(Photo from Colliers International )
Daily News Egypt sits down with Ian Albert, Colliers International’s regional director in the Middle East, to discuss the future of the real estate market in Egypt, how the market will be affected by the property tax law, and the opportunities and risks facing investors.
Can you tell us about your business in Egypt?
Colliers International has been in the region since 1994. For the past 12 years or so we’ve been doing business in and out of Egypt as well. We are in the process currently of opening our consultancy office in Cairo and the legal [procedures] are going through now and we hope that all of that will be done by the end of the year. We have a significant number of projects [working] remotely from United Arab Emirates, and Saudi Arabia into Egypt.
Are all of these projects related to real estate business?
All are related to real estate, so if you look at the type of projects that we’ve advised on they are shopping malls, hotels, residential, offices, hospitals and schools.
What are the projects that you’re currently looking at in Egypt?
I can’t disclose the ones we are currently looking into because they are confidential.
What sectors will these projects operate in?
All sectors. What is interesting that if you look deeply at the Egyptian market and Cairo market, you’ll find that the sheer size of the market has an ability to absorb properties, whether it’s a shopping mall, an office space, hotels or residential development. This ability is enormous.
Some reports state that the real estate market will flourish in the upcoming period. Do you agree?
We need to look at the historical performance. We had a downturn in the market for obvious reasons but we saw that towards the end of last year and the first half of this year, particularly in residential units, a significant increase, both in the volume of sales from the major developers to the number of sales that they’ve transacted [into the market]. We’ve also seen some price increases, up to 30% during the first couple of quarters of this year, and that is significant. Obviously the office market is very dependent on [the presence] of a business community that needs to get back in, so that’s a little bit slower, although we saw it coming back up. The retail market is an interesting market. We do some retail and shopping mall consultancy. What’s interesting in the market is that there are a lot of projects coming on [being implemented] that are not necessarily all designed to what people want. There seem to be a lot of competition in a very narrow field.
Can you explain this further?
Everyone is producing a very similar product. They all want to have an end product that looks very much like a shopping mall for example. That is not necessarily what Egyptians want. Is there a place for it in Cairo? Absolutely. Can malls succeed here? Of course they can and they ‘ve already succeeded. But do you want everything to be the same? No, you want a variety because as the variety exists in a society, so does the shopping experience that needs to go with it.
Do you expect to see additional price increases before the end of this year?
We have a lot of interesting things going on as you look forward. On the one hand, there is a concern over inflation. We’ve had an increase in base interest rates of 100 basis points, 1%, so that is going to pass-on some pressure. We’ve also had some construction cost that varies between 30% to 50% increase in costs this year. So that is a concern because the more expensive it is to build, the more expensive it is to sell. In many ways, the price increases that we’ve seen previously in the first half of the year were offset by some currency adjustments. If you bought, you still got the same value you have when you bought in. So your money is held well. Aligned to that, you have to look at the Egyptian market because it is a very large population. People have to live somewhere.
How do you see the approved property tax law affecting prices in Egypt?
It is one of those decisions that you’ve got to sort of stand in the sidelines and see what the intention was. I am not familiar with what the intention would’ve been from the government’s point of view. The output would be both price increases and decreases. Some people would sit in and say ‘I am not going to dispose of my property now because I don’t want to get caught in tax, so I’ll wait for the longer term and wait for the investment to increase to such a size that, when I do pay my tax, it’ll be absorbed within the price and I can still make return.’ Some people would want to get out earlier before the tax increase comes into play. You’ve got to look at other things that the government is doing, such as the mortgage law and the changes to the mortgage system that the government has brought in and is looking to bring in. They will allow much greater segments of the population to access into the real estate market.
What are the investors that could be found in Egypt?
I think if you look at Egypt, it always comes down to the core demographics. The Egyptian market has a lot to offer, the government seems to be, at this stage, very pro-investor. They [the government] are looking to bring money in and pro-active in terms of adjusting towards the market. We would see that external investor would see plenty of opportunities. However, there’s a risk of too much people building the same thing. This is where Colliers comes in to advise people on how to sharpen that investment to attract investors.
Aside from those risks, what are the other challenges that investors face?
Currency fluctuation is always an issue but again it depends on where the investor is coming from. If the investor is coming from America or Europe, it is a concern that weighs heavily on their adjustment to the market. However, if it’s a local or regional investor, they’ve already built in their strategy and are familiar with the market.
