Amer regroups in wake of Arab world unrest

The prominent resort developer Amer Group is moving to reduce liabilities while planning future projects as the luxury Egyptian property market takes a dip

Egyptian resort developer Amer Group Holdings is handing back undeveloped land in northwestern Egypt and freezing sales in a showpiece Syrian project as high-end real estate slumps on the back of regional unrest.
Amer Group announced Monday the return of 588 feddans (2.6 million square metres) to the governorate of Matrouh following the termination of a buying agreement. A statement from the company said it had made the decision “in order to reduce its exposure on the north coast as it foresees a possibility of lower demand for second homes in Egypt in the near term.”
Amer Group spokesman Riad Rifaat told Ahram Online the move was strategic, but denied it marked a significant change in company policy. “It's going to save us LE240 million which we can utilise for other projects. The board is studying the market before making decisions about new developments,” he said.
The firm is already committed to two phases of its Golf Porto Marina project in Alamein, Matrouh province, totalling 9,200 homes. The returned land was earmarked for a third phase.
Troubled developer Palm Hills also agreed this week to return 2,229 feddans (9.36 million square metres) of undeveloped land in Matrouh.
Syrian unrest has taken a toll on Amer's expansion plans, with countrywide protests prompting a mid-April freeze in sales of Porto Tartous, the company's first resort venture outside Egypt. Rifaat said sales in the 3,715-unit hotel and residential project had reached $22 million by March, but missed their overall target due to a slowdown spurred by the seven-week old revolt. Construction is continuing, he added.
Despite Syrian troubles, Amer is preparing another overseas project, this time in Saudi Arabia. Rifaat says the company will officially announce a marina development on the Red Sea coastline named Porto Jeddah “in the coming month”.
Analysts see the Amer Group's movements in Egypt as a sign of a wider trend as local property developers reduce liabilities and increase liquidity to hedge against the economic downturn.
“In times of stress, second homes are luxuries,” says Hisham Halaldeen, real estate analyst at Cairo-based Naeem Holdings. “It makes sense that people are focused on their primary homes and not spending on extravagances. Companies in the high-end sector are not predicting new sales this year.”
Halaldeen says the bigger picture involves a historic failure of private companies to supply Egypt's towering demand for low and middle-market housing. Now the luxury market is failing, developers are beginning to eye less prestigious projects.
“Egyptian developers listed on the stock exchange focus on the high-end of the market and don't have suitable land banks. Now they are giving back land they think will be less useful,” he says.
Halaldeen predicts the government may soon have to arrange land auctions at reduced prices to allow developers to increase their land banks in this market segment. But he notes that any shift in focus for companies like the Amer Group will be a slow process.
“Companies are managing their cash flows and reducing liabilities, at the moment that takes precedence over strategic buying of land,” he says.
Shares in Amer Group, bolstered by 2010 net profits of LE557.1 million, have slipped more than five per cent since Tuesday's announcement, closing the week at LE1.01 per share.