Foreign investors shunning Egyptian real estate companies amid legal row over land sales

Written by Ray Clancy

Wednesday, 22 September 2010 08:26

Foreign investors are selling shares of Egyptian real estate companies amid concern that court decisions may force developers to pay more for land they have already purchased, it is claimed.

Analysts are looking at a court decision last week that upheld a ruling cancelling the sale of 33 million square meters of government land on Cairo’s outskirts to the Talaat Moustafa Group, the country’s biggest publicly traded developer.

A separate case was filed against Palm Hills Developments, the second biggest developer, seeking to annul a land purchase in New Cairo. Both cases were linked to irregularities in selling government land.

‘We’re seeing a sell off by foreign and institutional investors. Some people are panicking, but most are selling part of their holdings and waiting to see what’s going to happen,’ said analyst Osama Mahmoud, head of the foreign sales desk at Prime Holding in Cairo.

Egypt’s government has appointed a seven member committee to make Talaat’s Moustafa’s land purchase legal without ‘jeopardizing the interests of investors, said Cabinet spokesman Magdi Radi. He confirmed that other lawsuits that may arise and they will be handled on a case by case basis.

Foreign investors, who were the net buyers of 126.7 million shares on the Egypt’s benchmark EGX30Index until September 14, became net sellers of 54.3 million shares in the three days after the ruling against Talaat Moustafa, according to data compiled by Cairo based EFG-Hermes Holding. Talaat Moustafa and Palm Hills accounted for more than a quarter of trading volume during the period, according to Bloomberg calculations.

Shares of Talaat Moustafa, based in Cairo, lost 16% in the three sessions following the court ruling, the most over a similar stretch since October 2008. Palm Hills fell 4.8%.

‘We’re gradually exiting Egypt. There are a lot of stories that we need transparency on. Those issues are reflected in high volatility in the market,’ said Tariq Qaqish, who helps manage around $100 million at Al Mal Capital in Dubai.

Despite this Egypt’s real estate developers such as Talaat Moustafa and Palm Hills have reported better than expected sales in the second quarter, citing economic recovery which has fuelled consumer spending.

Egypt’s economy expanded 5.3% in the first half of the year from 4.7% in the previous 12 months. The government expects gross domestic product to grow 5.8% this year, according to the Economic Development Ministry.