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Subject:
Property Investment Risks in Sharm el-Sheikh Egypt
Category: Business and Money > Small Businesses Asked by: markshaw-ga List Price: $60.00 |
Posted:
15 Oct 2006 12:54 PDT
Expires: 14 Nov 2006 11:54 PST Question ID: 773739 |
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Subject:
Re: Property Investment Risks in Sharm el-Sheikh Egypt
Answered By: pafalafa-ga on 16 Oct 2006 18:17 PDT Rated: |
markshaw-ga, You know...you might be onto something! While I didn't find information on every aspect of your question, I did see enough to reverse my initial scepticism, and lead me to think that the investment you propose may be a sound one. Bear in mind the disclaimer at the page bottom...I am certainly no expert in Egyptian real estate investments (nor any other kind), and Google Answers is no substitute for professional advice. Still, there is a lot of indication that real estate in tourist areas in Egypt is experiencing a boom, and that investors are moving in to take advantage of it, despite the many issues and risks involved. I saw no hard figures on the rate of real estate appreciation, but a 40-50% return in the space of 3 years seems ambitious, but possible. As noted in the comments, below, there are a variety of factors -- most notably, currency exchange rates and taxes -- that can affect your overall rate of return, even if the property appreciates in value. I've provided some excerpts from articles, below, none of which are available online, so I can't offer links to the full articles, I'm afraid. However, the excerpts will give you a feel for the situation, as will, I hope, this brief overview that I prepared: ===== Egypt's economy seems to be slowly emerging into the modern world. Economic reforms, legal overhauls, privatization, and modern accounting methods have begun to loosen the bureaucratic and administrative stranglehold that has made doing any sort of business a nightmare for so long. The economy is growing and inflation, in recent years, has been in check. Tourism is Egypt's biggest industry, and is expanding into coastal resort areas such as Sharm el Sheikh, creating something of a real estate boom in many areas. Some resort areas have been the targets of terrorist strikes, but most comments I read were surprised at how quickly tourism has bounced back. At the same time, these commentators are all aware of how volatile the region is, and how the fragile economic growth could be easily disrupted by sustained attacks. There is still very little in the way of legal and financial investment infrastructure in Egypt -- it's hard to run credit checks, secure mortgages, verify a business' credibility. The courts are not much help when it comes to enforcing legal contracts. Although the country has strict building codes, they are often not observed, and buildings have been known to collapse from shoddy construction. There may be legal constraints on how soon after purchasing property a foreign-owner is permitted to sell it. Check this out very carefully before making any purchases. These problems and uncertainties notwithstanding, an increasing number of investors are finding opportunity in Egyptian resort real estate. ===== Here are some of the more salient excerpts I came across: MAK Hospitality: Growing Port Ghalib & Beyond 1 June 2006 Hotels ...As the development opportunities heat up in the Middle East, an increasing number of developers and diversified real estate companies are forming hotel subsidiaries to capitalize on the many new opportunities in the region. One such growing player of note is MAK Hospitality...With so much invested in Egyptian tourism?in addition to the five resorts the company already owns in big tourism areas such as Sharm El Sheikh..."The Kharafi Group has been actively investing in Egypt for more than 50 years,"..."We have seen many changes and challenges over the years but two things have sustained us and continue to do so: good business returns and a positive long-term vision, confidence in and a game-plan for participating in what we see as a tremendous potential for growth in Egyptian tourism." Good vibrations 16 June 2006 Middle East Economic Digest ...It is a strange paradox. The Middle East is arguably the most volatile region in the world, yet the number of visitors have been increasing at an average rate of 9 per cent annually for the last five years ? faster than any other regional market. ...tourists and officials alike are becoming more immune to the threats. "From the Luxor massacre [in 1997, when almost 60 foreign tourists were shot dead by Islamic extremists], it took us two years to recover," ..."From the Taba bombings [in October 2004], it took us six months. From the Sharm el-Sheikh attack [in July 2005], it took three months. Egyptian Growth Up 6.14% in Q2 of Fiscal 2005/06 21 April 2006 Global Insight Daily Analysis ...The July 2005 bombings in Sharm el-Sheikh seem to have had a moderate impact on tourism in 2005. Indeed, following the July bombings, tourism dropped 15.3% year-on-year (y/y) and 11.5% month-on-month in August. By November, the number of arrivals rose by 8.8% ... The moderate impact of the attacks can be explained by the fact that people have come to realise that acts of terrorism can happen anywhere and are not limited to tourist resorts. ...The reforms recently implemented in various sectors of the economy have led to increased investments, stable prices, and a booming economy. Egypt Runs With The Bulls 1 July 2006 The Banker ...Reformers are in the driving seat of Egypt's economy. The government is listening to entrepreneurial businessmen and professionals rather than the bureaucrats, who have so long held sway, and the result is a mission to instil a new commercial spirit and implement change...While buoyancy in the oil and gas sectors...is a part of this, money has gravitated to Egyptian privatisations and the healthy real estate market. ...The country's inflationary record has been sent into reverse as a result of strong internal growth. Double-digit inflation in 2004 has been replaced by single digits, with the current rate at about 7%. Egypt economy: Privatisation programme in overdrive EIU ViewsWire. Aug 23, 2005. ...The revival of Egypt's privatisation programme...has owed much to the restoration of confidence in the Egyptian economy since the new government took office in July 2004. It has also stemmed from the government's readiness both to broaden the range of assets up for sale and to adopt a more flexible approach to valuations. Egypt July 10th 2006 The Economist Intelligence Unit ...Tourism is Egypt?s most important industry...In 2004/05 tourism revenue reached US$6.4bn, by far Egypt?s largest source of export revenue. Tourist arrivals rose by 15% to 8.6m visitors, a second successive record. ...beach and diving holidays in the Red Sea resorts are by far the largest growth area. As a result, the recent bombing campaign in the resorts of the Sinai peninsula must be a cause of some concern. The Egyptian tourism industry is vulnerable to sharp downturns in visitor numbers because of international concerns over domestic and regional security, and it will have suffered to some extent in the first half of 2006 following the bombings in the Sinai resort of Dahab Egypt Organising an investment: Acquisition of real estate July 2006 The Economist Intelligence Unit ...non-Arab foreigners may own residential property in Egypt outside city limits, following the passage of Law 230/1996...Foreigners may purchase only two pieces of land for housing purposes, and these must not exceed 4,000 sq metres each or be on a historical site. ...Implementation of the mortgage law has been slow for a number of reasons. There is at present no institution capable of assessing the credit-worthiness of potential borrowers...Egypt?s first real-property finance company, the state-controlled El Taameer, extended its first mortgage loans in May 2004. ...Egypt?s theoretically strict construction codes are routinely violated, and building collapses are not uncommon. If there's anything else I can do for you, just let me know, and I'm at your service. Best of luck, pafalafa-ga |
markshaw-ga rated this answer: |
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Subject:
Re: Property Investment Risks in Sharm el-Sheikh Egypt
From: myoarin-ga on 15 Oct 2006 14:41 PDT |
Perhaps you can also tell us if the amount you mention is the full price of the flat or just your investment with a portion being financed? If so, what portion? And at what interest rate? Any promise of 40-50% return in 3 years is suspect - Period/Full stop! People claiming such a return are talking through their hat - either to neophites (sorry, but you do say this is your first real estate investment) or to people with "untaxed" money, who need an offshore investment to park their funds. An eager investor may think: Okay, I figured that, but even 20% return is still good. But that isn't 20% per annum, as interest rates are expressed, it is 6.27% pa. Furthermore, you would be investing in Egyptian pounds. Your investment in that currency could increase - sold or not - but the exchange rate could be less then, reducing the sterling equivalent value. Of course, the exchange rate MIGHT move in your favour. One way or the other, that depends on political developments in the Middle East. Mubarak has been in power for 25 years, he is 78 years old ... Another point: How will renting the flat be handled? Is theoretical rental income a part of any calculations? Is it a flat for local residents or for vacationers? I asked about partial financing. If you are only investing half of the purchase price, of course, the leverage from financing the other half improves your potential return when you sell - if the value increases - less the cost of financing. A final question: How did you learn about this opportunity? If it was marketed by someone in the UK, he will probably be getting 10% or more commission, that you would be paying, money that is not in the value of the flat. If this is the case, just to make the point: he is saying your investment will increase to E.pds 280,000 in 3 years. But if he gets 10%, he is implying that the remaining 180,000 will increase 56% to give you that 280,000. I have asked a lot of questions and tried to put some numbers in perspective. Yes, I am a cynical old banker. If you have any questions to the above, also with additional information, I will be happy to try to answer them. I have only addressed one part of your question. Cheers, Myoarin |
Subject:
Re: Property Investment Risks in Sharm el-Sheikh Egypt
From: frde-ga on 16 Oct 2006 04:22 PDT |
£200k sounds pretty steep for a dog box in a 3rd world country. I assume the theory is that because the Blairs freeload there, and they have the odd Moslem fundamentalist letting off bombs, that the value will miraculously rise to £300k by 2010. This sounds to me like a guy working in the Gulf who has been targeted by a shark. To be honest, this rings bells, a casino operator I know, who is currently working in the Balkans, mentioned something about having bought a substantially larger property in the same area. I am not sure of his financial acumen, but suspect that he was investing pin money. I really think that you should look closer to home, without joking a Buy To Let in Belfast would be virtually risk free, especially when compared with a potentially unstable state. |
Subject:
Re: Property Investment Risks in Sharm el-Sheikh Egypt
From: myoarin-ga on 16 Oct 2006 07:13 PDT |
That's only 18,750 pounds sterling. If part of the price is financed, and at worst, you can walk away and forget the loan (i.e., it will be paid off by foreclosure on the flat, so that you aren't stuck with future installments), maybe it could be worth the risk. Say, you put in 10,000 pds sterling, the rest financed (use your own numbers), if you won't cry at writing off your investment and have your own enjoyment of it, the project may be attractive, even if you don't get the expected return. The information that the next phase will sell for 15% more may or may not be true, of course. Something else: there will almost certainly be maintenance payments due, as with condominiums elsewhere in the world. You still should try to get answers to your question specific to the area. As the disclaimer below points out, nothing posted here is a substitute for informed professional advice. Good luck, Myoarin |
Subject:
Re: Property Investment Risks in Sharm el-Sheikh Egypt
From: frde-ga on 17 Oct 2006 02:37 PDT |
Phew £20,000 or rather GBP 20,000 That makes a lot more sense. Be careful of annual charges, obscure local taxes etc. Even your personal will (as in Last Will and Testament) needs checking out. Rental via a local agent is a bad idea, there is something called 'black letting' which basically means they let the place and you don't get the money. If you let it out yourself then you have to factor in emergency maintenance services, maids and laundry. I have heard that generally holiday developments go bust, it is a convenient way of getting out of long term liabilities. I was once in the package holiday industry, which gives me a feel for the pitfalls - also my parents bought a similar flat in a new development in Menorca in the early 1980's so I have had an opportunity to watch what goes on. I would not look for short term capital gains, the developer wants to sell the second phase stuff, then the third phase, then the fourth until they have sucked the juice - at which point they'll walk away. Even if you spend your holidays there, it is unlikely that you'll be financially better off when you compare it with renting exactly the same or better. However, there are advantages in having your own setup, especially if it is with a bunch of people that you know and like. While you would be financially better off being a regular (renting) visitor, there is some kudos and convenience from being an 'owner'. If you do buy, I guarantee that you will be offered an irresistable larger appartment 'off plan' in phase II for approx £35,000. Some years down the line you will find that one of your 'friends of friends' is actually a major covert shareholder in the developers, that there will be extensive building work for years, then crises as the developer goes bust and the sewage works need replacing. You'll also find that properties are being sold for amazingly large sums of money, yet somehow your place will not be sold. After that there will be crunch and you'll find some places being sold due to death, divorce etc, and can be bought with a credit card. I would not regard an overseas holiday home as an investment, it is rather like buying a very nice sports car that you keep in a garage and thoroughly enjoy driving for about 4 weeks a year. Since you are going to eyeball the place, you'll have an opportunity to meet some early purchasers who will give you an intro to an excellent local lawyer. In my parent's case I considered the first purchase a good deal, the subsequent trade up was fine - but they slipped up buying a 2nd 'investment property' - from a friend who was actually a covert shareholder. The reason why the first two were a good idea was not financial, it was purely because it saved my father from being nagged by my mother into looking at holiday homes wherever they went. If you and your lass are the type that like going back to the same place, reunions with old friends and being on first name terms with the local restauranteurs - and you can handle unexpected bills and hassle, then getting a pad out there could be a good 'lifestyle investment'. I think I would post a little more info on the financial package, what is the deposit, is it 5% plus repayments, what is the 'lock in' after 3 years ? Also, under whose legal system is the contract ? - if, as it could be, under UK law then ducking out could be a problem. |
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