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In Conversation with Fathallah Fawzy: developers can ‘ride out’ high construction costs, interest rates

Article-In Conversation with Fathallah Fawzy: developers can ‘ride out’ high construction costs, interest rates

On the sidelines of Cityscape Egypt in Cairo last month, we sat down with Fathallah Fawzy, Chairman of MENA for Real Estate Development Consultancy, to discuss the current state of the real estate landscape and his market outlook

First off, can you explain how real estate developers benefit from participating at Cityscape?

FF.  Over the years, Cityscape has become a brand, attracting every stakeholder concerned with real estate and providing the stage to foster dialogue and discuss the most pressing topics in today’s landscape. From the real estate developer’s perspective, Cityscape Egypt gives them the opportunity to gain exposure and traffic while also enabling visitors to benefit from the discounts offered on products by participant exhibitors.

I gave the opening address this year, and I myself talked to several exhibitors who had managed to close a sizeable number of deals. That was only during the first day of the conference.

Can you specify the key challenges faced by Egypt’s real estate developers nowadays, and what is the way out?

FF.  There was a round of currency devaluation last year, throwing up multiple challenges and opportunities in the way of Egypt's real estate developers. So on one hand, it has prompted customers to turn to buying a property as a form of saving or for investment purposes; this has led to a new wave of growth, activity, and innovation across the entire sector. As a result of that, real estate developers have enjoyed a significant increase in their revenues compared to last year.

In terms of challenges, the rising construction costs have definitely taken their toll, requiring the developers to execute proper "manoeuvring," harness expertise to mitigate the impact of that on their operations, adjust their prices accordingly, and explore possible ways to build customer loyalty and confidence in their products and increase ongoing communication with their clientele, especially when it comes to delivery timeframes.

Here comes the silver lining: many developers have already had their operations running for a long time, dealt with similar blows, and were eventually able to ride them out.

Why has there been no mortgage system in place in Egypt up until now?

FF.  There’s a mortgage law that has not yet been activated. In the global markets, interest rates stand at 2–3 percent; in Egypt, they hover around 18–19 percent. It is too challenging to implement the mortgage system in Egypt due to the rising interest rates, which would put pressure on consumers.

So, real estate developers are playing a role in plugging the financing gap and providing their customers with an alternative to mortgages via varied financial schemes at lower costs. Moreover, the percentage of off-plan transactions stands at 99 percent, and there’s no way to apply for mortgage financing on an off-plan unit. There are a lot of logistical obstacles that hinder its implementation on a large scale.

What are the reasons behind the increasing demand in the real estate market?

FF.  One can tighten a belt on several fronts but still need to have an apartment. The demand for housing never abates as the population continues to grow. We have almost 1 million marriages taking place every year; therefore, the demand is potent across all social classes and categories, with 10 per cent still having the ability to acquire a property.

Fathallah Fawzy is Chairman of MENA for Real Estate For Development Consultancy and vice president of the Egyptian Businessmen Association (EBA)

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