As local and international delegates prepare for the much-anticipated Egypt Economic Development Conference (EEDC) in Sharm El Sheikh this weekend, executives from the UAE’s biggest publicly traded builder and the Egyptian government have been locked in discussions over one of the North African country’s most ambitious projects .
Their enormous housing development proposal, originally intended to be for low-income Egyptian citizens and led by the UAE’s Arabtec and the Cairo authorities, is finding it difficult to get off the drawing board – a year after the deal was signed – and it is hoped the conference, dubbed Egypt The Future, will mark a turning point.
The original US$40 billion campaign to provide a million low-cost homes, entitled “For the Sake of Egypt’s Youth”, was initiated last March by the Dubai-listed firm and then field marshal Abdel Fattah El Sisi in the lead up to Egypt’s presidential elections.
The deal, widely seen as a symbol of this country’s commitment to Cairo’s military-backed government, came as UAE aid flowed into Egypt following the ousting of the president Mohammed Morsi.
But what was hailed early on as one of the region’s most ambitious housing projects has been hampered by issues including confusion over funding sources.
The most recent road bump came after the head of the armed forces eengineering corps, general Kamel El-Wazir, seemed to blame Arabtec for the project’s current temporary suspension by not agreeing to certain “national conditions”.
Last week, he was quoted by an Egyptian newspaper as saying, “[Arabtec] wanted to invest in Egypt, but its approach does not match ours … any investor who wants to enter into the Egyptian market must bring his own funding from abroad, not from Egyptian banks”.
Shortly afterwards, on Wednesday, Arabtec’s chairman, Khadem Abdulla Al Qubaisi, and a delegation of board members flew to Egypt to try to clarify the situation. Arabtec has declined to comment on Gen El Wazir’s statement until after the misunderstanding has been sorted out.
This latest hitch comes amid a string of complications surrounding the planning of the mega-project that have stalled progress on the development.
Initially scheduled to begin in the third quarter of last year, the first phase includes the construction of 120,000 low-cost housing units along with public services such as schools and hospitals in three Egyptian locations: El Obour; New Minya; and Badr City.
According to the original agreement all one million units are to be completed within five years, with the first homes delivered as early as 2017.
However, a year on from the announcement of the “historical deal”, many of the original drivers of the project are no longer in the picture.
Concerns over the project first arose after the Arabtec chief executive Hassan Ismaik, a close partner to Mr El Sisi in the initial concept, unexpectedly resigned in June – sending the company’s share price crashing.
Meanwhile, the Egyptian armed forces, which instigated the original proposal and said it would provide 160 million square metres of free land for the project, subsequently passed the baton to the ministry of housing.
Since then, the project’s start date has been missed on several occasions. In October, Arabtec said it was in the final stages of formulating a contract with the Egyptian ministry of housing, with phase one of the project to begin before the end of 2014.
After that failed to materialise, a new date was set for early 2015 following the International Real Estate and Investment Show in Abu Dhabi in November. Then, after Mr El Sisi’s visit to Abu Dhabi in January, the UAE Minister of State, Sultan Al Jaber, announced the project would commence within a month’s time.
The project is now expected to be presented at the EEDC, which runs from March 13 to 15 in the Red Sea resort. According to an official from the Egyptian Federation of Construction and Building Contractors, phase one will begin shortly thereafter.
As well as funding, other details regarding the project, such as the provision of land, remain unclear. While it was originally announced that Arabtec would receive free land from the armed forces for low-income housing, the Egyptian minister of housing Moustafa Madbouly stated on Wednesday last week that in fact the project is now intended for the middle-income sector and thus does not warrant the allocation of free land to investors.
A day later, he said talks with Arabtec were continuing and he hoped to reach a final deal on the project before the start of the EEDC.
Hany Ganeena, the head of research at one of Egypt’s leading investment firms, Pharos, notes: “All of the major recent disputes over real estate projects have been over the pricing of land.”
The two largest property developers in Egypt as listed on the EGX, Talaat Moustafa Group and Palm Hills, have also both faced drawn-out disputes over land sales following the January 25 Revolution in 2011.
“In the Arabtec case, the minister of housing wanted to make clear that he was keen on attracting investment, but not keen on ‘squandering’ property of the Egyptian people,” points out Mr Ganeena.
Source of funding has been another point of contention in the most recent negotiations between Arabtec and the company’s Egyptian partners.
Shortly after the original agreement, Mr Ismaik said initial financing would come from the UAE Government alongside advance payments by homebuyers. Then, after negotiations in October last year, a letter of intent signed by Arabtec and Egypt’s ministry of housing stipulated that the project’s funding be entirely foreign, although it did not provide further details.
Other important considerations, such as affordability of the units, also remain in question. Many Egyptians most in need of subsidised housing operate in the informal economy and will not be eligible for traditional forms of financing such as mortgages; neither could they afford to buy outright.
“The announced budget of 280 billion Egyptian pounds [for the project] averages to about 280,000 pounds a unit, which is more than double the price of the current subsidised units in the Egyptian government’s social housing project, which are already unaffordable for the poorest 20 per cent of Egyptians,” says the housing policy analyst Yahia Shawkat .
Additional doubts surround the feasibility of the project’s ambitious scope. Quick maths reveals that for one million units to be completed from start to finish in five years, about 550 houses must be built per day.
Considerations such as these suggest the importance of the project may lie more in its symbolic value of UAE-Egypt relations than its impact on the Egyptian affordable housing market. At the Abu Dhabi investment conference in November, Mr Madbouly noted the project was expected to mark a new investment approach by the current government.
He said the Arabtec collaboration would serve as “a model for future public-private partnerships”, suggesting government desire to foster strong and growing connections with Arabian Gulf firms in Egypt’s upcoming property development projects.
Indeed, with the Abu Dhabi Government-affiliated Aabar Investments as Arabtec’s largest shareholder, the million units deal has been widely interpreted as a form of state-to-state economic diplomacy.
It also suggests a new UAE strategy to promote private sector development as an alternative to direct aid.
Following a $1bn grant transferred in the immediate aftermath of Mr Morsi’s ousting in July 2013, the UAE signed an aid agreement of an additional $3.9bn in October of that year, which included a number of Emirates-led development projects such as the construction of schools, clinics and housing.
Unless an announcement is forthcoming beforehand, all eyes will be on the EEDC for signs that the million-homes project is making headway. However, many other UAE private sector investments are expected to be announced at the event, in which high-level Emirati and Saudi officials have played a considerable planning role.
A series of investor-friendly economic and legislative reforms are also scheduled to be revealed at the conference, opening the door to a potential period of increased UAE private investment in an Egypt in transition.
But the biggest deal will still be the Arabtec project and the outcome of the latest talks is likely to set the tone for future UAE-Egypt collaboration on economic projects, with repercussions far beyond the Egyptian housing sector. More»