Questions and Answers
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 operational between summer and end of 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: KLM, Air France, Czech Airlines, Lufthansa, Swissair, Hungarian
Airlines, British Airways, Iberian and Alitalia to name a few. There are also
other airlines apart from these who fly into Hurghada such as Thomson,
Thomas Cook and Excel. 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 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.
6 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.
7 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.
8 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.
9 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.
There are however, developer funded non-status mortgages available on one
bedroom and select two bedroom apartments. Please ask your agent for
further details.
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.
10 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.
11 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.
12 Is flooring included or is it part of the furniture pack?
Yes it is included in the purchase price.
13 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
clients’ protection.
14 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.
15 Which bank is backing the rental guarantee? Are there any
conditions?
The rental guarantee is backed by the developer and the Zafarana Beach Resort. Clients also have the added option of the guarantee being backed by a Dutch Bank.
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. The guarantee from the developer of course comes
without additional charge, however, should you wish to take the optional Bank
Guarantee the costs will be a €50 set up fee in year 1 and year 5 and 1% of
the guaranteed amount.
16 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.
17 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.
18 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.
19 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.
20 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.
21 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.
22 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.
23 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.
24 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.
25 The brochure mentions private beach and private reef – are they
private to this development alone?
Yes.
26 What kind of security is offered? (Is the resort gated, security guards,
CCTV etc?)
This is a gated complex with manned 24h security.
27 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
28 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.