Palm Hills: Building for real housing demand

What is your take on the health of demand in the real estate market?

There is definitely genuine demand because of the number of marriages and people who want to move out of Cairo. We’re 100 million people at the end of the day, and we are increasing by about 2.5 to 2.8 percent every year. So, there is this genuine demand, but there’s also the investment part. Part of the culture of the middle east is to own houses, not rent them. It even goes down to the basics of marriage.

For the middle and upper middle class, a important part of marriage is owning an apartment, no matter how small or big. It’s a kind of a security. It’s the psychology of Egyptians and probably of all Middle Easterns. It’s very difficult that somebody of that middle class would come and ask to marry your daughter with a rented apartment. You could say yes of course, but with some source of hope or a light at the end of the tunnel that she’ll have an owned apartment to live in.

The culture of people getting married while they rent units is not very much part of the culture. Therefore, part of the culture is that people would come and propose to get married knowing that they’d be moving to an owned house or have a down payment for an apartment. That’s probably how 70% of people from the middle and upper middle class think.

How are you seeing those measures that affect foreign stakeholders, such as the new investment law and currency devaluation, impact the housing and real estate market? 

I think there are two things. There was the devaluation part of our sales going to Egyptians living abroad. So we used to send maybe 5-6%. After the devaluation, this went up to 18% -- 18% of our sales go to Egyptians living outside of Egypt. We are trying to improve our channels of distribution and sales to them by going either through brokers or even having or own offices in some of foreign cities.

The other thing is the new law which allows for foreigners to get residence in Egypt once they start buying a house or an apartment. I think this is a huge thing that will help us a lot. When I say we sold this year for 13 billion, it’s probably 3,400 to 3,500 units. I can easily see us increasing by 50% by trying to go to these people where they are, and sell this residency program. Again, this will not be to Europeans. They will not come here for residency. It will, however, be for a lot of Middle Easterns and countries that face issues. They would like to have a safe haven. It’s very difficult for these people culturally to live in Europe. Even if they have the money, and assuming it is the same price, of course Egypt is much cheaper for them to live, Egypt is culturally more of what they’re used to.

Can you tell us more about your mega-projects, such as Badya Creative City, and what they mean to Palm Hills, and for the entire real estate sector, given its size?

I think there’s a lot of economies of scale by going into these mega projects. As a company, at the end of the day, no matter the size of the project, you have a specific DNA. To develop a project, you need a specific minimum skeleton of people to do the job. When you do something 10 times the size, this doesn’t mean you increase your people by 10. So, from a company’s perspective, there’s a lot of savings.

From a selling point, I think it’s much easier to start a project at this size with the right master plan. We used one of the best firms worldwide to do the master plan for us, which makes a big difference. It’s a city we’re working on with the UN sustainability in it. It will be a very smart city, and I know a lot of people are talking about smart cities. We are in contact with a lot of multinationals to come up with IBM cognitive city. This city will be livable in 7-8 years from now. Technology is moving very fast. When we came to do that, we got McKenzie, the consulting firm and they advised us on the best technology, what to do, what are the smarted cities in the world, and that’s how the IBM has done a city called Palava in India.

So we’re doing it and having it much more advanced as far as technology because that’s the way, moving forward. We feel it will be different from anything available on Egypt. We do have a very efficient master plan, but architecture will come from different architects to give it different flavors. It’s not going to be a city that’s all the same. Every zone will be designed differently, and it will be a completely creative city. We want to encourage young people to go there.

What is the core DNA or what aspects of Palm Hills do you believe have allowed you to remain so competitive, and how important is it for you to always be on the forefront of development?

I think where we succeeded was always in forward thinking. We’re forward thinking more than some of the competitors I will say. We started going smaller in our sizes back in 2006. In 2007 we reduced sizes, and it has given us a good boost. This even helped us in 2008 when the crisis happened. We came up with these smaller, more efficient types of building.

I would also say our after-sales service: we try as much as possible to invest in after-sales to make your customers happy. At the end of the day, we have a lot of repeated customers. We think our selling point in Badya Creative City will not only be creative, innovative, and high-tech knowledge, but also it’s also the reduction using high-tech and Opics. People were always worried about the capics to buy the unit. Now what’s becoming more important is the upkeep of the unit because of the removal of subsidies in electricity, water, and gas. So life is becoming much more expensive.

One highlight innovation that will help to reduce opex is the city’s design. We purposefully constructed the city in such a way that the placement of the buildings creates a corridor of air that decreases the temperature by 2 to 3 degrees centigrade, which in turn will reduce consumption of electricity to power air conditioning.

You’ve talked about demand, and some of your projects, so what are your expectations of your company going forward under the current market conditions. How do you see the evolution in the next 2 to 3 years?

I see us moving more outside of Cairo – continuing to do what we have in Cairo, and moving to other cities and other governorates. We have to be faster than the competition going into these places. I believe that we are, in a lot of our developments now, finishing a lot of the old projects that we have, throughout 2019. I think this will give us a huge price increase possibility because we have units in livable communities that are ready to be delivered immediately, which is something that doesn’t happen here.

The other thing is concentrating on the commercial end. Egypt, mainly Cairo’s commercial space per capita is very, very low, especially in these new communities. For example, in the west, you have 150,000 people moving every year. Even if there are no new sales, for example everything stops today, still these people will move because they bought these units 4-5 years ago. So, 150,000 people moving into this area, will need a pharmacy, a barber shop, restaurants. This is a big number of people. on the other side I also think it’s around 200-220 thousand people moving to the east. So, we’re concentrating on the commercial end for the upcoming period, in the east and west of Cairo on our projects; as well as, moving out of Cairo to other cities and governorates.