Antoine EL KHOURY, French-Lebanese, has been exposed to the Egyptian real estate sector for more than ten years now and is fully based in Egypt since 2016. Antoine is the Managing Director of TAMEER, the oldest real estate developer in Egypt, with a heritage of 27,500 units delivered over the last 67 years. TAMEER is listed on the Stock Exchange, with 50% foreign shareholders that you represent on the Board of Directors.
Additionally, Antoine is the CEO of KOUT CAPITAL in Kuwait, a private equity real estate company that mainly invests in Europe. He has worked in the real estate industry for almost 33 years, in almost 20 countries and boasts a rich experience in the mechanics of the international real estate and the mindset of foreign investors.
Antoine is also a member of the French Chamber of Commerce in Egypt and observes the massive penetration of the Egyptian market by multinational companies.
1. Antoine, you have recently spoken at the Cityscape Egypt virtual conference and have shown a particular faith in the future of the real estate sector in Egypt. Could you please elaborate more on that point?
Indeed, I am optimistic, simply because Egypt is changing rapidly and significantly.
For few years now, Egypt has been going through an in-depth transformation, and has become one of the most growing, most promising, most regarded business platforms in the world. This success story is driven by a clear vision and determination of the nation’s leadership, and by the massive and structural modernization of the country and its infrastructures. The current situation of Egypt speaks for itself. The country is enjoying a political and monetary stability and an unmatched economic growth. Egypt has become the preferred destination for business and investment in the middle of this whole, 1.5 billion people, still under-developed, Africa and the Middle-East region. As a result, more and more multinational companies are entering the market every day and establishing in Egypt their regional platforms for Africa and the Middle-East.
2. How can this benefit the real estate sector?
I am a believer that real estate is a sector that supports the economy, by providing space for growth. Growth in any sector of the economy requires space, whether offices or retail, or factories or logistic hubs or else. When the economy grows, the demand for space grows as well and this boosts the real estate industry. Moreover, the middle class in Egypt is growing very quickly in terms of purchasing power and in terms of lifestyle. This is creating a need for further quality destinations for social life and consumption.
When we look carefully at the Egyptian real estate, we can easily identify new trends that are emerging in the market, which is clearly diversifying towards the non-residential area. Market players have identified the new needs and are adapting, paving the way for a more mature environment. This is a good start, because it creates the space and the investment opportunities, as well as the products needed to fill the gap that will be created by the demand. But this is not enough from an investment point of view. I believe the opportunity for the sector and for the economy in general is far much bigger than what local players are anticipating today.
3. Where do you see these opportunities and how can Egypt develop them?
The opportunities are in the institutional income generating real estate. This is what large foreign investors, such as sovereign funds, pensions funds or international private funds look at.
Real estate is an investment asset that has different cycles, which are differently positioned on the risk-return curve. The first cycle, the most rewarding, but the riskiest, is the speculative development. Developers launch projects that are sold off-plan. This is where the Egyptian market is active now. This particular cycle is usually not attractive for institutional investors who have a lower risk appetite. Those investors usually enter the market once the construction is completed and the asset is let to good tenants and generating steady cash flows. In the investment language, these are called “stabilized investments”.
I have shared three indicators at Cityscape talk that illustrate what this opportunity would represent for Egypt and that I would like to repeat here:
- The First Indicator: Foreign Direct Investment in all areas of Egypt real estate has reached approximately 450 USD in 2020, which represents a tiny 0.125% of the GDP.
- The Second Indicator: Investment in commercial, income generating real estate in the United Kingdom has reach 95 billion USD in 2020, representing 3% of the GDP.
- The Third Indicator: 762 billion USD have been invested globally in 2020 in commercial income generating real estate.
The comparison of these indicators tells about the potential for Egypt to attract Foreign Investments to the real estate sector and, indirectly, to the economy as a whole. There are plenty of sectors that are developing within the Egyptian economy, such as conventional and new energies, startups ecosystems, technology, data centers, financial services, manufacturing, infrastructure, education, healthcare, distribution, and so many other areas. Industries have a clear preference for investing their own equity in developing their own core business, where they can create the highest value to their shareholders. They have a preference for going into long-term renting contracts and outsourcing the ownership of their real estate assets to specialized investors. This means that every USD attracted from abroad to the real estate sector is one USD more that will be invested in the productive economy, create employment, and fuel the overall growth.
4. Why would foreign investors be attracted by the real estate sector in Egypt right now?
Because now is the right timing to enter the market and benefit from the growth. Egypt is standing at the very beginning of its growth curve and this is where the value will be created. Later, the market will have matured and the benefits will be less.
A high-level simulation that we have carried-out internally in TAMEER has shown that, due to cap rate compression and rental growth, capital values may double or triple over the next 2 to 5 years.
The indicators of the Egyptian economy are showing a clear trend towards a compression of cap rates in the next 3 to 4 years. This will be a direct, mechanic consequence of the improvement of the sovereign risk of Egypt as perceived by the international institutions, and as confirmed by the economy indicators. The consistent decrease of interest rates and discount rates by the Central Bank are an illustration of such improvement. The decrease of the real estate industry risk, due to the development of the sector and the structural improvement of the governmental procedures, can reasonably be forecasted as well. Finally, the acceleration of the rental growth rate due to an increased demand will further support this compression. These mathematical parameters are those factored by real estate investors to justify their decisions.
Moreover, the demand generated by high credit multinational and national corporations, and the clear quality improvement of the real estate inventory in the new cities, will further compress cap rates and boost capital values.
According to the French Chamber of Commerce, there are 165 French companies currently operating in Egypt, mostly large corporations listed on the French CAC 40 and employing some 38,000 people in Egypt. The extrapolation of these figures to cover all multinational companies as well as Grade A national corporations gives an indication of what would be the size of the High Credit rental market in the next few years.
5. What should be the road map in your opinion to position Egypt on the investment map globally?
There are two directions that need to be engaged, or strengthened. The first one, is for the government to continue improving the investment environment. A lot has been done and is currently being implemented. The new investment law, the digitalization of the real estate registration of ownership, the abolition of the capital control, the anti-corruption measures and the heavy investment in the infrastructures. Some of these measures still need to be enforced at the lower levels of the administration, which will require patience until mindsets and cultures change. There are other areas that in my opinion, need to be revisited by the authorities, such as streamlining the implementation of the international tax treaties, and the abolition of the tax on real estate wealth. Real estate investment, when considered as a funding source for the growth of the whole economy, should not be subject to a double or triple taxation measure.
The second one, is both for the government and the real estate sector to work together on promoting, globally, the institutional real estate investment in Egypt. There have been successful initiatives so far to promote the individual investments, or what is called “real estate export”. I think it is time now to take it to the next level and target institutional investors. In a first phase, focused initiatives should target value-add funds who invest in emerging economies. A joint initiative involving the Egypt Sovereign Fund would allow sourcing equity to fund the first cycle, the green-field phase. Once the assets are on track and pre-let, a second phase would target sovereign and pension funds who would invest in economically stabilized assets.
6. How is TAMEER engaged in this new investment direction?
We have started recently our diversification towards the non-residential real estate.
THE BUSINESS LOUNGE @ azad was launched in January. It is an exclusive one-building business and community lounge that was designed by Mona Hussein, and is developed on the edge of AZAD residential community. The construction and the sales are currently ongoing.
We have also started working on a development in New Cairo, on a 55,000 sq m land. The project is being designed by the French award winning “Architecture Studio”, who have signed the Institute of the Arab World in Paris and the European Parliament in Strasbourg. They are working hand in hand with ACE – Moharram Bakhoum and with JLL. The project will consist of 75,000 sq m of office space and 15,000 sq m of retail, along a vibrant urban pedestrian street.
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