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Al-Futtaim expects diminished growth in real estate market - Daily News Egypt

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Al-Futtaim expects diminished growth in real estate market

Al Futtaim seeks to increase investment in Egypt despite poor economic circumstances

Al-Futtaim Group is a UAE-based company and is one of the largest real estate developers, operating through more than 200 companies in 30 countries.   General manager of the company, Mohamed Mekawy, discussed the company’s strategy and its vision on Egypt’s real estate market with Daily News Egypt.

Al-Futtaim Group entered the Egyptian market in 1997, nearly 19 years ago.  Has it achieved its achieved the goals it set for itself in the Egyptian market?

Over the course of our long history in Egypt , we’ve succeeded in achieving our targets and strategic vision through an ambitious plan based on business expansion and greater investments in the Egyptian market.

We are confident in Egypt’s promising market and the economy’s strength, which has proven its ability to withstand a number of global and local crises.

In the coming period, we aim to increase our investments in our leading project, Cairo Festival City (CFC), located in the heart of New Cairo.

This is one of the biggest integrated investment projects of residential units, commercial and administrative offices.

As of 2012, the group owned nearly 700 acres of land, including 629 acres in New Cairo.  During the past period, have you tried to increase your land portfolio?

Al-Futtaim did not seek to increase its land portfolio during the last period. We are currently focusing our investments on completing CFC, our mega project.  We have finished the first phase of the project and work is underway to complete the second phase.

The project’s total investments for all three phases will total EGP 19bn and will provide 30,000 permanent job opportunities after completion, in addition to thousands of temporary jobs during development.  It is one of the largest projects of its kind.  We are currently focusing on completing the project before considering increasing our land portfolio and developing new projects.

Following the increase of the dollar’s value to EGP 9, does the company plan to limit its developments until the dollar stabilises?

The company does not intend to change its development and construction plans.  We are committed to delivering our projects as scheduled, according to our contracts with customers.  In addition, we are confident in the Egyptian economy and its ability to grow and protect the local currency.  We will continue to expand our projects in the Egyptian market.

The company paid EGP 400m in 2008 for land at CFC and there were negotiations for the payment of an additional EGP 420m. How much was the final settlement?

We’ve reached a final settlement for CFC’s land that was allocated for the project, according to the legal procedures in place at the time.

The settlement required Al-Futtaim to pay EGP 218m. The company was committed to the signed contract supplements.  It has also paid some of the premiums before their due dates owing to the company’s dedication to supporting the Egyptian economy and boosting production.

Was the agreed upon loan in 2007 from seven banks worth EGP 2bn received by the company? Or is the process on hold until the CFC land contract is settled?

The loan was intended for the development of the commercial centre.  The company did not benefit from the loan and it has used its own resources for construction.

Can you tell us about the hotels in CFC?

Cairo Festival City is one of the largest integrated projects in Egypt and the Middle East.  The project includes plans to construct two hotels, one of which is a world-class 5-star hotel and the other a 4-star hotel to meet the needs of business travellers and those taking short trips.

The two hotels will be connected and are located near the CFC Mall to allow guests the opportunity to enjoy shopping for all their needs. Plans are underway for the second hotel and construction will begin as scheduled.

Can you tell us about your plans for the second phase?

The second phase includes the mall and a 140,000sqm independent commercial building, which consists of six to seven buildings, a garage, Kidzania and two hotels (one 4-star and one 5-star).

Our target demographic is Arab tourists, particularly from the Gulf, who come to Egypt for shopping rather than cultural tourism.

We also target people in business. CFC would be ideal for companies as the hotel is near the airport and the development has a 400,000sqm commercial building. We are preparing to add an additional 50,000sqm to the development’s commercial holdings in the coming two years.

What is your evaluation of the real estate market in the current period?

Egypt has experienced economic difficulties in the recent period. Egyptian tourism collapsed and the industrial sector was hindered by import difficulties due to the high exchange rate and the laws of the Ministry of Trade and the Ministry of Industry. The Egyptian Exchange has also fluctuated.

Therefore, the real estate market is considered an important investment sector in Egypt, owing to the need for housing and lack of administrative and commercial buildings, especially as the government is seeking to evacuate the downtown area. The sector will be revived, driven by the lack of commercial buildings.

What is the expected growth rate of commercial buildings this year?
I expect it will rise by 10% in 2016.  The government is expected to raise the interest on deposits by raising the interest on lending, which will increase costs in the real estate market.

What will be the impact of the government’s decision to raise customs on construction material?

The decision to raise prices will lead contractors to raise prices. It may also lead to the creation of a work environment in Egypt and provision of products.

I think that the state’s policy to raise customs aims to reduce imports. However, locally produced alternatives are not available.
What is Al-Futtaim’s strategy for the coming period?

We are a group of companies under the brand name, and I represent the real estate sector. In general, there is a desire to invest because we need stores in the retail sector. We are already working through global brands such as IKEA, Toys R US among others. Locally, we have stores in 6 October City.

Do you think the political and economic crisis in the Gulf will affect activity in Egypt?

I do not think we will be affected in Egypt. We finished establishing infrastructure, water networks, gas networks, electricity networks, central air conditioning and electricity stations and telephone networks. The establishment of the infrastructure is estimated at EGP 1.5bn.

Do you expect to take out loans to complete the upcoming projects?

We are working to accelerate the execution of some projects, such as the hotels or administrative buildings which may lead us to borrow.

How does the instability of US dollar price affect Al-Futtaim group?

As a foreign investor our profits will be affected. In FY 2012/2013, we invested $600m, and the value of dollar was between EGP 6 and 6.5.

Al-Futtaim group is considered a long-term investor. There is no intention to exit the Egyptian market in the near future, as we have plans to build infrastructure for at least 20 years.

Regarding operational profits, there were losses of 30% due to the change in the currency price, which will lead us to compensate and try to cover this loss

What is the future of investment in 2016?

So far, there is limited opportunity, but the year 2015 was a good one for the real estate sector. Citizens were optimistic which was reflected in the market, in addition to the new Suez Canal project. I do not think this year’s sales will equal 2015.

What is your evaluation of the government in regards to the real estate sector?

It takes most foreign and Egyptian investors 6 to 8 months to obtain a building licence. Why should a license for the same project take this long?

What legislations are required to enhance the real estate sector?

All laws need to be revised and the priority should be to consider why the new Suez Canal project and the library of Alexandria are taking a different direction than the other projects.

 Do you plan to buy new land in the coming period?

Everyday new laws are issued. First, we need to know the timeline for development of the New Administrative Capital and the Suez Canal projects, and, then, we can assess the available opportunities.

Do you intend to list Al-Futtaim on the Egyptian Exchange?

No, we don’t plan to list the company in Egypt or abroad.

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