Building Better Communities
Orascom Housing Communities
• OHC was established in January 2007.
• OHC started as a partnership between Orascom Development
Holding (ODH) as a majority shareholder, Blue Ridge Capital (USA) ,
Equity International (USA) and Homex (Mexico).
• Homex Exited in 2009 and the current ownership structure is:
Equity
International
17%
ODH 70%
Blue Ridge
13%
Vision and Mission
To be the leader in developing large-scale, sustainable and fully integrated
townships in Egypt and internationally
OHC Core Values:
• Develop towns with high-quality homes at affordable prices, optimizing scale
and efficiency.
• Offer housing solutions exclusively for the low and middle income sectors.
• Manage the communities aiming to maintain the town’s value at maturity.
• Support job creation, the most powerful contributor to community well-being.
• Responsibility originates from within through an unwavering commitment to
employees and customers.
OHC’s Flagship Town
•
Haram City (HC), located in 6th of October, 20 km west of Cairo, is built on
approximately 8.4 million sqm.
•
Upon completion, HC is expected to host 50,000-70,000 units with a
population of approximately 300,000 inhabitants.
•
The township's infrastructure completed by OHC includes electricity,
networks, water, sewage and roads.
•
Facilities will comprise schools, clinics, a hospital, a shopping center, retail
stores, a cinema, sporting clubs, houses of worship, office area, workshops
and a waste recycling facility.
Haram City to Date
•
11,500 units constructed.
•
Over 10,500 units either sold or in sales process.
•
Currently home to 35,000 people.
•
Total commercial area of 7,688 sqm accounting for 192 shops.
•
Amenities available:
– 4 Schools
– Waste Recycling Facility
– 2 Clinics
– Office Buildings
– Retail Stores
– Sporting Facilities
– Coffee Shops
– Embroidery Factory
– Bakery
– House of Worship
– Cinema
Haram City – Google Earth Snapshot
Haram City
Master Plan – 1st Phase
The Start – June 2007
3,000 Units – September 2007
5,893 Units – December 2007
7,370 Units – May 2008
10,370 Units – January 2010
11,500 Units – January 2011
Developing Townships
Green Landscape
Affordable Residence
Education
Facilities
Services Area
Entertainment Area
Office Area
Shopping Area
Parks
Sports Facilities
Medical Care
Haram Life
• Haram Life (HL), the newest phase of HC covers 504,000 sq m of land
(120 feddans).
• It offers new designs with modern architecture, allowing buyers to
choose two, three, and four bedroom apartments.
• 600 units were sold, 35 buildings are under construction to be delivered
during 2012.
• Payment terms were adjusted to cater to a wider pool of customers (i.e.
down payment can be amortized over a period of 12 months).
Haram Life Design
Haram Life Design
Infrastructure and Services
• Residents began moving 18 months after the onset of construction.
• OHC undertook the following:
– Completion of water, sewage and irrigation networks.
– Establishment of electricity and lighting networks.
– Execution and operation of sewage recycling station.
– Establishment of a 66 kilovolt transformer substation.
Community Management
• One of the biggest challenges OHC faced is managing the fully integrated
community.
• OHC founded a specialized department to respond to the residents’
various needs as well as to provide periodic maintenance services.
• Managing the community became especially challenging in the wake of
the 2011 revolution when OHC had to assume the role of the government
in providing security, and securing subsidized goods for lower income
people.
Corporate Social Responsibility
•
Socially responsible initiatives in Haram City include:
– Subsidized Orascom Language School fees for students (Primary
Education) to provide them with a better learning experience.
– Provided lands for governmental schools catering to different needs:
experimental, primary and secondary.
– Supported the Single Mother initiative, OHC rents units for a nominal
fee.
– Hosted a rehabilitation center for less fortunate children (Banati
foundation).
– Provided the land for the waste recycling company “Ertiqaa”.
Corporate Social Responsibility
• In September 2008, a rock slide in the slum area of Doweika in Cairo left
many families without housing.
• As part of its social responsibility, OHC offered its ready units to shelter
these families.
– The Sawiris family donated 600 units with a value of EGP 40 million to
the victims.
– OHC has housed 1,950 of these families to-date.
• Even though this move alienated OHC’s regular clients who are from a
different social segment, the Doweika residents provided much needed
mix to the community and introduced the proper mix of blue collar
activities
Corporate Social Responsibility
• OHC provided both moral and financial support to help victims of the rock
slide cope with the loss of their homes and possessions.
• Within days, OHC was able to furnish a large number of units and for more
than 8 months, OHC supported many families distributing bread and gas
containers as well as providing electricity and water free of charge.
• Moreover, OHC established a nursery, as well as a primary and a
preparatory school for these families.
• Now, these families represent an important part of Haram City’s
community, providing the city with workers and essential services.
Job Creation
• Throughout the life of Haram City, it has created more than 10,000
employment opportunities in different fields.
– This includes 3,400 direct employment with OHC and 1,000 jobs for
city residents in addition to the indirect work opportunities.
• OHC encourages the residents to start their small businesses by
subsidizing rental fees of commercial shops.
• Furthermore, OHC provided land for other entities to operate inside
Haram City and provide employment opportunities for the residents, such
as the embroidery factory (which mainly employs underprivileged
women), and the waste recycling facility.
Business Model
Government
Mortgage
Providers
Developer
Business Model
Role of OHC as a Developer:
• OHC provides quality low income housing within sustainable fullyintegrated communities.
• OHC needs to be a volumetric business to maintain low margins
• Fast collection of unit price is of utmost importance in the sustainability of
the business model adopted by OHC.
– The business model is thus dependent on mortgage and its fast
disbursement .
• Here, OHC would like to showcase a successful example of the interaction
between the government, mortgage providers, and developers, in
providing low income housing: Mexico’s INFONAVIT.
Business Model
• OHC’s business model hinges on the interaction between the developer,
the mortgage market and the government .
• Role of the Government of Egypt (GOE):
1.
Subsidy: The GOE used to provide low income citizens with a direct cash
subsidy of 10,000 EGP to help purchase the unit.
–
•
However, starting October 2011, the GOE stopped this subsidy.
A new subsidy is now provided through the Guarantee and Subsidy Fund
(GSF) and is given to the mortgage provider to subsidize both the down
payment and the installments.
•
Subsidy amount ranges from 5,000 to 25,000 EGP depending on the
citizen’s income.
Business Model
•
Role of the Government of Egypt (GOE):
2.
Defining the target market: According to the current law, there are
conditions that must apply to a citizen purchasing in the low income sector:
–
Earns a maximum of 2,500 EGP per month if married and 1,750 EGP per
month if single.
–
The unit size can only be up to 63 square meters.
–
Monthly mortgage installment cannot exceed 25% of the citizen’s
monthly income.
•
This latter restriction limits the amount of the mortgage loan (Loan to
Value).
•
With the increase in prices, the difference directly falls into the down
payment.
Business Model
•
Role of the Government of Egypt (GOE):
3.
Subsidizing the land: The GOE provided the land of OHC’s flagship
project, Haram City, at a nominal price.
–
The land price is payable over a period of 10 years as follows: 10%
down payment, 3 years grace period, 90% on equal annual
installments for the remaining 7 years.
–
In return, OHC is obliged to sell only to low income clients, with a unit
area of a maximum of 63 sqm.
Business Model
• Currently the definition of the low income person salary was changed to
be 2250 LE per month for a single person and 3000 LE for a household
income.
• The subsidy structure was redesigned to be implemented with the new
social housing program.
• Low income developments by private sector are effectively counted out by
the structure of the new program.
Mortgage Finance
• Pivotal for the success of the model.
• Low-income customers → questionable affordability → importance of
mortgage finance.
• Solution in the sustainable mortgage market to enhance affordability.
• Turn the need for low-income housing → actual demand
Meaning → develop mortgage products by which low-income clients can afford to
buy housing units.
OHC Mortgage Experience
• OHC experience: mortgage finance represents 85% of sales →
interdependence between sales and mortgage finance.
• OHC dealt with different mortgage providers:
– Tamweel
– Tameer
– Egyptian Housing and Finance Company (EHFC)
– Housing and Development Bank (HDB)
→ Each entity has its own mortgage product catering to low-income
clients.
• Mortgage companies finance up to a period of 20 years.
• Sales process – time analysis
• 15% OHC sales + 85% mortgage process → 3-party contract
OHC Mortgage Experience
• Role of the Mortgage Providers:
• Both mortgage companies and commercial banks act as mortgage finance
providers.
• OHC tried working with many mortgage providers.
• However, due to the operational difficulty in processing the volumes in the
low income segment, more than 95% of OHC’s mortgage sales are done
via Tamweel, a sister company subsidiary of ODH.
OHC Mortgage Experience
• Ultimately only Tamweel (Orascom Subsidiary ) remained committed
to funding OHC clients until it consumed its portfolio.
• Other companies refrained due to operational challenges and lack of
mortgage law enforcement and other practical legal challenges like
lack of registration or the ability to register both for old and new
developments.
OHC Mortgage Experience
• With Tamweel reaching its maximum capacity to provide mortgage
loans and with the shift in housing policies, affecting new land
allocations to private developers OHC had to adapt to survive.
• Thus OHC introduced the phase of Haram Life comprising of
multistory buildings and based on seller finance leading to a drop in
volume, calling for capital increase and immediate price hikes
effectively pushing OHC to cater for a higher income category.
Current Situation in the Egyptian Market
• The current adapted policy by the government is totally excluding private
sector and focusing on the 1 million units project .
• The 1 million unit project enjoys heavy subsidies from different angles, price
offered at construction cost not counting land or infrastructure cost, direct
cash subsidy from Guarantee and subsidy fund, heavily subsidized interest
rates through the central bank initiative (7% reducing interest rate ).
• Sustainability is in question as the funds available covers a fraction of the
needed finance.
Touching on Mexican Model
• Here, OHC would like to showcase an example of the
interaction between the government, mortgage providers,
and developers, in providing low income housing: Mexico’s
Homex ( Private Developer ) / INFONAVIT, this example used
to be successful till 2 years ago, when the government
introduced a shift introduced a shift in housing policies.
Mexican Model: Homex
• Vertically integrated housing development company focused on
Affordable Housing.
• Works on reducing exposure to interest rate and financing risk.
• To reduce working capital needs, home construction begins only
when the homebuyer:
→Submitted all required documents to obtain financing from the
mortgage lender
→Signed a purchase application for loan processing and granting
→Made a down payment
Mexican Model: Homex
• As a partner OHC tried to import Homex’s know-how in the industrial
production → maximize construction efficiency while maintaining healthy
cash flows.
• Up until 2008 – 2009 Homex used to sell and build 60000 units a year.
• Homex as well as other similar developers reaped enormous benefits from
the preapproved pool of mortgage clients created by the infonavit system.
* Source: Homex Investor Relations
INFONAVIT
• INFONAVIT is the Mexican workers’ housing fund, founded in 1972
• INFONAVIT receives 5% of all formal workers salaries and provides housing
mortgage products accounting for 60% of all mortgages in Mexico
• INFONAVIT has a dual nature: a mortgage provider with a social mandate
and a pension fund manager
• This scheme is so successful that INFONAVIT is now Latin America’s largest
mortgage supplier
• Over its life, it has helped an estimate of more than 21 million Mexicans
become homeowners
Mexican Model: Infonavit
• Dual nature:
– Pension Fund Manager: since 1992 it is part of the National
Pension System (SAR); workers’ funds are held in separate
individual accounts with minimum guaranteed annual returns.
• Mortgage Bank: mortgage lender with a social mandate; up-to date,
it has originated more than Government body - comprises equal
representation of the labor sector, the employer sector and the
Federal Government.
Mexican Model: Infonavit
Role: pre-qualify any worker who is a part of the formal Mexican economy to a
mortgage loan after proving regular employment (income) for a minimum
period of time.
The main source of funding is a 5% deduction from the worker’s monthly salary.
– Workers qualify for a mortgage loan through a point system factoring in a
social dimension.
– Through the Infonavit system, Mexican private sector employees earning 3
to 4 times the minimum wage ($150) can own a home after 2 years of
regular employment.
– 92% of low-income home sales take place through the pre-approved pool
of Infonavit.
INFONAVIT
• The loans granted by INFONAVIT are denominated in terms of multiples of
the minimum wages (TMW)
– The maximum amortization period is 30 years
– 63% of loans in 2011 went to beneficiaries earning less than 4 TMW
• Essentially, INFONAVIT creates a pool of pre-approved clients and
disburses the loan quickly, allowing developers to work with low margins
• INFONAVIT does not require borrowers to make any down payment to
obtain the house thus eliminating a huge hurdle facing Egyptian
developers in the low income segment
Lessons Learned
•
The underlying assumption for any affordable housing policy to claim any degree
of success is being sustainable, in broadening affordable housing ownership
among lower income groups. Otherwise it is doomed to be always temporary
(Piece meal approach).
•
From our experience in Egypt, Governments on their own are not successful
developers and any of its policies are destined to be unsustainable without a
market / demand driven private sector participation.
•
There is a huge need for housing among lower income groups but this need
cannot be counted as effective demand unless low income people can actually
afford buying homes.
•
The only way for private sector developers to be attracted to this market is
through the presence of proper mortgage products carefully designed to cater for
low income people.
Lessons Learned
• For the private sector to operate successfully and cater for low income
people at affordable prices it needs to produce large volumes of homes,
thus turning housing into a commodity through an industrial process.
• This way it can practically operate on high turnover over a short period of
time on low profit margins and recognize higher return on capital over the
financial year (revolving capital several times in one year) hence fast
collection is a key.
• Accordingly the role of carefully designed mortgage operation and
efficiently mapped home sales / mortgage qualification processes is of
utmost importance.
Lessons Learned
• Ideally for this model to function communities need to be built
horizontally this way a developer can work in parallel and finish up
the unit in record time (It took them 3 weeks to a month with some
Mexican companies). This requires cheap land, which means
companies either acquire land from open market or governments
help with supplying land at nominal prices and attractive payment
terms if not for free as a form of indirect subsidy.
Lessons learned
• In both Egypt and Mexico the main affordable housing private
Developers practically stalled and stumbled, Homex Filed for
Bankruptcy protection and struggling to come back under the new
housing strategy.
• In Egypt OHC is struggling under a total lack of support from the
government (actually hostility), and yet another strategy of
counting the private sector out of the affordable housing formula.
Hence OHC currently turned closer to a middle income developer
due to a failure of the original Model.
Lessons Learned
• Does that leave any hope ??
• The answer is : with careful analysis of the causes we can reach
some conclusions.
– Both Homex and OHC are forced to abandon there original
horizontally expanding developments due to lack of Cheap land
that qualifies to the Governmental subsidy haven.
– In Mexico there is a government preference for developments
closer to the city for low income citizens to reside closer to
employment (Homex built far from cities)
Lessons learned
• Building closer to cities means more expensive / smaller available
land plots, forcing developers to go vertical (High rises) thus
fundamentally distorting the business model through forcing it into
longer collection / Capital cycles and definite carry over inventory
(which will further lengthen the cycle) . Very hard to operate
mechanically under strict low margins .
• From a macro perspective The social effects and human product is
in question its been tested all over the world.
Lessons learned
• France, Egypt … etc Such vertical concrete jungles create trouble
gettos.
• In Egypt we ran out of mortgage steam, Orascom group couldn’t go
beyond what it already funded through its tamweel mortgage
subsidiary.
• Egypt has a mortgage low that’s not functioning due to lack of
registration, lack of political will to effectuate foreclosures generally
lack of mortgage low enforcement , hence the model failed again .
Lessons learned
• OHC however has serious emphasis on community aspects as well
as the readiness to provide and operate primary infrastructure
something that Homex lacked.
• It is true that Egyptian government counted out private developers
after revolution yet it was ready before then to provide cheap land
that was far enough and close enough as a form of subsidy, and was
ready to cover these areas with transportation lines
Lessons learned
• Had Homex adapted Orascom’s development vision through
creating real communities it wouldn’t have fallen under the blame
of throwing people out in the middle of nowhere.
• Yet to be fair governments shouldn’t have approved the zoning nor
the master plans in the very first place (attributed to the federal
system and thus lack of central planning.
Lessons learned
• To conclude bring infonavit like system creating a sustainable
mortgage provider entity to Egypt with the national housing
development policies and treat legal defects and anomalies and
private developers will gain cruising altitude.
• And treat the Mexican development issues along with more
government commitments than it will revive an enormous housing
producing machine in the proper development sense.
Comparison of factors affecting original
modes of operation.
Strengths of OHC model:
Weaknesses of OHC model:
- Better accessibility to well situated, subsidized land
due to Egypt’s highly centralized government land
control.
2.
Community Concept with all related benefits of
healthy environment and job creation and
infrastructure development and management
1. Lack of mortgages due to legal structural issues
2. Lack of law enforcement with community charges,
making community management very costly.
3. No infonavit preapproved pool.
4.Governoment not willing to depend on private
developers for affordable housing supply
Weaknesses of Homex model:
Strengths of Homex model:
1. Infonavit preapproved pool.
2. Significantly better legal environment for
mortgages and development issue
3. Government’s willingness to still cooperate with
private developers (on different terms).
1. Access to plots on the open market and with no
land subsidy elements. Leading to acquiring plots very
far from cities with no transportation
2. Originally lack of community concept leading to
alienated ghetto developments and thus to
dissatisfied clients.
3. Not necessarily responsible for primary
infrastructure and relying on regional governments
not necessarily committed.
Mix & Match
• Those previously stated factors if observed carefully they can be
aligned to reach the proper mix for a more sustainable market
driven model with joint government subsidy / private development
engagement. In a manner which may set the stage for healthy
competition among private developers to provide affordable homes
for lower income groups.
• The triple win situation stems out from the fact that all involved
parties need the large housing volumes to benefit from this kind of
model.
Thank you
Building Better Communities