what happened in the US in terms of bad loans and bad debt, where people would default and financial institutions would foreclose on property.
You'd be surprised, but real estate demand in Egypt is still higher than supply. That said, there is a difference between demand and real/effective demand. If you were to ask anyone on the street if they wanted real estate, they would likely answer yes. But can you translate that demand into effective demand, or the ability to actually buy? So there is the willingness to buy, and then there's the ability to buy. The willingness to buy is there, but the ability to buy is not necessarily there for many people.
How that gap will be bridged is key, and it's a bit of an ironic statement really, because this is where the market does actually need mortgages and financing, but not by developers. I believe the developer’s role is not to finance homeowners, rather to design, build, sell, and to deliver homes. It is the role of financial markets and financial institutions to facilitate that purchase to people via facilities and real estate mortgages that do not become too lenient or given to those that have poor credit history. That's when the issues happen.
I think the real estate market in Egypt continues to be strong. The demand is high. Yes, there is a lot of supply when you drive around. So it's important always to understand where the niche is or where the gaps are. And this is how a developer becomes smart, with its ability to adapt when there is a strong market. A real estate developer doesn’t need to stick to a specific niche. We can launch different companies to appeal to different clientele, different niches, cater to different needs, and I believe this is how a company becomes smart and is able to stay strong and compete in a diverse market.
That said, we need to work with the government and with financial institutions to start creating these financial solutions that make sense to enable more people to buy via financing at reasonable interest rates offered to those with a good credit history. The government is already working toward this direction, and interest rates are going down in general. When that happens, I think we are going to have another surge in the market.