Analysts watched the real estate sector like hawks last year, looking for the turning point when investment and growth would return. But without support from the interim government, developers were stuck in limbo, mired by ongoing land disputes, tanking stocks and less project financing than ever. But that could be coming to an end thanks to some good news for developers in the last quarter of 2011.

Nermeen Abdel Gawad, a real estate and construction analyst from HC Securities, discusses the sector’s potential in the new year.

Q: What were some of the biggest challenges for real estate in 2011?
Abdel Gawad: Following the revolution, all eyes were on the connection of [deposed President Hosni] Mubarak and land-claim issues, mainly related to the violation of the public auction law. Many land deals that were not publicly auctioned came under the spotlight. Of the cases that have been brought up, most of those were sold at below-market prices after the revolution.

Q: Are any of these cases set to be resolved any time soon?
Abdel Gawad: Any time these cases [go back to court] they keep getting postponed. So our view is there will be no solid or concrete outcome to these land reclamation issues until the political situation stabilizes.

We see the interim government as a salvation government. They don’t really want to make decisions and then have someone come along later and say, ‘Who gave you the right to take these decisions?’ So our view is that this will keep on going until a firm law is put in place to stop loopholes. So we think this won’t happen until the new government is in place and things are more stable.

Q: Although 2011 started off slowly, there have been some year-end successes. What can you tell us about the companies behind them?
Abdel Gawad: Talaat Moustafa Group (TMG) surprised us with their nine-month results. They made net sales of LE 1.4 billion. Definitely there were cancellations, but given market conditions right now and comparing it to other developers, it fared pretty well. I guess it’s because of the type of market. In terms of middle-income housing, regardless of the Madinaty case that has been in court for more than a year, interest is still there and at the end of the day, people will still get married [and look for housing]. We’re talking about the middle-income [class] which will always be there given the under- supplied market that we’re in.

SODIC’s nine month results showed negative sales because cancellations were pretty high across all of their projects. […] But the third quarter saw the cancellations fade away […] and sales picking up. And with the sales we saw [last month on the Westown Residences] that’s a pretty positive sign, given also the market that they operate in, which is high-end.

Q: But not everyone has fared as well. What can you tell us about Palm Hills Developments?
Abdel Gawad: With Palm Hills, their backlog has shrunk to around LE 12.8 billion from around LE 14 billion. Cancellations have been huge, given the land issues that they have. They’re also squeezed by funding and land liabilities, so they opted to return some of their land. Unfortunately, things are not working well for them compared to other developers.

Q: What are your predications for 2012?
Abdel Gawad: Most companies are focused on delivering what they promised and project execution at this stage. We don’t really expect to see that many new project launches like the one SODIC did. One or two might take place in 2012, but what we see is that a lot of companies are cutting down on spending and focusing on executing their backlog. 

Q: With consumers also tightening their belts, is it possible low-income housing might be an opportunity for investment?
 Abdel Gawad: That could be a possibility, given that budget housing is high on the government’s agenda. But that depends on how the government will proceed with that and if they’re going to include private companies. There were talks that they actually don’t want private developers involved, so it all depends on where the government is going. But the middle-income segment is where all eyes should be, with TMG and Nasr City Housing being two companies to watch for, since this is their target market. Bt