CAIRO: Marsa Matrouh governor accepted a proposal from Amer Group and Palm Hills Development to return undeveloped land in Egypt’s north coast city of Alamein.
“The privatization of lands in Alamein will be cancelled and the land will be returned to the state,” Matrouh governorate officials announced in a statement Tuesday.
In an effort to reduce land liability by 50 percent this year, Palm Hills Development, Egypt’s second biggest publicly traded real-estate company, returned 9 million square meters in Marsa Matruh to the state.
Amer Group on the other hand announced Monday in a statement that they will return 2.6 million square meters of land “in order to reduce its exposure on the north coast as it foresees a possibility of lower demand for second homes in Egypt in the near term.”
“Palm Hills has been facing a cash liquidity problem, they are looking to cut their construction costs by half, bringing the costs down from LE 2 billion to LE 1 billion,” said Mohamed Ashour, research analayst at Naeem Holding. “Now, they will concentrate on projects they launched, there will be no new launchings this year.”
After Egypt’s uprising overthrew Hosni Mubarak’s regime and eventually put a number of former officials and some of the country’s biggest businessmen under investigation, there is a seeming shift from lavishness to necessities.
“The country has always been in dire need of low to mid [income] housing,” said Ashour. “Development of luxury second homes doesn’t fit the needs of the market now, however the market appetite is for mid-income first homes in places like east and west Cairo, for example.”
Egypt’s low to mid income housing demands may now get the attention they deserve from property developers, some of which had launched projects over the past years to meet this need, but the market is still undersupplied.
“Imagine the case now, with the recent revolution and the difficult economic conditions, the needs have shifted, will continue to shift over the next few years, and at the end of the day a luxury home is just not the priority,” he added.
Ashour points out that this is becoming more evident now with recent projects approved by the new interim government, led by Prime Minister Essam Sharaf.
“Late last month, the new government announced that they signed a project with Saudi businessmen who will be investing $7 billion to build about 200,000 homes in the low to mid segment,” he added.
While the society moves on to meet their new housing demands, luxury housing developers will either have to keep up and invest in different land plots or downsize their current projects, like Amer Group and Palm Hills are already currently negotiating.
“Currently developers like Palm Hills, SODIC or Amer own relatively expensive land plots that don’t suit the development of a low to mid housing complex,” said Ashour. “Therefore, those developers will need to replenish their landbank with cheaper plots, in order to penetrate the low-mid housing segment and attain complacent margins."
Palm Hills, Talaat Moustafa Group and other real estate firms are mired in court cases challenging their purchase of state land through direct contracts as opposed to public auction.
In April, Palm Hills returned 190 feddans from its Sixth of October compounds to the government. To continue reducing their liability and avoid related payments, the firm will continue negotiating with the government to return more unused land.
