Real estate investment has become crucial to Egypt’s GDP and continues to be a safe-haven for individuals today, according to market analysts. In 2017 and and following the pound float and the ongoing economic reform, Egypt has witnessed massive projects being developed across its booming destinations, which were met with a strong purchase power despite all odds. Invest-Gate pays a special visit to BYC consultancy and brokerage firm and speaks to its founder and CEO Karim Ghoneim on the current investment climate, real estate trends, and the sector’s major challenges. Ghoneim sheds light on how the economic reform has affected the investment climate and the purchase power, and gives an insight on the dynamic market and its possible shifts in the future.
What is special about BYC? And how is it different from any other brokerage firm?
We position ourselves as real estate consultants. We offer a higher service than brokers. We cater to a “build your community” concept. We are focused on external and internal networks. This is our business model and it gives us an edge in the market.
Our services include new homes, second homes, and resale. These are our main pillars. Recently, we added a commercial and administrative platform. Our first project of that sort was Links, an administrative office inside Smart Village.
We also consult small- to medium-sized developers, especially in acquiring and training their sales team.
We also have become part of the educational training in Egypt. We acquired 10% of the newly established Real Estate Academy in Egypt. This, to us, is very promising and we believe it adds a great value to the sector in general.
What are the challenges you see today in the market? And what were the challenges you faced when introducing BYC to the market?
Competition is always a challenge. The market itself needs to be educated from buyers and sellers. BYC adds value to their decisions and process itself. People are still unaware of the tremendous efforts that are put to guide such decisions… how to make a proper investment in this market or how to make the best sale.
The most important challenge is the lack of regulations. We do not have a regulatory body that protects the relationship between buyer and seller. By that I mean broker, developer and, of course, the buyer or investor. The legalization of the business creates many obstacles to us. The standard is there… there are contracts and everything but there is no entity that regulates the sector as a whole and protects rights of brokers.
Cost was also, to us, among the challenges we faced. This is the case when you open a brokerage firm. We had to build a proper and precise business model to overcome such a challenge. We took off with a good budget and, thankfully, it gave us a good push at the beginning.
The barrier to BYC when entering the market was hiring people to join the firm. My partners and I have profound experience in the market and this by default has helped with the building of BYC but the challenge was to find those who can fulfill the roles we were after. We are very picky when it comes to employment and we prefer to hire people from outside the real estate market.
We seek those who have no knowledge of the sector and we give them our expertise and guide them through the process to grow, although this of course requires a lot of time and effort from our side.
Why did you acquire such a different strategy to the norm?
With experience, we have seen that it is more than often people within this sector share some background that we perceive as somewhat distorted and different to us. So we take longer to make them fit our scheme of model. Whereas newcomers constitute fresh minds and can adopt our strategy easily.
How do you train the BYC family not to be biased towards particular projects? How did you gain developers’ trust?
We are unbiased when it comes to advice and market information. However, we are biased towards certain projects because we do not work with anyone. We pick certain developers, who are credible and carry a high reputation in the market in terms of secured investments, professionalism, and product quality. So when we consult, we make sure that investors are to make the best investment decision for their money’s worth and to guarantee we meet our clients’ needs.
To developers, we only work with those we truly believe in and our commission is fixed among all developers we work with.
Why would developers seek brokers when they have their active sales departments?
Well, there are two types of sales, direct sales coming from the department itself and indirect sales coming from brokers. Each developer has its sales strategies. Some depend on the majority of sales coming from their inventory. There are those who depend on the majority of sales from brokers, while others balance between both. Those, who rely more on indirect sales, are normally small companies and their dependence on brokers can make up to 80% of their sales.
Brokers usually work on larger channels and networks because we tend to work on a number of projects all at once, whereas sales teams of direct sales focus on a sole project they are promoting. Thus, if a developer wants to increase his reach, he acquires an indirect channel. Basically, we help developers reach more leads prospects through network and our wide reach.
Some claim the Egyptian real estate market to be a bubble that will burst soon. What is your comment on that?
I believe not… Real estate bubbles cannot happen in Egypt because we are a cash market with no mortgage plans. There are some with high interest rates and very tight regulations so their effect is very minimal for us to take into consideration. If we take the US as an example, we see that their market relied on credit and high mortgage plans with high leverage. People took several mortgages on a number of properties. The supply was much higher than the demand as well. This is not the case in Egypt.
Our demand is way less than the supply. Studies show that Egypt has around 600,000 marriages with 300,000 to 350,000 units per annum. So we are underdeveloped in this aspect.
Our culture is a buying culture and home owning is a priority to us. The market is steadily picking up and I see it continuing to grow. It is a very cheap market when compared to the rest of the world. It is also the Egyptian expats who invested in real estate following the devaluation that secured the sector and saved it from the so-called “bubble.” Developers, too, have compensated with flexible payment terms.
How do you view the real estate investment climate in Egypt today?
The real estate market remains to be seen as one of the safe havens for investments in Egypt; first-hand sales from developers are still moving; however, secondary market is slower for sure, yet prime units in good projects with a healthy formula are the trigger in keeping the secondary market active. Everything gets flipped but some slower than others. Recently, with the attractive saving plans by banks of up to 20% interest rates, some investors have shifted to depositing their capital, escaping the price hikes of properties. Such banking tools have made real estate investors think twice about entry/exit points.
How do the recent economic reforms affect the market?
With the devaluation of the EGP, we have seen many games being played. Some real estate investors sold their properties prior to the float and bought USD; and following the float, they returned with, of course, a larger capital for bigger investments to double the returns. This was the common trend among the so-called “deep pockets”, who had previous insight on the market.
As for the general masses, luckily the devaluation has had, so far, a limited impact on the market. Indeed, prices of property units increased by 30-35% except for the high-end real estate brands, including SODIC, PHD, New Giza to name a few, who have increased their prices even more. Such an act, made the regular buyer look for value of investment rather than the brand name… I find it interesting to see how this ever sought-after sector will continue to reshape, especially in the coming months.
Having said that, I still find it too early to measure the effects of the EGP float on the market today. Given Egypt’s large and growing population, I do not fear the future, as the demand on real estate will continue to grow. I don’t see a problem in the supply/demand equation at all. The market offers approximately 20,000 units per annum, which is nothing compared to our growing population.
What remains evident to us, today, is the changes in the investors’ attitudes and choice mechanism and criteria. There are those with unexplained tremendous cash ready to invest and those who only care about “value for money.” Everyone is revising their priorities but not to the extent that the market would tighten up.
Is the Egyptian real estate market attracting foreigners? Are we on the international map?
I believe the market is still more appealing to Egyptians living abroad, who make a good living at this stage. To them, properties in Egypt have become very lucrative and affordable post devaluation. This element shall change according to variations in USD value. If USD stabilizes or increases then their appetite shall follow and vice versa.
What are the common market trends? And how did it change over the recent years?
Prior to the 2011 uprising, people were driven towards big spaces on the outskirts of the capital. With price increase and the mentality of the new generation, the common trend today is acquiring smaller units, also on the outskirts of the capital. Big houses are no longer tempting like before due to price hikes and maintenance costs. What I see as an upcoming booming trend is rent.
Rent will take a large size of the market soon because of a number of reasons. Prior to the uprising, investors focused on buying then selling quickly with premium. Lots of investors are currently focused on revenue-generating assets.
The new generation- with tight budget- sees rent as more valuable to save on money; and the renting opportunities on the outskirts of Cairo are very attractive and affordable when compared to the popular districts inside the capital.
How do you view the online brokerage market? Can our market depend on such a new tool?
BYC’s business relies 80% online and 20% offline or face-to-face. We believe that our business within the next five years will shift to a digital business. Yes our online platform is not directly connected to government entities like USA, UAE, and UK, for example. BYC’s digital platform is currently booming. We have listing online like OLX, Propertyfinder, Home360 and Aqarmap, to name a few. We have also digital marketing through GDN and social media. At this stage, we are generating leads online. These leads turn into prospects. If we succeed in those prospects, we gain clients and seal deals. In Egypt, not all are generating leads online. This organization of entirely buying and selling online is still far from our market. Unit prices according to current values and neighborhood or district prices are not registered by the government. Again, this is because we have no official regulatory entity that monitors the sector.
How do you foresee the future? Can you predict the market of 2018?
We see that 2017 trends shall sustain, providing the financial markets remain the same, although this might not be the case. Egypt has a lot of foreign debt to settle; and if tourism does not pick up quickly as expected, there might be more strain on the USD. If this happens, then its value will continue to increase and it would be difficult to predict how the overall market would look like and how the property market would react. It is very random in Egypt.
The only digital platform, where buying and selling is provided, is Capital Group because they only market a few projects in Egypt. But on a larger scale, there cannot be such guaranteed service in Egypt at this stage.
To conclude, with political stability, our future is very bright. Unlike the rest of the neighboring countries, which got affected by the so-called Arab Spring, business in Egypt is safe. Our infrastructure is ready, so we are internally expanding. A large number of developments are coming into our market. The sentiment is very promising. Also, with the new Investment Law, we are to see European investors coming in. We have high R-O-R and profit margins. Externally, and this is more interesting, today we see a number of Egyptian developers and contractors expanding abroad to help build such devastated nations, including Libya and Iraq, for example.
Do you predict prices units to further increase as it did in 2017?
This price hike, we witnessed, is not likely to reoccur. It happened because of correction following the float and to cover for the materials’ cost. Prices will definitely increase but at the normal rate, depending on the area. This market is very dynamic and shifts from one area to another.
Do you see the market shifting to Upper Egypt and Alexandria?
There are in fact a number of developments taking place in those areas and also a number of developers coming to Cairo from such places, working especially on non-gated communities in Cairo. They established small and medium companies here and their businesses have been booming following the Uprising of 2011. Al-Hokair is among the market key players, who have acquired land in Upper Egypt. Also Palm Hills is to launch its latest project in Alexandria by the end of this year. Orascom, too, has started its Byoum project in Fayyoum. The purchase power coming from Mahala and Mansoura are increasing more and more in the capital.
BYC, too, is planning to expand in such areas by the beginning of 2018.