The Worldfolio catches up with Tarek Abdel Rahman, co-CEO of Palm Hills Developments. With the largest land bank in Egypt, Palm Hills is riding high off a successful international roadshow, capital increase, and recent announcement of its Q1 results- a 75% increase in sales y-o-y at 1.35 billion EGP.
What are your thoughts on the overall success of the conference, and what do you think will be the most important follow-up post conference?
In my opinion, besides the MOUs that were signed (which may or may not come to fruition), the conference was extremely important because it signaled that Egypt is open for business. The government is even willing to give the private sector the lead in infrastructure projects such as power, which along with real estate were the two most active sectors in the conference. Also, the quality of the speakers was unbelievable. In which conference do you see the CEOs of GE and Siemens along with senior people from Pepsi and Coca-Cola, Christine Lagarde, Tony Blair, Albert Speer and delegations from the Gulf countries together? This signals again that foreign investors are interested in Egypt and that Egypt is courting foreign investors.
It was also very, very well organized.
Do you think Egypt is going to be able to handle the amount of investment that is going to come into the country as a result of the conference?
If 20-25% of the MOUs signed come to fruition, that in itself would be a success. Even if all the investments are finalized, they will not all come in at the same time. What does the government need to provide? In most cases, it would be land and a legislative framework as most agreements were signed in power and infrastructure.
Palm Hills signed a very exciting MOU at the conference for 500 feddans and 10,000 feddans. When do you expect these projects to develop?
500 feddans on the east side of the city is for development of a gated community. The 10,000 feddans is basically for developing a well integrated town of 42 million square meters, which is about half the size of Dubai. We’ve started negotiating the contracts with the government. The 500 feddan project, which is in New Cairo, will probably be signed this quarter. The 10,000 feddan project will be signed by late 3rd quarter of this year.
What type of project is the 500 feddan going to be?
It will be similar to our usual compounds servicing the upper middle class and above. This is our bread and butter. It’s not a massive piece of land at 2.2 million square meters, but it is what we know how to do. The 10,000 feddan project is completely different because it is the development of a town. It will have to include low-medium and high density housing with a strong theme underlying the whole town. Dubai, for example, is themed for entertainment and tourism. Other successful cities in the US were built around a strong university such as Chapel Hill or Duke. The university may be specialized in an area, and it moves the economy of the entire town. In other cities around the world, you may find that a city is built around health and wellness with world-class hospitals. We are thinking that our 10,000 feddan project will be based on wellness and education, but we are not quite set on a theme. However, it will have a very strong theme that will drive the economy and the town so that people can live and work there, and we have currently initiated the conceptual master-planning phase.
Where is the 10,000 feddan project going to be based?
It will be based in the Sixth of October over Wahat and Fayoum roads intersection.
The Cairo Capital Project was unveiled during the recent EEDC and will require tens of billions of dollars of investment over the next 5 to 7 years. What are your thoughts on this massive project and its potential?
Honestly, we haven’t received enough details about it to understand what is happening there. It seems that they are going to shift the government with all of its offices inside Cairo to a central location to the east in the New Cairo project. The theme for that town is government. It is anticipated that the seat of government may go there along with the Presidential Palace, Parliament, the embassies, etc. Everyone who works in and with government will also have to relocate there for the sake of proximity. Relocating all of the employees will be the biggest challenge. Properly executed, it will be successful, and it is what Cairo needs.
If the opportunity arises, will you also be developing some projects in the capital?
I think we have our plate full for a while with these large plots of land to develop and theme up. With a land bank of 67 million square meters, it makes us by far the largest land developer in Egypt.
Do you think that the Capital City project is going to affect the 10,000 feddan project in terms of taking away from it?
No, they are both on different sides of the city, so they won’t necessarily compete. Our understanding is that the government wants the whole Sixth of October area to be the residential, entertainment, and tourism hub as they are building the new museum and metro line out there and converting the military airport to a civilian one in order for tourists and visitors to fly into the western side of the city. Our citizens are not traditionally that mobile either, so the people who work there will live there. Again, if properly themed, you can create your own destination and ecosystem within the town.
Your sales for Q1 were 1.35 billion which is a 75% to a nearly 100% increase year on year. Last year, your sales had also increased by 100%. How sustainable is this growth?
The market is going well and the brand name is back. People trust the brand name and they like the product. We expect that the market will be strong for the next 3-4 years at least. We still suffer from a chronic supply shortage in housing in every single income bracket.
Your operation tends to focus on the middle-high income segment. How many people can afford houses in this bracket?
Last year, we delivered 980 units. The other competitive developers probably delivered roughly 4k units. Let’s assume that all the other developers developed 10,000 units. It’s still insignificant compared to the demand driven by real need.
The housing gap is 8 million units, and it’s growing by 3-400,000 units per year. How are you ever going to catch up?
I’m not so sure that we will catch up. Where do you get the infrastructure to build 8 million units? How long will it take you to build 8 million units, and what is the gap going to be then.
What do you think about the land allocation from the government at the moment? You’ve just signed 2 MOUs and you are going to have the largest land bank in the country.
I think it was a very smart move of the government to offer land on a revenue sharing basis because with the prices in the auctions, it was going to fuel inflation in the entire economy. Buying land at EGP 4,000 per square meter does not allow you to make a profit. It wasn’t viable.
You are in the process of a capital increase. You’ve just finished a 14 day road show. Are you still planning on issuing 824 million shares? What was the result of the road show and what will the capital increase mean for you?
It’s being offered to existing shareholders at EGP 2 pounds per share, but in Egypt, the right to subscribe trades is separate from the share itself. If you are a shareholder that doesn’t want to subscribe, you can actually sell that right to someone else who can buy it and subscribe in your place.
We did the road show in London, New York, Washington, Dubai, Abu Dhabi, Johannesburg and Cape Town-basically all of the places where they have funds and would invest in Egypt. It was a very positive road show and we met some of the top-tier investors in the world who were willing to listen to our story and were very excited about Egypt. We met about 30-40 investors in all. The Capital increase just opened the 22nd of April and will go through to the 21st of May.