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Palm Hills Developments raises capital by EGP 1.65 billion to build more residential and commercial properties

Interview - April 27, 2015

Tarek Abdel Rahman, Co-Chief Executive Officer of Palm Hills Developments, views the Egypt Economic Development Conference (EEDC) as the linchpin to begin promoting new projects in an international roadshow for his leading real estate development firm, riding off Egypt's new positive global image launched at last month's summit


How do you see the current perception of Egypt abroad, and what do you feel needs to happen in order to completely eradicate the negative perceptions many foreigners still hold?

From an economic point of view, the perception has changed from a negative or neutral point of view to a positive one. We are seeing many foreign investors coming in from all around the world and participating in bids for important Egyptian companies.

From a political standpoint, we are perceived as more stable. Isolated conflict in the north of Sinai has affected perception but countrywide we have made great progress.

The Egypt Economic Development Conference (EEDC) is an important stepping-stone for the country’s development and image.  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 change in perception will happen by effective actual changes on the ground. Promotion of the new investment law, closing the gap between the official and black market dollar, are all issues that are being addressed. If they are enacted promptly, the conference will go a long way in changing the perceptions of Egypt. We are open for business and the government gave many projects to the investment banks to gain traction on the negotiations and sign the contracts at the conference.

Demand is spurred by demand, if we are able to show the investment community that projects have been negotiated and signed, that ball would start rolling and it will continue.

As a leading company in the country, what are your expectations of the conference?

We are looking to purchase land and continue to grow. We are raising our capital by EGP 1.65 billion to build more residential and commercial properties. We expect to kick start our road show with the conference. We want to meet potential investors at the conference, followed by our international road show, and ride on the wave of Egypt’s fresh perception following the conference.

What countries are more attractive to you for potential investors?

We travel to the Gulf; Saudi Arabia, UAE, Kuwait South Africa, the UK and the US. In the US we are expecting to go to New York, Boston and Chicago.

Is your investment predominantly from the Gulf?

We have a balance between everybody. We target regional development banks in the West that own the emerging markets fund. These are mainly London and New York.

The Real Estate sector is one of the fastest growing sectors in Egypt and one of the largest contributors to the country’s GDP.  With sector growth rates expected to exceed 14% in 2015, what is your view on the potential of the Real Estate sector and what role does Palm Hills expect to play in this growth?

We are very bullish about the sector moving forward. Egypt has a shortage of housing at every level. It’s assumed there are 700,000 marriages a year and half of that demand is not met in terms of housing. There is pent up demand from previous years, new demand arising, an urbanization rate of 4%, population growth of 2%, these indicators all point to huge demand. Housing supply is striving to meet the annual demand, or at least bridge the gap so the sector is growing up. The middle class is widening and this is whom we cater for together with upper middle and upscale segments.

We will continue to play the same role. Our aim is to construct houses fast enough with the quality that people have come to expect from Palm Hills and to assist in trouble-shooting any issues driven by our purely customer-centric approach, evident in the way we do our business.

Taking into account that you currently cater to middle to upper middle-income clients, do you see yourself catering to the lower-income segment in the future?

The market in Egypt is thinly segmented that labeling as lower, middle, upper level does not give it any justice. We don’t think we are getting into that market because the regulatory and legal environment doesn’t make it profitable for private sector players.

Real Estate growth is mostly fuelled by cash sales.  However, the mortgage market has grown up and will grow more due to the new amendments in the mortgage law and CBE’s new initiative.  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?

Any positive development with mortgage is a positive development for us. Now, we are acting as both developers and financiers. We hope the new mortgage law supports our installments of 5 to 6 years; it would be good if we could finance our clients for those 6 years.

2014 was a record breaking year for Palm Hills with sales bookings growing 200%, amounting to over $499.8million.  What do you attribute to the continued success of the company?

Obviously, the market was good. We have been able to overcome some challenges following the 2011 revolution. Palm Hills faced issues in 2011 to 2012, but since 2013 we turned it around by focusing on our product. We had a capital increase of EGP 600 million to focus on our projects and start building. By 2014 we solved all previous challenges and invested EGP 1 billion in construction. That was enough to show all of our clients that we were serious about our work. We also had a great marketing campaign called “No Ads, just concrete facts” telling the people exactly what we were doing with our money, how many houses we were handing over, what projects we were working on and we’re building up. We were able to dust off our brand name and with our sales and marketing strategy, our commitment to investment we received a great response and our credibility was restored, living up to our Building On brand promise.

What are some new projects you have in the pipeline and what are your expectations over the next 5 years?

Palm Hills has 23 million square meters of land and so far we have worked on 10 million. There are 7 million square meters that we hope to develop. We are also looking to acquire land in the eastern side of the city. We placed a bid for 68 acres with the government and are currently in discussions with another developer to co-develop 100 acres.

We would also like to concentrate on the commercial real estate side of the business. Up until now, we have been a purely residential player.  However, as it stands in our communities, we own 300,000 square meters of land for commercial development. This will allow us to have a different cash flow profile. With residential units, turnover is based off of sales and buying the next piece of land while commercial properties gives recurring income year after year.

What about tapping into the tourism market and resort towns?  Could you also elaborate on your partnership with the Egyptian Resorts Company?

We are one of the largest developers of second homes in Egypt mainly with our projects on the Mediterranean.  We are not considering entering the tourism industry as it’s not our core business. We recognize that the tourism industry has its own players. Sometimes there’s an overlap between real estate and tourism, as is in the case of hospitality and building hotels. Our partnership with ERC entails supporting ERC in the sales of their fully developed beachfront properties as they serve as second or third homes for Egyptians.

What do you see as the main challenges of the market at the moment?

The availability of land and infrastructure are the main challenges. The development of power and water infrastructure will allow us to supply for the exiting and upcoming demand. However, these are small challenges. We are very optimistic about the next few years.