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SODIC uses multinational type model to become employer of choice in Egypt

Interview - March 11, 2015

Ahmed Badrawi, Managing Director of one of Egypt's largest real estate development firms, shares plans on expansion into the non-residential segment, becoming a mixed-use developer, and goals for turning SODIC into the employer of choice due to its ethics, standards and contributions to the community. 

MR. AHMED BADRAWI, CEO OF SODIC
MR. AHMED BADRAWI | CEO OF SODIC

How do you see the current perception of Egypt abroad? What do you feel needs to happen in order to completely eradicate the negative perceptions a lot of foreigners still hold?

I think Egypt is and always will be perceived as a market of enormous opportunity. It’s the biggest market in the Middle East and largely undersupplied on almost every front. The sheer size of the population and growth rate offers investment opportunities in every sector with lucrative returns on the medium and long term. While we have had a few challenging years, I believe that Egypt is now back on the investment map and the Egyptian government is taking serious steps towards creating a pro investor economic climate, be it by economic and legislative reforms or putting forward different projects and ways of partnering that would attract investors.

At the upcoming Egypt Economic Development Summit, the government hopes to attract much needed investment, especially in the real estate and housing sector.   How important do you think this conference will be for changing the perception of Egypt, and what are your expectations of the conference as a leading real estate developer in Egypt?

The message the conference is sending out is that Egypt is open for business. The real estate sector has always played a pivotal role in driving the Egyptian economy forward and this is expected to be reflected in the projects that will be showcased in the upcoming summit. In our sector, we expect the Minister of Housing to put forward a portfolio of projects and propose new and creative ways investors can participate in these projects. In my view, we are already reaping benefits of the conference by virtue of the accelerated introduction of many of the investor friendly policies.

With the real estate sector growth rates expected to exceed 14% in 2015, what is your view on the potential of the Real Estate sector? What role does SODIC expect to play in the growth?

You only have to look at the housing supply gap to get an idea of the potential within the real estate sector. The number of homes being brought to the market today barely scratches the surface of the hundreds of thousands of units needed on an annual basis. As we witness an economic recovery we also expect to see demand return for all asset classes including retail, office space and hotels. SODIC is very well poised to capture these diverse growth opportunities. We have built a strong platform with a development capacity and financing ability that would enable us to expand well beyond our current development rate.

We are currently looking at growing our commercial portfolio and expanding into secondary cities in addition to continuing to bring prime residential offerings to the market. We believe there is a lot of room for growth for all serious developers and that the sector as a whole will perform very well in the coming period.

What are your expectations of the Real Estate growth rates after the amendments are made to the mortgage law? What is the expected impact on your operations in Egypt?

We have always advocated for a strong mortgage finance system that would make home ownership more accessible to a wider segment of the population. The current off-plan sales system is a fix to the lack of mortgage financing and adequate funding policies where the developer plays the role of the financer as well, which should not be the case. We are seeing steps taken to grow the mortgage market and are excited to see the price bracket of units eligible for mortgage reach the EGP 500,000 mark in the middle-income sector. We believe that this and the reducing interest rate environment are positive steps. We believe this growth will affect all real estate developers positively and can grow the market exponentially, bringing in new customers that would not have been able to buy otherwise.

2014 was a record breaking year for SODIC with sales exceeding 3bn EGP.  What do you attribute to the continued success of the company?

We believe our success is a direct result of our commitment to our clients over the years. Through the past years we have prioritised delivering our projects on time and even ahead of schedule. During the challenging year of 2011 we adapted our product, adjusting to the market needs of smaller more accessibly priced units, and despite the uncertain climate, we continued to do well. This focus on honouring our commitments to our clients, adapting to their needs and standing by our suppliers has reinforced our reputation in the market as a credible developer that delivers on promises and I believe this is reflected in the strength of our performance today. Our market capitalisation has grown five fold in the last few years.

What are some new projects in the pipeline for SODIC?

We plan to roll forward with new phases of our successful projects in Eastown and Westown as well as the launch of Villette, our new development on a 301 acre parcel of land recently acquired through government auction in New Cairo. This mainly residential project is master-planned by Houston based master-planners, SWA, and will comprise around 2,000 homes, including for the first time since 2011 stand alone units. It has been interesting to see the recovered appetite for these big ticket units. We expect to invest over EGP 7 billion in Villette and create over 20,000 jobs over the span of the projects’ development.

We are also looking into several business opportunities at the moment and expect to announce new projects outside of Cairo’s suburbs in the near future.

SODIC is the leading private sector real estate company here in Egypt. When you look at the future of the company, where do you see it going? What’s your 5 year plan?

We are very excited about SODIC’s position in the Egyptian market and feel we are well positioned for growth and diversification: growth in the residential sector that we are currently very strong in and diversifying out of our comfort zones in the east and western suburbs of Cairo. Diversification includes in the residential sector, moving down the consumer chain for example into middle income or entering the second home market for Egyptians – our coasts are still relatively virgin. Expansion in the non-residential sectors is also in the plan. Our 70,000 sq m office park in SODIC West, The Polygon, is one of the most impressive projects to come to the market in recent years. We are keen to bring these standards to the east of Cairo where demand from multinationals now seems to be focused.

Beyond that, turning SODIC into the employer of choice due to its ethics, standards and contribution to the community remains one of our goals. If you were to tour SODIC and talk to our employees, you’ll find that it stands apart from other companies in the country. Though we are a local company we genuinely try to create a multinational, professional working environment as we believe that this directly translates to performance. The performance and the output is the sum of the efforts of the people. We invest a lot of time in our people and ensure that the working environment is friendly; this is something fairly unique in the market. We have a unique team of people that are performance driven. That performance in the past few years has translated to results.  SODIC has emerged from the pack as the leading player that is delivery oriented, customer oriented, meaning we are genuinely concerned about delivery above the customer’s expectations. Today, our name is synonymous with quality and real delivery on schedule and ahead of the quality available on the market.

The real challenge for us is to diversify out of the home building company that we have become into a mixed-use developer. We are looking at building on that platform to deliver recurring revenue streams in addition to the one time revenues of residential sales.  This would better enable the company to weather the fluctuations of the industry, which is a cyclical industry wherever you are in the world.

We are very optimistic about the economy in the next five years. The economy is attracting investment, driving multinationals to open offices in Egypt or reinvest into better premises. We are hoping for changes in regulations that will encourage corporations to move out of the residential zones. That is a big burden on the infrastructure.  A common problem in many residential zones is that they house corporate units, adding stress on the infrastructure. Examples of problems that ensue are inadequate parking space and elevators and an overload on electrical infrastructure to name a few.  Our aims are to build mixed-use communities that include residential, offices, retail, medical and educational facilities that encourage people to leave the city center with its accompanying congestion, and to build better lives in more planned communities.

In the next five years, SODIC aims to be at the forefront of this movement. We believe we are leaders in the residential segment and are perfectly poised to capitalize on the opportunities in the non-residential segment as well. We have been concentrated in the eastern and western suburbs of Cairo. New opportunities of regeneration will present themselves along with the exodus out of the city that is beginning.  Secondary cities such as Alexandria and Delta Cities present opportunities for the mixed-use target product. We have also seen a huge strength of demand for secondary homes for Egyptians in the north coast and other coastal cities.

It is the first time in a few years that we are able to discuss with confidence the macro environment as opposed to only our industry segment. In the past we have talked about our strong industry with huge head winds; now we’re in a strong industry with strong tail winds behind us.

It seems as if SODIC can move in any direction to find success, whether it be in tourism, business, residential, or building mixed-use communities.

There are two schools of thought on whether to concentrate on what you do best, as opposed to over-diversification. We are tackling those issues theses days. It is important not to forget where your strength lies. That, for us, is residential. However, many of these skills are applicable across the different asset classes; SODIC intends to leverage those skills.

What sets SODIC apart from some of the others in the industry is the team and the people that you’re working with. What is your philosophy on management and what is it that you do differently?

SODIC does not have a single dominant shareholder. We are a publicly listed company with no major controlling shareholder. The shareholders appoint a board of directors which select an independent professional management team directed to deliver performance according to our KPIs. This is rare in developing economies where family owned companies are the norm. We have an incentive scheme in place that includes profit shares and a share option scheme ensuring everyone is aligned. We are directly accountable to deliver value for our shareholders.  Our multinational type model is bearing fruit.

I genuinely believe in providing a good working environment and giving employees respect and accountability to empower strong performance. The problem that we see often in Egypt is that authority can be too concentrated at the top.  At times, no one is willing to make a decision because they’re worried about not pleasing the boss. We don’t have that here, we have a strong team of professionals across departments that are empowered, responsible, and able to take decisions and as a result I believe that we are able to attract some of the best talent, whether new graduates or professionals across the board. I believe we are reaching our target of becoming an employer of choice in Egypt today.

All great opportunities come with great risk and challenge. Despite Egypt’s Real Estate sector showing such high growth potential, what do you see at the greatest constraints in the sector today?

The constraints remain the availability of land at prices that would enable developers to address a wide market segment and the policies regulating this industry. However, we are seeing serious steps being taken by the government to create an economic climate that is ripe for investment. We are seeing regular land auctions being put forward by the government to address the pent up demand and new mechanisms of partnerships with the government take shape. If these steps materialize and we see a new real estate policy and investment law that tackles developers and investors issues, I would expect the industry to show significant growth over the next few years.

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