Real estate experts and developers expect mergers or acquisitions among real estate companies in the coming period to avoid a decreased rate of growth in market sales.
They forecast that the near future will see the filtering of many small- and medium- size companies, as well as a new phase of mergers and acquisitions, whether mergers in projects or in entities. The latest was the real estate private equity joint venture between Aur Capital and Wadi Degla Developments.
In July, Aur Capital has signed an agreement with Wadi Degla Developments, whereby the shareholders of Wadi Degla acquired 70% of the new Aur Wadi Degla, while 30% will remain for Aur Capital. The transaction was conducted through increasing the capital of Wadi Degla by EGP 300m, and a share swap in the new entity. Additionally, another example is the negotiations of SODIC to acquire Madinet Nasr for Housing and Development (MNHD).
Furthermore, there are great apprehension that the real estate market will enter a new phase of deceleration or recession, in view of the high prices and the abundance of projects offered in the market, during the decreased purchasing power of large segments of Egyptians. Moreover, some developers prognosticate that unexperienced and reckless companies will exit the market due to lack of market experience.
The CEO of the Saudi-Egyptian Construction Company, Darwish Hasanen, said that the real estate market may witness mergers, rather than market exits, and mergers either in investments or in entities.
Hasanen said that a strong entity is a solider instead of an individual entity and the cost of project’s construction in that entity remains cheaper, and the speed of completion be faster. Since each party in this newly-established entity has an advantage, when they merge, integration creates a robust entity which operates to produce a high quality product in the shortest time.
Impact Commercial Real Estate CEO Ali Gaber denied what some people say that the real estate market is in a recession.
Gaber indicated that the market is only undergoing a re-filtering situation to achieve a balance, especially since real estate prices have increased over the past period, and some companies exaggerated in raising their unit prices.
He stressed that 2018 witnessed a correction wave in the real estate market, and will continue during the first half of 2019, accompanied by the exit of many small entities operating in the market, or a wave of mergers and acquisitions between small entities, which is the most suitable solution for those types of companies.
Meanwhile, Tarket Shoukry, head of Real Estate Development Chamber at the Federation of Egyptian Industries, said that the most recent outcome is the existence of new companies as most of them do not have the necessary experience and sufficient financial solvency for the implementation of a large real estate projects.
Shoukry noted that 2019 will witness the continuation of large companies who have financial solvency and technical expertise.
He pointed out that the chamber, in cooperation with the ministry of housing, exert more efforts to solve problems facing real estate developers, saying, “The chamber, in collaboration with officials of New Urban Communities Authority (NUCA), recently solved several problems facing developers in the market.”
The current period is the most appropriate time for the emergence of real estate developers unions in order to regulate the market and achieve the necessary balance between the three parties: developers, the government, and customers, especially after the entry of a large number of new real estate companies into the market recently. Plus, changes that have begun to take place recently, Shoukry stated.
“We [chamber] are working on reviving this idea. The draft law has been prepared and is ready for discussion, but it is still being discussed by parliament’s Housing Committee. We hope to open a community discussion on the draft law in the coming period.”
For his part, Fathallah Fawzy, chairperson of Mena for Touristic and Real Estate Development, said that the phenomenon of failing real estate companies every year is not a new one. Every period, the real estate market witnesses the exit of a company or two companies for various reasons, most notably the company’s lack of commitment and its deficient seriousness in the implementation of projects.
Fawzy noted that recently, some real estate companies exited the market due to conceiving unrealistic projects.
He proposed that the state should oblige real estate companies to open special accounts for the project’s clients, provided that such funds are channelled to the project through a “security deposit” to preserve the clients’ rights.