Six months after construction was scheduled to begin, the United Arab Emirates-based construction firm Arabtec announced Thursday it had agreed to terms with Egypt for the initial phase of a mass housing project that was first announced in March 2014.
According to the Thursday announcement, phase one of the project would consist of 100,000 units in the cities of Obour and Badr.
When the deal was originally announced last March, the US$40 billion project was slated to deliver a million units in 13 cities by 2020, and to create a million jobs for Egyptians.
The Armed Forces were initially a key partner, announcing they would donate land for the project, making it then-Defense Minister Abdel Fattah al-Sisi’s highest profile project prior to assuming the presidency.
It was promoted by the military as a low-income housing scheme under the name “For Egypt’s Youth,” although local analysts pointed out that the numbers suggested the units would most likely cost more than LE200,000, well beyond the means of most Egyptians.
Progress has repeatedly stalled in the year since the project was initially announced. Responsibility was transferred from the military to Egypt’s housing authorities, and key terms of the initial agreement had to be renegotiated.
Meanwhile, Arabtec faced problems of its own when a scandal over stock-ownership by CEO Hasan Ismaik erupted in June, leading to the exit of Ismaik and other key employees.
Despite these troubles, Arabtec repeatedly assured the Dubai financial market that the deal was in its final stages, offering a shifting series of deadlines. Thursday’s announcement is the first concrete sign of progress toward closing the deal.
As Egypt gears up for a series of new mega real estate deals signed at the Egypt Economic Development Conference in March, Mada Masr takes a look back at the twists and turns of the Arabtec deal to shed light on the complex process by which such transactions are negotiated.
March 9, 2014: The announcement
Arabtec announces the signing of an agreement with Egypt’s Ministry of Defense to build a million housing units. The project’s overall development value was put at LE280 billion (US$40 billion), with financing provided by “a number of Egyptian and foreign banks.” Construction is set to begin in the third quarter of 2014, with the first units delivered in early 2017 and final delivery before 2020. Arabtec and its Egyptian counterparts are said to be “in the final stages of signing definitive agreements.”
Additional details about the project and its financing were not made public, but Arabtec CEO Hasan Ismaik tells Reuters that Egypt would give the land for free, and that 40 banks in Egypt would provide mortgage financing for low-income buyers.
June 18, 2014: Ismaik leaves Arabtec
It is revealed that Ismaik had quietly been buying up Arabtec stock, enough to become the company’s primary shareholder. By June 5, he had amassed around 28.8 percent of the company, making him the single largest shareholder. In so doing, he overtook investment firm Aabar, which is under the umbrella of Abu Dhabi-owned investment firm IPIC. The news sends the stock plunging, dragging down the entire Dubai Bourse. On June 18, Arabtec announces that Ismaik left the company, followed by his key hires. By the end of the month, the stock is at a third of its May peak. Ismaik slowly sells off tranches of his stock, and by November Aabar is again the company’s largest shareholder.
September 25, 2014: Rumors swirl
Responding to news reports that the project was in trouble, Arabtec releases a statement assuring that it is committed to the deal, and would commence work “immediately after the finalization of the planning and design stages, which have nearly been completed.”
October 1, 2014: Financing terms change
In a departure from the original memorandum of understanding, Emirati newspaper The National reports that Arabtec would be responsible for raising the funds needed to pay for the project. Aabar is tipped as the most likely source for financing. The news that Arabtec would be responsible for sourcing project funding “from abroad” is later confirmed by Prime Minister Ibrahim Mehleb.
October 18, 2014: Egypt won’t give the land for free
In a statement to the Dubai Bourse, Arabtec announces that it reached an agreement with Egypt’s New Urban Communities Authority to hand over housing units and public buildings in the new developments in exchange for the land. It does not clarify what percentage would be given.
Arabtec says it is “about to conclude the final agreement with the concerned Egyptian authorities to commence the construction of 1 million housing units in Egypt.” The company says it has “conducted intensive negotiations and meetings during the past period, and that it is making the maximum possible efforts in cooperation with the Ministry of Housing and New Urban Communities Authority in Egypt to commence the construction of phase one of the project before the end of the current year.”
November 11, 2014: Another Arabtec statement
Arabtec releases another statement that repeats almost verbatim its October 18 remarks, reaffirming that it plans to commence construction before the end of 2014.
November 27, 2014: Egypt says changes at Arabtec delaying the deal
Housing Minister Mostafa Madbuly blames slow negotiations on the change in Arabtec’s board, but tells The National that the deal would only be delayed by “a month or two.”
March 1, 2015: Press reports project suspended
Following a late February visit by Arabtec officials, Major General Kamel al-Wazeer, the chief of staff for the Armed Forces’ Engineering Authority, tells the privately owned newspaper Al-Masry Al-Youm that the deal has been suspended. “Any investor who wants to enter the Egyptian market should bring his money from abroad and not from Egyptian banks, and should use Egyptian labor and raw materials. Those conditions have not been met, so the project has been temporarily suspended,” Wazeer says.
March 5: Officials say negotiations continue
Egypt’s housing authorities say talks are still ongoing. According to The National, Egypt’s housing minister said he hoped a final deal would be reached in time for the March 13-15 Egypt Economic Development Conference. This does not happen, although primary shareholder Aabar does sign an unrelated memorandum of understanding to develop a satellite city outside Cairo.
March 17: Land agreement still not finalized
A housing ministry spokesperson tells Reuters a final contract would be signed within 10 days, but adds that an agreement has not yet been reached over how many units Arabtec would give the government in exchange for the land.
March 19: Another Arabtec statement
In a letter to the Dubai financial market, Arabtec states that “the company is committed to and proceeding with the million housing units project,” and that it has “reached the final stages of concluding the final agreement with the related authorities in Egypt in order to begin the implementation of the first phase of the project as soon as possible.”
March 31: A new Arabtec CEO
Arabtec announces the appointment of new CEO Raja Ghanma, a 20-year veteran of the company.
April 2: Cabinet approves the Arabtec deal
Arabtec announces that an agreement has been reached for the preliminary stage of the project, now reduced to 100,000 units and only two cities, Obour and Badr. The company says it would sign a final contract with the New Urban Communities Authority “at the earliest opportunity.” The company does not clarify the terms of the agreement, or set a date when construction would commence.