“A self-contained paradise,” according to the developer’s website, Somabay preserves its pristine nature by adding luxury to its mix. Despite the many changes that hit Egypt since the 2011 Uprising up until today’s drastic economic reform plan, Somabay remains one of the most sought-after touristic destinations to foreigners. In 2014, Somabay’s residential project sold about 40% of its units to European buyers. Invest-Gate joins Somabay’s masterminds Chief Real Estate Officer Omar El Halaby and Projects Development Director Sherif Moustafa for an open discussion about the Red Sea hospitality and real estate markets and how Somabay stood out among the rest, creating an outstanding exclusive boutique destination in spite of the many obstacles.
How do you view the investment climate in Egypt and specifically in real estate?
OH: Despite all what is happening and the drastic economic measures undertaken by the government, I see it very positive. The real estate market is in a temporary slowdown mode, of course, given the harsh reforms and the attractive saving deposits and certificates with 20% interest rates offered by most banks in Egypt, today. People are more likely to buy such certificates than invest in real estate. But soon I am hopeful that the appetite for real estate investment will surge again. I also see that lands, today, are under valued because of their purchase prior to the float. Given their true value today, acquiring land and developing projects will naturally increase prices of the end-product. I expect property prices to dramatically increase.
Having said that, I believe now is still the right time to buy property because of the further price hikes that are to come.
SM: The reform was a mandatory step and of course it has its pros and cons. Locally, this reform is still not 100% developed, yet. Of course, it has a direct effect on the cost of materials, construction, and land. Internationally, such economic measures and- I mean the devaluation of course- has increased the appetite for international investment in Egypt.
Now, land purchase is made affordable to foreign investors. Egypt is to see a number of foreign investors entering the market this year and the coming one as well. We saw some inflation among construction materials like in the steel market, for example. Some suppliers were very much affected by the price increase of materials, while others took it as a chance to increase their prices. I personally do not think that this inflation was real.
Also, the funding and loans of a project have increased as well, creating a higher challenge. Now for a loan, the bank can get around 25% interest as opposed to the personal saving certificates, where you get to enjoy 20% interest rate on your savings. Banks are now eager to profit and make money from all sources and all means. However, this strategy will soon come to end. We will reach a point when a true investment climate comes into play.
Commenting on what you said, banks are one way or another competing on the “safest type of investment”… does it affect the real estate market “the investment’s safe haven” as it is referred to?
SM: True, the consumer used to invest in real estate instead of banks for the markets stability. Now, the competition within our sector has tremendously increased. Most developers offer zero downpayment plans. The government is heavily entering the real estate market and has become a key player with all its housing and developmental projects across Egypt with the New Administrative Capital, and the New El-Alamein City, to name a few. Either they sell directly to clients or they partner with other developers.
OH: Banks indeed have created a challenge for us. However, this adopted strategy is not sustainable and will soon come to an end. We have seen markets like Turkey, for instance, go through the same period in the past. Turkish banks used to give very high interest rates, too. Such Approach is needed at this stage of Egypt’s reform plan now, but sooner or later, they will go back to normal.
As developers, how can you overcome those many challenges?
OH: Well, this is where the attractive payment terms with zero-down-payment and facilities come in. The advantage of bank saving methods is that they give back the interests to your deposits. I think now developers try to attract clients to put such interests as installments in their projects. This is the game now and that is why you have zero down-payment plans.
The Red Sea has been suffering from political instability, safety, and economic reform in recent years, how do you view its market?
SM: The Red Sea as a touristic destination will be the new Ain Sokhna. Let us take Egypt’s North Coast as an example. The plan now is to develop the North Coast as a destination through hospitality.
Hospitality goes in line with the property market. It supports it and gives any destination life. Most upcoming developments are to include a hotel or more to their premises. The government is also working on developing many integrated communities as well.
Moving to the Red Sea, such integrated communities model or urban development is also taking place, with the new cities that are being developed and the infrastructure projects, Koraymat Road for instance, we can foresee touristic destinations on the Red Sea becoming closer and closer to the capital, creating such integrated communities. The privilege of the Red Sea unlike Ain Sokhna and the North Coast that it is already dominated by the hospitality sector and for real estate to join is just another added value. Hospitality complements real estate.
OH: The Rea Sea as a destination enjoys beautiful weather over ten months a year, making it inhabitable. I also see that the undergoing infrastructure and urban planning makes the Red Sea, as a destination, very promising for the real estate industry. To analyze the past seven years, given the uprising, political instability, and security issues we suffered from, destinations like El-Gouna, for example, and Somabay shifted their business from international markets, which they previously dominated, to the local one. Even Somabay, back in 2014 and 2015, was -if I can put it- “Egypt’s best kept secret”. Only a few knew about Somabay. During this period up until recently, our strategy was to focus on the local market. But today, international tourism on the Red Sea is starting to pick up again. I see it coming back as before if not better.
Somabay kicked off with a few number of hotels in the past. Now it has become a more developed destination with a number of hotels and five residential projects. Was that the initial plan? Or was real estate recently added to the mix?
SM: From 1991 until 2009, we developed five hotels, Sheraton Hotel, the Robinson Club, Kempinski, The Westin, and Breakers, the diving and surfing lodge with a total capacity of 1,338 hotel keys.
Then there was the uprising…
OH: Previously the focus was mainly on hospitality, but with the new management, taking over in 2014, we integrated real estate development. Real estate was there before but never a main business driver. But with the new management, real estate has become a crucial part of our strategy along with hospitality.
Adding real estate to the mix, in a short period of time, two of those real estate projects are currently sold out…
OH: Yes we have Marina Residence and Golf Townhouses already sold out and delivered. We are now marketing Baywest, Soma Breeze, Abu Soma Reef and Wadi Jebal and by the end of this month, we are launching our latest project, Surf Village.
Are all projects marketed locally?
OH: Actually we market our residential projects locally and abroad, mainly in Europe. This year, 30% of our sales were to foreign clients, including Germans, Swiss, Italians, Canadians, and Americans. We have a nice multi-national portfolio of homeowners. Foreigner residents occupy 40% of the total residential projects at Somabay.
Are you marketing all residential projects all at once? How is that so?
OH: We created neighborhoods across Somabay. Each is different from the other and caters to different needs and lifestyles. Baywest, for example, is on the bay side of Somabay peninsula. It comprises two and three bedroom villas on a small piece of land with five-to-seven-year installment plans Abu Soma Reef is located on the northeast coastline of Somabay and offers various architectural designs; from villas, to terrace villas and terrace chalets.
SM: Wadi Jebal is on the other side of the peninsula on the reef side of Somabay. It is a more exclusive neighborhood, featuring larger more expensive villas, patios, and lodges. The lodge is a very unique product in terms of design and architecture and is new to Egypt. We also have apartments in Soma Breeze on the tip of the peninsula, overlooking the sea. It features from one-to four-bedroom apartments.
What is your aim behind the giant Somabay? Is it to become a city?
OH: We are looking to become more of a boutique destination with very exclusive and upbeat services to niche markets. We are to provide a specialty medical center, kennels and high-end clubs, to name a few.
SM: The privilege of Somabay unlike many destinations on the Red Sea is that it spreads on a 10mn- square -meters- peninsula surrounded by 11- kilometer- waterfront unlike some other projects that occupy 36mn square meters of land with the same waterfront length, making it very dense to the end user. Somabay enjoys another feature, which is the elevation of the land, making most of its neighborhoods enjoy a breathtaking sea view.
Now that Somabay is a boutique destination, how does it cater to the daily needs of its residents and visitors and not making them reach to the other surrounding cities?
SM: We have that in the plan of course to include a number of amenities and retail to develop an integrated community at Somabay. We started enhancing this mixed-use facilities side of the project. We have acquired- 24/7- medical services, along with a number of basic life amenities to cater to the daily needs. We now have various options of entertaining venues, including a variety of restaurants by the Marina. We are currently enhancing the livelihood facilities of the project.
OH: We acquired the basics at Somabay and we are currently working on developing other things. We just opened a new water park; Soma Splash, operated by Sheraton and caters for kids, families, residents and visitors as well. We also have a huge wellness spa of international standards, with facilities spanning over an area of 7500 square meters, with 65 treatment rooms, offering everything from traditional massages and beauty treatments to the latest technology for aesthetic treatments and hydrotherapy. Our wellness spa won the World Luxury Award in 2016.
What do you have in the pipeline?
OH: We are launching this new project, Surf Village, on the bayside. It is an exclusive development located right by the beach and offers villas, twin villas and lofts with almost all units offering a spectacular sea view.
SM: We also host our annual international golf tournament. The upcoming golf tournament is to take place in October; in addition to our annual international kitesurfing tournament that takes place at our 7BFT Kite House.
Is Somabay to explore other destinations in Egypt?
OH: At the moment, we are focused on the development of Somabay but are keeping an eye on the market of course and the other potential destinations across Egypt to seek.