Chairperson of Mazaya Developments, Mohamed Allam, emphasized the critical role of calculating a company’s final cash income after deducting expenses and costs from revenues. The resulting positive or negative balance ultimately determines a developer’s financial strength, execution capabilities, and ability to complete projects.
Allam highlighted that daily operational expenses—such as commissions, fees, and execution costs—consume approximately 20% of a company’s financial resources. By the time unit delivery occurs, developers typically secure only about 50% of the unit’s price, creating a financial shortfall. Ideally, developers should collect between 60% and 80% of the unit price by the time of delivery to ensure smooth execution, handover, and operational readiness. Failure to meet this threshold can lead to financial difficulties, especially for newer developers who may miscalculate their cash flow needs.
“Developers must cover land installments, construction costs, and other expenses, and without securing sufficient funds, they may struggle to deliver projects efficiently and on time, ultimately impacting customer satisfaction,” Allam stated. He pointed out that financial mismanagement—particularly an inability to balance cash flows with expenses—remains a primary reason many real estate companies face financial distress.
Despite these challenges, Allam asserted that no real estate development company truly operates at a loss. Instead, financial struggles often stem from mismanaging revenues, expenses, and commitments. Since real estate assets—including land and completed properties—appreciate in value over time, effective management ensures developers have the necessary resources to navigate execution risks and fluctuating costs.
One of the key issues, he noted, is offering payment plans that do not align with a company’s financial capabilities. Many developers deliver projects after collecting only half of their value, leading to a financial gap of 20% to 30% per unit. Without careful planning, sustaining operations becomes difficult. However, maintaining an inventory of unsold units, which can be sold at higher prices upon delivery, serves as a key strategy to offset rising costs and ensure financial stability.
Allam warned that relying on inventory sales to cover ongoing expenses carries risks due to cost fluctuations. Certain cost elements—beyond just land and construction—can increase unpredictably, making precise calculations essential. He concluded that professional cash flow management is a crucial safeguard for developers, helping ensure their long-term success and stability in a challenging market.
