Demand for Egyptian land and property far outstrips supply – and is genuine and not speculative – making the market soar, even through challenging times. Magued Sherif, Managing Director of SODIC, one of Egypt’s leading large-scale real estate developers, explains the Egyptian real estate’s characteristic resilience and huge potential growth as it continues to be “considered a guarder of value and a hedge against inflation and currency devaluation.”
The uprising of 2011 and the following years of instability caused a massive brain drain. You have funded your own company in the United States and now you are back in Egypt working for SODIC. How do you feel to be back in the country and how confident are you about the current government?
The brain drain was a result of a short period of time in which as a nation we could not see light at the end of the tunnel. The election of President El-Sisi has brought confidence not only to Egyptians but also the international community. Since 2014 we have seen foreign investors coming into the country participating in megaprojects. From a private sector perspective, we are very confident about the future of the country and we are very happy to be playing such an important role in the present but most importantly the future of Egypt.
Egypt is a country full of opportunities. Doing business in Egypt is challenging but it offers high returns. There have been several reforms implemented since President El-Sisi took office. Both local and foreign investors agree that the country is on the right track in terms of improving the business climate. We see Egypt rapidly evolving and maturing. This is the right time to come and invest in Egypt.
What is your assessment of the future trends in real estate development?
As the country’s population continues to grow, the appetite for real estate does the same. We are a home-buying culture, and Egyptians hold a strong belief that investing in real estate is of the safest investments. As you know, there is a housing deficit of over 3 million units. The demand for homes is widening about 400,000 every year, while the organized private sector supply is only 20,000 units per year. The demand for homes in Egypt is genuine and not speculative, and is driven by strong underlying demographics.
Moreover real estate is considered a guarder of value and a hedge against inflation and currency devaluation. The potential increase of the interest rate or even the devaluation of the Egyptian pound will not have a dramatic impact on real estate performance, as has been proven in previous challenging times.
The government expected the growth rates in the real-estate sector would reach 15% in 2015 compared to 11% in 2014. One of the main challenges for the sector to maintain this growth rate is access to land. The Minister of Investment announced that new land would be available to be developed in 2016. What is your assessment regarding the bottleneck Egypt faces regarding land allocation?
Historically the allocation of land fell under the responsibility of the Ministry of Housing. The new investment law depicts that the sale of land will be handled by GAFI, which is under the umbrella of the Ministry of Investments. Recently, the Minster of Investment announced the release of 24 million square meters of land every year.
Currently the demand for land greatly exceeds the supply, making it a sellers’ market, driving land prices to reach all-time highs. This is contributing further to the housing deficit as the price increase is passed on to end users, further shrinking the addressable market and forcing developers to target high-end segments.
We believe that the government should release more land so that the market can play its role in deciding the real fair value of the land. We hope that the transfer of jurisdiction will ensure smooth and timely land allocation.
At that Amcham conference you just mentioned, the Minister of Investment said: “If we exclude the value of the land from the equation, we find that companies raise prices without justification.” Can you please comment on this statement?
We operate in an inflationary environment; if you factor that into our profits you will find our returns are not that high. Land prices are very expensive in Egypt, more so than other countries in the region, and we often need to absorb some of the price escalations to not fully pass it on to the end user.
Having said that, we as developers have an ongoing dialogue with the government in which we are constantly trying to find common grounds for the benefit of all stakeholders.
What is your assessment of these first months at the helm of SODIC?
I am thrilled to be here! I think SODIC is a great company. As you know I have worked in several companies in the country, but this one has exceeded my expectations in terms of the quality of resources and “can-do spirit” shared across the entire organization.
Coming back from the United States I got several job offers, which I declined. I accepted this one because of the company’s unique value proposition and the challenge of taking a leading company forward.
Can you please expand on the plans for the company in 2016?
SODIC has a proven track record in both East and West Cairo. In 2016 we will continue to launch new phases in Eastown and Villette in New Cairo, and Westown in West Cairo, as well as the second phase of our coastal project Caesar.
We have just recently acquired 2.7 million square meters in the East of Cairo through a revenue sharing agreement with the Heliopolis Housing and Development Company and 2016 should witness the launch of the early phases of that development.
We are in a very healthy cash position and are continuously exploring land opportunities. We will continue to secure land in the East and West of Cairo either through the government or the secondary market. We continue to look for new opportunities in coastal and secondary cities. Last summer we were very successfully launched our first project on Egypt’s North Coast – “Caesar” – and we look forward to securing more land in that area as well as on Egypt’s Red Sea coast. We are also open to exploring expansion opportunities beyond Egypt.
You mentioned before that Egypt’s housing demand is cash-driven. Can banks do more in terms of home financing?
I do not believe that banks alone are responsible for the low level of mortgage penetration. The industry as a whole needs to be reformed to enable banks to provide cheaper mortgages. For instance, we need to improve land registration requirements as a prerequisite for mortgages. Without reforming the entire system banks will not be able to cater to the needs of a wide segment of the population.
SODIC has three defined corporate social responsibility platforms: education, rehabilitation and relief. Is it a challenge convincing shareholders and investors about the importance of CSR?
Corporate social responsibility is a core part of our business and is a shared responsibility across the organization. As in any multinational corporation, social responsibility is important and SODIC is no exception. SODIC’s CSR programs impact over 7,000 families every year through education and slum rehabilitation programs.
Our education programs range from building a school in Stabl Antar, supporting an early childhood education program that runs 37 nurseries in diverse impoverished areas in Cairo, and children learning centers in Talbeya and Minya.
Our rehabilitation programs include projects such as the development and rehabilitation of Ezbet El Assaal – Cairo’s oldest slum – and connecting 1,000 homes in Ezbet Khairallah to fresh water. SODIC is also the leadership founder of the AUC Venture Lab – AUC’s startup incubator that has graduated 46 start-ups to date.
Our relief program allows for philanthropic initiatives where employees can participate in giving back. Relief initiatives include blood drives, salary drives, toy drives, and food distributions, as well as donations to different health facilities.
From your CV we see that you have achieved great things for the institutions you have worked for. What would you like to achieve as managing director of SODIC?
There are still huge opportunities for SODIC to grow in Egypt. However, I would like to see SODIC as a leading regional player in the real estate development industry. I would like to secure land bank for the company to develop projects over the next 15 to 20 years.
I originally come from a corporate culture having worked in corporations both in Egypt and abroad. Because of my previous experience I feel very comfortable leading SODIC. Being the CEO of a company with such a successful track record is a huge challenge; however, I am confident about my capacity to lead it forward and build on the company’s past achievements.