Egypt Property Buyers Pack
Frequently asked Questions
1 What makes Zafarana such a fantastic investment opportunity?
The Zafarana Beach Resort provides a fantastic investment opportunity for many reasons. Located frontline on the Red Sea Coast, the positioning is simply stunning, allowing those using the resort excellent access to a vast array of activities both on and under the magnificent waters of the Red Sea.
The resort is being developed by a Dutch developer with a proven track record and a full due diligence has been conducted by UK based lawyers to ensure the safety of the investment for the UK public. Added to this are the facilities of the resort, the infrastructure for airports and tourist areas, managed security and a guaranteed income from the Banker's Rental Guarantee we feel the package offers a remarkable and affordable investment opportunity.
But the main investment incentive would undoubtedly be the entry level. If you compare this with other similar investments around Europe and indeed in Egypt, the prices are highly competitive, if not vastly superior. This enables clients to invest at the ground level and maximise their future profits.
2 When is the development likely to be finished?
The whole resort will be fully operational by summer 2008.
3 What is the star rating for the development?
This is a 5 star development built to International Standards, as opposed to the much lower Egyptian standards.
4 What airlines fly here?
To Cairo (180km from resort): KLM, Air France, Czech Airlines, Lufthansa and Alitalia all run direct flights To Hurghada (220km from resort): British Airways and Excel Airways both run direct flights. Additionally, there is a new airport being planned at Ain Soukhna, 60km from Zafarana which is expected to be completed by 2010. This will provide another access route to the resort making it more easily accessible by various routes than any other resort.
5 Who is managing the resort?
Service/maintenance/rental company is joint venture between IPI International Property Investors BV (developer) and El Mohanad (constructor).
6 How much is the maintenance charge?
For the first five years it is approximately €50 per month for the one bedroom apartments; the maintenance charge for the two bedroom apartments is included when the rental guarantee option is taken, otherwise it is payable. This maintenance fee includes the maintenance of communal areas; the servicing of the apartment and insurance on the apartment from damage by guests etc.
7 Is there a rental guarantee? Will I be able to use the property?
There is a bank backed rental guarantee on the two bedroom apartments
which averages 10% over five years. It is broken down as follows:
Year 1: 6%,
Year 2: 8%,
Year 3: 10%,
Year 4: 12%
and Year 5: 14%.
There is no rental guarantee on the one bedroom apartments and these will
work on a pooled rental system where all investors will receive a rental
income based on occupancy levels. We expect higher returns.
8 What facilities are planned for the resort?
A Wellness Centre with steam baths, salt and freshwater swimming pools with slides (with suitable areas for small children), tennis courts, squash courts, mini golf course, private beach and coral reef, marina, scuba diving school, boulevards, botanic gardens, shops, supermarkets, restaurants, fast food restaurants, bars, dive shop, water sports, 24hr security, in-house serviced laundry, proposed off-road motor sport centre, LAN internet connection in all rooms, wireless internet connection in the Hotel, medical centre and a dental surgery will all be included in the resort.
9 What is the ownership structure of the property, leasehold or freehold?
The ownership structure of the apartments is freehold. Unlike other areas of Egypt such as Sharm El Sheikh, freehold ownership by foreigners is allowed in Zafarana.
10 Are there mortgages available for the purchase of apartments in the development?
Currently there are very limited mortgage opportunities available in Egypt for foreigners concerning the purchase of investment property as with all emerging markets. Mortgages can be sourced within Egypt; however, the property must be completed and registered, approximately an 18 month period from present. Currently interest rates in Egypt are fairly high; however, with the increase in demand for these products the rates will certainly fall. Of course, as mortgages become more prevalent and easier to obtain, investment in Egypt will increase and prices will increase rapidly so now provides the most opportunistic time to invest.
Given the low entry level of this investment it is relatively easy to secure funding in the UK for these properties, through either an unsecured loan or, better still, an equity redraw.
11 What is an ESCROW account?
An escrow account is an account operated by a third party similar to a lawyer's account. This basically ensures that the developer does not have access to your money until various stages of construction are completed. This is put in place as a security measure for the protection of clients.
12 Furniture pack guaranteed for five years. Does this mean if anything needs fixing/replacing, it will be done?
That is correct. This is so that all apartments are available to the management group for letting at all times and to minimize downtime.
13 Is flooring included or is it part of the furniture pack?
Yes it is included in the purchase price.
14 I've heard that Egyptian law can be somewhat baffling. Is this true and what has been done to ensure our protection?
A full due diligence has been conducted by UK based lawyers and the contracts have been written by them. The contract is governed under European law as the developer is Dutch so as to avoid any potential problems dealing through the Egyptian legal system. This has been done to ensure the client's protection.
15 This maybe an odd question, why is the price so low?
The price is low for a number of reasons:
a. This is a ground level development meaning that you are in a way helping to fund the development itself. This is the reason behind the payment structure which reduces the developer's borrowing costs as they are able to use the escrow account as interest deductible collateral.
b. This is an area under early stages of development and you are buying in at the bottom level enabling you to take full advantage of the capital growth in the future. This is the time when investors make the maximum capital gains out of their property portfolios by buying before the crowd rather than following trends.
c. The developer's long term profit plan incorporates the management of the resort from where they will derive the majority of their income hence less reliance on making large profits merely through the sale of the development.
16 Which bank is backing a rental guarantee? Are there any conditions?
ABN Amro is backing the rental guarantee. The conditions are that you must purchase the furniture pack and are limited to six weeks access yourself. The rental guarantee is also only available with the two bedroom apartments.
17 What happens after the five years? What is the likelihood of a rental renewal?
After five years you will have the option of renewing the rental agreement or keeping the apartment for your own personal use, or alternatively selling the property. The rental agreement will certainly be renewable at this time as by this stage the interest in this particular area and the property prices will have risen and the management of the resort is part of the developer's long term profit plan.
18 Are the rental returns net or gross? What do they equate to in terms of sterling amounts? (over the five years according to the different percentages {net amount})
The rental returns are gross dependant on personal circumstances. For the two bedroom apartments this equates to 50% of the purchase price over the five year period. Obviously the exact amount in pounds will vary with the EUR/GBP rate over the next five years.
19 The brochure mentions capital appreciation of 35% (conservative figure) - what is this figure based on?
Prices for a two bedroom apartment on the Red Sea coast in a five star resort with a full list of facilities in other areas are between 50-100% higher in Egypt currently. El Gouna has seen 100% growth over the last two years as has Sharm El Sheik. Hurghada has seen 60%-70% over this same time period. Given the entry level of this development we feel that 35% is a realistic target given the pricing of other developments, the natural growth rate in Egypt (10% currently) and past examples of newly developed resorts.
20 Fact sheets also mention 100% growth – please elaborate on what this means.
We are predicting a growth of 100% over a five year period, again this is very conservative given similar developments have undergone this sort of growth within 2-3 years as mentioned above.
21 Are there any taxes to be paid?
Of course if you are directing your income into the UK you may be subject to income tax in the UK as with any other investment. There is a 2.5% stamp duly to be paid when you come to sell your property. Dependent in which country you intend to receive your rental income will depend on the amount of tax you may have to pay.
22 Can these units be easily re-sold? If yes what is the target market? Agents?
The resort is being built, incorporating it's own private reef, to cater to the diving enthusiast. Your resale market is extremely varied, including retirees moving to the Red Sea due to weather and low living costs, investors looking to benefit from high levels of growth, people looking to purchase holiday homes for part time use etc. The developer has first right of refusal on sale, meaning you set a price and then offer it to the developer. If the developer does not wish to purchase your apartment for your set price then you are free to sell by any means. Tourism in Egypt in the first four months of this year was 3.07 million; up 5% on the same period last year and with continuing growth in Egyptian tourism as the premier medium haul destination for Europeans your target market will only increase further. There are currently many agents in the UK that deal with Egyptian property as well as Egyptian companies and the developer will also handle resales if you wish to market throughout Europe.
23 Payments: The brochure mentions one lump sum and escrow will release payments?
Why can't we appoint our lawyer to review at each stage? What safeguards will be in place to prevent the developer's lawyer from releasing payments without appropriate checks?
With the money sitting in the escrow account the developer is able to use the funds as collateral to reduce the interest payable on loans to build the development. This is one of the principal reasons for the low price of the apartments. The payments cannot be made to the developer until signed off by a third party quantity surveyor. The escrow agent cannot release payments to developer without being signed off by both parties.
The escrow account is also governed under international law and the breach of which you speak would land the lawyer in jail and the money would be recouped through the lawyer's insurance policy that all lawyers have as they are personally liable for acts of fraud etc.
Furthermore, construction on the resort has already started. According to the payment schedule, the escrow account will release 10% on start of construction. This is 10% of the development, not 10% of your individual apartment as obviously it is not possible to build a penthouse apartment when the ground floor apartment has not started construction as it is yet to be purchased.
24 Why can't we release payments in small chunks according to progress?
As above but furthermore with such a low purchase price, amounts would be negligible such as €3,500 here and €4,000 there. This creates a logistical nightmare for the developer and will raise the costs. The way that property investment is normally structured whilst it looks appealing to investors actually adds to the cost of purchase and therefore reduces the investment's profitability.
25 How many buildings/developments will be on this resort?
There are 153 one bedroom apartments, 348 two bedroom apartments and 50 villas. These are all constructed by the one developer.
26 The brochure mentions private beach and private reef - are they private to this development alone?
Yes.
27 What kind of security is offered? (Is the resort gated, security guards, CCTV etc?)
This is a gated complex with manned 24h security.
28 Can site visits be arranged?
Yes these can be arranged. Please note that if the developer provides transportation to Zafarana, the costings will be as follows (please note these are subject to change):
Hurghada - Zafarana return : €85
Cairo - Zafarana return : €55
29 Are the rooms air-conditioned?
The entire development is protected by Thermo Shield (www.thermoshield.com), which is an insulation product developed by NASA. The whole of the Hotel complex is fully air-conditioned; however there are not air-conditioning units in the two bedroom apartments as this are seen as superfluous to the thermoshield system.