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150 real estate companies produce only 25,000 units annually, profit margins do not exceed 20%: EBA vice president - Daily News Egypt

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150 real estate companies produce only 25,000 units annually, profit margins do not exceed 20%: EBA vice president

High land prices constitute 40-50% of project’s cost, says Fawzi

The vice president of Egyptian Businessmen Association (EBA) and chairperson of the construction committee, Fathallah Fawzi, said that there are 150 real estate companies that produce only 25,000 units annually for above-middle-class and luxury housing, which accounts for 15% of the total demand, or about 100,000 units annually.

Fawzi noted that these companies’ profit margins do not exceed 20%, pointing out that the imminence of a bubble in the Egyptian market is excluded and the rumours circulating in that regard are not based on real study or information, and are intended to affect the real estate industry.

He explained that according to the official statistics and accurate analysis, the Egyptian market is characterised by a huge and growing demand in light of the high population density of 100 million and an annual increase of 2.5 million people, while there are 800,000 to 900,000 annual marriages. Therefore, the expected demand or the real need of housing units is at least about 500,000 to 600,000 units annually.

“The two largest segments, social and middle-income housing, constitute 85% of the demand, and the government takes the responsibility to implement subsidised projects commensurate with the financial potential of the target segment,” Fawzi elaborated, adding, “According to the statistics, the state provides around 170,000 to 200,000 units per year out of a total of 500,000 units required, indicating that there is a cumulative deficit in meeting the demand of the real estate units, which prevents the occurrence of a bubble or stagnation for long periods.”

Moreover, he pointed out that the indicators of real estate companies, during 2016, 2017, and the first half of 2018, reflect a growing growth in sales volume despite the price hikes, as the first half of this year companies were able to achieve sales over the same period last year.

He further noted that real estate search engine Aqarmap’s index showed, according to its studies, that annual growth in demand for real estate is equivalent to 18%.

Additionally, he mentioned that the profit margins of real estate companies from sales do not exceed 15-20%, according to financial results of companies listed on the Egyptian Stock Exchange. Moreover, increases in prices of real estate units are real, due to changes in the cost of implementation and not for the purpose of companies to earn more profits.

There are many factors that contribute to raising the prices of real estate products on a continuous basis, mainly land prices, which currently weighs between 40% and 50% of the project’s cost, with the addition of other costs such as design, supervision, administrative fees, sales, marketing, and taxes, for which the unit costs not less than 80% of the selling price. Nevertheless, there are some companies achieving zero profit margin or record losses as a result of error in the study of projects’ costs, according to Fawzi.

He said that the resale sales are experiencing a slowdown in light of the price increases, given the desire of the unit owner to sell in cash, while most real estate companies offer units with various instalment systems suitable for customers.

Topics: Real Estate

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