(Photo courtesy of Imre Solt)
By Ehab El Dababy
Mohamed Mekkawy, the Managing director of Al-Futtaim for Real Estate Development, one of the companies participating in this year’s CityScape event in Cairo, directed a clear message at the Egyptian government: “See to the requirements of foreign investors currently pumping funds into Egypt, and bide by the agreements you have with them because they are like ambassadors to Egypt on behalf of their respective countries and have helped to bring in foreign capital into the country.”
He also described the current mood of the market as one of “trepidation”, due to fears among clients about making purchases in the current political situation, and that even those who do buy housing units are currently adopting a “wait-and-see” approach due to inflation.
He described the flow of sales as “irregular” because of conflicting positions held by clients who wish to purchase real estate units.
“We previously received a number of investors who were very eager to make investments into the Egyptian real estate market,” he said. “They have since disappeared, however.”
There are those who do truly wish to purchase housing units, he said, but the political and economic situation in the country “casts a negative shadow over their decision about making these purchases”.
He confirmed that most buyers who do buy more than one unit do not do so for investment reasons or to sell them at higher prices later, but, instead, do so out of a “real, tangible need for housing, and in most cases they are from the same family”.
He also added that buying habits are inversely related to the severity of the political events on the ground, whereby “the worse things are the more of a negative effect this has on buying patterns”.
He said that the company’s average sales for this year “are similar to those of last year or slightly better”.
“The company invested some EGP 2bn in the Cairo Festival City project last year and we aim to pump a further EGP 1.5bn throughout 2013 and to open a new mall in September,” he said.
Al-Futtaim has recently finished the first phase of the administrative buildings for the Cairo Festival City project which covers some 42,000 square metres of land, and has almost completed building the Kidzania City.
Mekkawy also revealed that Al-Futtaim makes available administrative buildings for clients to either to buy or to rent, but that it does not sell buildings with small floor areas.
Al-Futtaim is also planning the second phase of completing administrative buildings the next year covering an area of 60,000 square metres, and which will be available for sale or rent once building permits have been granted.
“The total area of administrative buildings for Cairo Festival City available to rent comes to 250,000 square metres,” he confirmed. “With the first two phases of the project totalling 100,000 square metres for available-to-rent administrative buildings, and the state of the market determining the rest of the available area.”
Mekkawy also said that 85% of the mall at Cairo Festival City has been completed, which will make available 160,000 square metres to rent, with global names including IKEA, Carrefour, White House and Marks & Spencer’s already receiving their rented spaces.
He added that 82% of the total space of the mall has now been reserved by companies wishing to open retail outlets there, with IKEA alone reserving 33,000 square metres, making it the largest retailer at the mall.
He added, however, that the New Urban Communities Authority (NUCA) is yet to register the land for the project and transfer its ownership officially to Al-Futtaim, which means that the company has not been able to cash the funds from an EGP 2bn interbank loan agreement with HSBC, Commercial International Bank (CIB), the Arab African International Bank (AAIB), Banque Du Caire, and Banque Misr.
“The loan contract remains valid, however,” he confirmed. “As we are making annual payments to these banks in order to ensure its continuation.”
Mekkawy said that parent company Al-Futtaim Group is currently cooperating extensively with the Egyptian government in trying to finish all the necessary arrangements for the official handover of the land for the project, which covers a total of 700 feddans, with the Egyptian administration’s main role here being to “supply Al-Futtaim with information on the progress of the arrangements”.
“The current political and economic instability has resulted in a lack of a clear outlook,” he said. “In this sense, we are in the same position as many other investors: the current situation does not allow for making any mid to long term investment decisions.”
“We invested EGP 2bn last year to finalise the infrastructure requirements for the mall and we’re looking to invest a further EGP 1.5bn during 2013 to finish off the project,” he confirmed. “However, we have not been able to begin any new projects due to the current inhospitable circumstances.”
He said the company is currently working on the first phase of the project which accounts for one-third of its total 700 feddan land area, with 90% of this phase already completed.
However, contractors on the project are currently raising the costs of their contracts after the rise in the price of raw materials and building costs, in addition to fears over the possibility of the cancelation of fuel subsidies. Mekkawy said these contracts will all have to be reviewed again in light of all this.
“The rise in fuel prices leads to a rise in prices for all domestic raw materials,” he said. “In addition to this, the fall in the price of the Egyptian pound against the US Dollar leads to a rise in the price of imported raw materials as well.”
Until recently supply of raw materials, whether imported or domestic, as well as all installation and construction activities were all the contractor’s responsibility, Mekkawy said. “But we are currently reviewing this policy, and we expect that from now on we will be importing the raw materials ourselves, handing them over to the contractors to complete installation and construction activities”.
He added that Al-Futtaim is currently offering credit facilities to clients and is delaying the payment period for these until all licences have been granted by the government.
“Those who purchase units at the moment avoid risks associated with the price rises,” he said. “All loan and payment collections for clients have been delayed until the building process begins.”
Pointing to the difficulty in predicting the movement of the market in the coming period, Mekkawy said: “We await political and economic stability, and we hope that this will come during the next year, but I think this might not happen before the beginning of 2014. Maybe after that, we will be able to make substantive investment decisions.”
Mekkawy said that 95% of the company’s investments during 2013 will be related to the Cairo Festival City project.
He added: “We have four projects which are ready to be built and their funding is available, but we cannot start any of these until we receive the necessary licences.”
