CAIRO: Amid the gloom of the global economic crisis, Egyptian officials and industry insiders have repeatedly proclaimed the health of both the financial industry and the real estate sector.
Yasseen Mansour, CEO of Palm Hills Development (PHD), echoes these sentiments, describing real estate in particular as a “safe haven even during recessionary periods or in times of high inflation.
“Real is the safe haven.It does not disappear, Mansour said. “We have seen companies that we never dreamed could disappear go in the past months. We have heard of [major] banks having credit issues, financial issues and cash flow issues.
With the end nowhere on the horizon, many fear the affects that are already being felt in the local economy could start to hit stable sectors. There is a palpable sense of apprehension about seeing a burst in the real estate boom that has largely propelled the economy in the past few years.
But according to Mansour, “Egypt in general and the real estate sector in particular will be least affected.
If the company’s financial results are anything to go by, PHD has so far been able to weather these trying times with imperceptible affects on its business operations. In the third quarter of the current fiscal year, the Egyptian real estate developer saw a 369 percent surge in net profit to LE 544 million ($100.8 million).
Net sales increased 292 percent to LE 1,095.1 million ($202.8 million).
What’s even more telling is the company’s foray into the Saudi Arabian market, with projects planned in Jeddah and Riyadh. Investments for construction plus land are expected to total LE 2 billion for the Jeddah project, while investments in Riyadh will likely be 20-30 percent higher.
“While the uncertainty in the global economy has clearly impacted investor sentiment in the Egyptian market, the underlying fundamentals of the real estate market marketplace remain intact, said Mansour, commenting on the results.
The third quarter results that have poured in from companies in different sectors have varied greatly, with many already reeling from the affects of the crisis. While PHD has so far maintained healthy numbers, the real indicators will be fourth quarter results and the financial standing of these companies for the first reporting period of 2009.
Looking forward, Mansour said, “I’m not ready to give [exact] indications but this growth will be maintained through 2009, if not more.
More specifically, he said, “Through September 2008, we have reservations and contracts of LE 8.3 billion, of which around LE 3.5 billion are contracts and LE 5 billion are reservations.
Because real estate companies report their results differently – some including pre-sales as profits while others reporting these numbers only after delivering the units – PHD’s numbers are likely to go up since they report profitability after completion.
The LE 5 billion will become contracts and the LE 8.3 billion will represent profitability in the coming three to four years, explained Mansour, adding that the company has sales that, if pooled into contracts, “will give PHD profitability over the coming years that is actually more than the company’s market value today.
According to its financial statements, the company’s market value as of March 2008 stood at LE 19.5 billion.
Developing with time
The origin of Palm Hills Development dates back to 1997 when El-Etehadia was established to develop a residential project in the then nascent Sixth of October City.
“El-Etehadia started in the exact middle of a recession, in 1998, right after the Luxor attacks in 1997, said Mansour, but sales were robust.
In 2005, at the brink of the real estate boom, PHD was established after acquiring the assets of El-Etehadia.
“Our sales were doing well and we always say that even when the boom started, we didn’t notice it, he said, attributing the strong sales to the fact that “people trusted the brand, they trusted that at the end this group will deliver.
PHD develops high-end residential real estate and resort projects, with 13 projects being developed in east and west Cairo, in New Cairo and Alexandria, on the North Coast as well as in Ain Sokhna, Gamsha and Aswan. Their total land bank currently stands at over 48.3 million square meters.
Yasseen Mansour became chairman of PHD’s board of directors in January 2005. He was previously president and CEO of Mansour and Maghraby Investment and Development Co. (MMID), as well as being a founding member and chairman of Manfoods, which operates the McDonald s franchise in Egypt.
Mansour also acts as chairman of Mantrac, Untrac, Credit Agricole Egypt and Royal Sun Alliance Co. (Egypt) in addition to being a board member of the Commercial International Life Insurance Co. (CIL).
After graduating from George Washington University in 1982 with a bachelor’s degree in finance, he began his career at Mansour Motors Group, where he stayed from 1986 to 1994.
Of his numerous and varied roles, Mansour said he plays an executive role at PHD while holding a non-executive position at the bank and other companies, “managing the boards rather than day to day operations.
His focus right now is on Palm Hills Development, confidently steering the company through tough economic times.
Earlier this year, PHD launched its IPO, and around 75 percent of the proceeds were used as a capital increase. “This has given us extreme financial muscle that can sustain us through good or bad times.
It is now listed on the Egyptian Exchange and on the London Stock Exchange (LSE).
Going regional
PHD’s projects in Saudi Arabia are just the beginning, with further plans to expand into Oman.
“Saudi has certain fundamentals that are important. It has a huge GDP, a high population, and a housing shortage more than any other country in the Middle East. This is because Saudi Arabia has been used to trading rather than developing land.
The master plans for Jeddah are still being finalized while the permits are expected to arrive by the second or third quarter of next year. Riyadh will follow a year later.
“We try to go to countries where we can develop real estate for end-users rather than speculators, Mansour explained. “In Egypt, around 70 percent of PHD’s customers are end-users that want to live in the units they are buying; and maybe 25 percent are people who are investing – part of them are speculators.
“If you look at other Arab countries you’ll see 95 percent speculators and 5 percent end-users.
Troubled markets
On real estate in the current economic state, he said, “If you take 10-year spans of any time period – 90s, 80s, even the 1880s – and compare real estate investments to anything else, you’ll find real estate investment especially in Egypt will always beat investment of any other sort. This is something people will start to realize – going back to basics, said Mansour.
The panic will come on two fronts, he said, on the demand side and the supply side, both of which will decrease.
“The supply side will decrease drastically. Fifty percent of PHD’s products target the middle-end, which we define as between LE 500,000 to LE 1.5 million cash value. The upscale is above LE 1.5 million.
“For the upscale, demand is around 20,000 and supply is around 12,000. I think demand will go down to 14,000 or 15,000, but supply will also decrease to 10,000.
“It will decrease because a lot of people who are in the process of doing a project will think twice. Developers that don’t have the cash capabilities to finish the project without selling 100 percent [beforehand] will go out of the market.
Many developers in Egypt sell 100 percent of the project before actually completing construction, but according to Mansour, “as developers, if we are not prepared to finish projects and have 10 to 20 percent unsold units, we shouldn’t be developers.
“If everybody is under the assumption that they’re going to work and sell 100 percent as pre-sales before finishing construction, they shouldn’t be even in that business, and this is why the market that has become fragmented will see many consolidations.
But PHD is not looking at acquisitions; instead it’s focusing in the coming period on the execution side. “We will increase construction spending tremendously in the coming 14 months, this is our strategy, he said.
“The focus will be on finishing projects earlier, delivering them earlier, and this will add to the value of our brand – this will help us in sales in the future more than new acquisitions at this stage.
