Tarek Abdel Rahman, Co-CEO, Palm Hills Developments: Interview

Interview: Tarek Abdel Rahman 

What trends are you seeing in terms of demand in the residential real estate market?

TAREK ABDEL RAHMAN: One of the current big trends is the movement of the middle and upper-middle classes from the city centre of Cairo to its suburbs, in pursuit of more breathing space, less pollution, proximity to schooling and better housing supply. Gated compounds in the suburbs, on the other hand, are green and have new infrastructure, private schools and easy access to entertainment and leisure activities. In the past, this trend was only seen amongst the very richest Egyptians, but now more and more people are migrating to the outskirts, and private developers like ourselves are trying to keep up. Huge villas are no longer in high demand and have not been since 2011-12, but smaller villas, townhouses and apartments most certainly are. One development that we recently embarked upon, for instance, is geared towards the upper-middle class, or B+, with most units consisting of apartments of between 140-180 sq metres, and prices that are expected to open at around LE6500-7000 ($ 886-954) per sq metre and affordable to this segment. These prices are relatively competitive, because it is located a bit further away from the city and strategic as it is the natural extension to New Cairo and within close proximity to the new administrative capital. As more compounds are built, the reputation of the developer has become more important. Architecture, density, landscaping and general liveability are becoming bigger factors in the decision-making process then location itself.

How are developers coping with the possibility of a bubble forming?

RAHMAN: I’m not overly concerned about this notion and the numbers support me. There are roughly 900,000 marriages per year in the country, most of which require a new unit. Even if we assume that only 10% of these marriages are active purchasers, there are 90,000 new units needed in the segment each year. At most, we can deliver around 2000 units per year and most other large private developers deliver 500 units, and possibly 5000, for the largest player. So in all, they account for maybe 11,000 units. Bring in the rest of the smaller developers by tripling the number, and you have maybe 33,000 units. That is still a sizeable demand of 90,000.

Some people have claimed that most of the units currently being built are just being used as investment properties to hedge against the depreciation of the Egyptian pound. However, from what I see, only around 15-20% of units sold are to investors, and that is more a function of Egyptians’ love of real estate and the fact that many who have the means, buy apartments when their children are born, for them to move into when they reach adulthood. Investments definitely do not account for 70% of the market as some have claimed. Investors aren’t seen to be an issue hampering our sales performance. They sell cash versus installments offered by primary developer. In addition, the market in central Cairo is not really moving, as owners are having difficulty selling their apartments in once-fashionable neighbourhoods like Heliopolis, Maadi or Mohandeseen, since more people are choosing to live outside the city.

What is your outlook with respect to prices?

RAHMAN: While I do not think a bubble is forming, I do think that the rate of price increases is going to slow down going forward. In 2014, prices increased around 35%, and as of November 2015, they were up 12-25%, which is still a sizable jump. As this supply comes onto the market, prices are unlikely to come down, but they are likely to stabilise or increase due to regular inflation, which is 12-14% on average. If you are a big developer, you may be able to price property 2-3% above that. If you are a smaller one, you will be able to price at the inflation rate or slightly below.