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Lebanon Report
Marcopolis presents the Lebanon Report focused on the investments, doing business, economy and other topics featuring interviews with key executives and government officials. The sectors under review are industry, telecom, banking sector, ICT, investments and more.
InterviewsDecember 06, 2015
H.E.C. Introduces Clubhouses to Their Real Estate Developments in Lebanon
Karim S. El-Hajjar, Chairman of H.E.C. Holding
- Written by Dominika Bzduchova
- Published: December 06, 2015
Interview with Karim S. El-Hajjar, Chairman of H.E.C. Holding
Give us the overall picture. Given the situation in Lebanon and what is going on in the surrounding region, what is your assessment of doing business here today?
Basically, the situation in Lebanon is as it is anywhere in the world today. Ours is no better than the past year, but it is still acceptable. The advantage of Lebanon is the scarcity of land to build on as I always say, not to forget the fact that people in here like to enjoy their times, to live a good life, and to offer good services. We, as an enterprise, are always aiming at improving ourselves for having a better way of life. This somehow compensates for the situation we are living in by means of that notion of individuality. Although the public sector has been affected, like in any other country, the private sector can pay off for those matters.
How is the situation influencing your holding?
In reality, it is indirectly affecting it. The effect, to point out, is relatively small if we are to consider the situation and the process of construction phases we have to go through. The load of our works is with government hubs for getting permits, certificates, licenses, etc. This by itself is so often hurting our business particularly nowadays with the absence of a president, and certain political parties not performing properly because of that, and that faced with our continuous endeavour, concentrating on that issue to keep our business going on in the country.
Many other factors, on the Lebanese scene, enter into play too. As you know, Sukleen, the waste cleaning company, which has been lately bombarded by what is taking place countrywide; there are many aside payments throughout Lebanon, a system that works this way, nonetheless for the salaries that are low, and which we try to compensate for, let us put it this way, by paying separately. I guess, what we are witnessing on the Lebanese scene now, trials to fix the conditions here, which they have been trying to fix for the last 40 years. There has been a push on it for the past two years, politically; the parties are exerting quite an effort to pinpoint those mistakes and those issues in their leaderships. This is more or less, what is affecting the public sector of the country.
On the other hand, the private sector needs to move forward. It is influencing us time wise, as it takes more time to get things moving. At the same time, there is a positive side out of it. It means we have to push more, to understand the client better, to deliver enhanced services, and to find favorable facilities for our clients. I think this could be a good thing at the end.
Your core business is the real estate. What would you identify as the main trends in this sector?
I guess it has not changed much for the last ten years. The trend in real estate, especially residentially, is smaller apartments. Smaller apartments do not mean less quality or worse way of life; they mean better designs, better quality in a smaller space and with compensation. That compensation is a clubhouse, a place where instead of inviting 40 people over to dinner in your apartment you can invite them to the clubhouse building in the community that you can rent as part of the community for your event. This is what we are developing now at H.E.C; we are creating communities that can provide these services, smaller apartments that are greener, and bigger projects with 20 or 30 buildings in one location with security gates and security 24/7. We also offer solar panels. We are advancing our way of construction, while at the same time keeping flexible payment terms for our clients.
In my opinion, clubhouses represent the new trend that we are introducing here at H.E.C. They are gathering places for the community. We need to have a certain number of units for them to make sense, financially of course. In DREAMVILLE, our new project, we have cancelled one residential building and changed it into a service building where it could be rented a playground for children, for kids’ parties, or a dining area for adults for example. We have also created a minimarket and a small pharmacy. By this, we are covering the necessary daily needs of the community. For this project, we are talking about 159 units. Each unit benefits from 2 parking spots, irrelevant of the apartment size. We have as well founded some 75 extra parking spots. We are also working on urbanism to secure a much better way of life for residents, and on the impact of traffic on their daily lives.
Clubhouses represent the new trend that we are introducing here at H.E.C. They are gathering places for the community.
Apart from these specific features, like the clubhouse and the other amenities, what distinguishes you from the others? Are you focused on the compounds?
All major developers are doing it now as it makes sense financially; it gives you a longer vision of a specific project and it is easier to handle economically. In addition, from a sales point of view you can concentrate your effort on one community and on making it better. You have bigger communities like Emaar and others taking place in Lebanon such as Tame Waterfront Village that have the same idea, except that for us the difference is our focus on price, so we look at price-quality with those amenities. That is hard to do. As concerns DREAMVILLE, we are starting our project at US $1,550 per sq.m compared to our competitors with US $1,800 for the same radius, in the same area, and they do not offer the same amenities. We also focus on housing laws, which are a major factor right now. The Central Bank has imposed a number of criteria on housing loans lately; the minimum down payment has to be 25%, an interest rate that is nonnegotiable and cannot be changed. There are actually different structures in the policies of housing laws, and we are trying to accommodate ourselves in response to that and facilitate the housing loans for our clients. This is probably a major differential at this time for H.E.C. It could be a big advantage for our clients, as we have created a way where we can help them get the 25% down payment that most clients do not have or if they do, they are not willing to use it at this stage given the situation.
Everybody wants to buy a house since it is cheaper than renting one here. As long as you can afford buying it, why not, that is logical. It is not like in Europe or the US where you pay many taxes and a great deal of condo fees etc. In Lebanon, it is a bit easier to own a house, you just have to pay the municipality every year and that’s it. There are no extra charges and property management is lowest. You can have the funds for a house given the facilities of the banks. What we do here is working within these facilities, and we provide the service for our clientele. We have been doing this for the past ten years. I believe this is a major advantage at H.E.C. we have not as well changed our policies regarding quality. We are still using imported Italian ceramics and paints from France. H.E.C WooD, one of our affiliating companies, creates all needed woodworks; the components used are of German or Swiss quality and are assembled in Lebanon. Our kitchens are also manufactured with Swiss wood and German accessories. These are the high standards we have reached and been doing so far in Lebanon, besides creating job opportunities in here. We are just hoping to continue this way.
Are there any other projects you would like to mention?
Yes. By last year, we accomplished the two projects we talked about, Rockland and La Pedra. These days, we are developing DREAMVILLE and have already started the excavations. Rosewood, our other classy small project, is too under development, and to date we have completed most of its structure, we are even going through the final phases. We have one more project, CASAVILLE, which we are planning to launch next year. It is founded on the same concept of DREAMVILLE, but located in a different region, Kortada. For CASAVILLE, we would be using the same building qualities, the same materials and finishings; however, price wise it would be a less expensive project. As the market value of the land there is somehow inexpensive, we may start selling for US $1,300 the square meter in that area. Hopes remain these ventures would accommodate the needs of our clients in the coming two or three years.
Since our last interview, you have accomplished major milestones. How is your strategy moving forward? What is your agenda for the future?
In the next couple of years, and with the situation around us, the main problem is not Lebanon it is the surroundings. We have not yet sketched our decision. We are nothing, so to speak, but a playground for bigger countries to decide on. It has always been this way. It is not really affecting us in-house; we are still working, Lebanon is still doing business. True it came times it had faltered a little bit, but it created a different scenario and it did rise again. As for us, you just have to create the proper incentive and favorable opportunities for people to invest. This is what we have been doing since long.
As a Holding strategy, right now we are mostly focusing on our manufacturing business arm, H.E.C WooD. We are trying to grow it further; it has indeed grown and doubled in size too; we are tripling our production. We have been in wood production for 8 years now, which is excellent. Nowadays, we are working on pushing our aluminum factory. We are negotiating a profile with one of the top 5 companies in Italy and with affordable prices. In my opinion, this best profile is next to Schüco, the German product. This Italian profile is what we are aiming at, and we are doing our best to finalise the deal. Optimistically, we are looking forward to reaching an agreement this year, and start producing our windows and doors. That would also have room for other developers and other projects throughout the country. Our major focus for the next years is this, as well as the projects we are working on at present.
Do you estimate this production is self-sufficient for you?
It started as self-sufficiency, but then it grew into handling architects´ offices and interior designers as suppliers. As developers, we are also engaged in other projects. We have a mass production of kitchens and doors. We have had projects abroad, in Africa mainly. Our projects there encompassed ten towers, plus the manufacturing of doors and kitchens. Consequently, we have expanded our business from in-house sufficiency to the end user. You can order a complete building, or simply a small coffee table; it is in our hands to accommodate both. Our software system is based on IKEA’s software, which has been partially developed in Levarde, Canada. We share the same consultants, they are the ones who have given us the production line system, and we have bought the same software. Right now, we are hiring a new interior designer who may create and illustrate better functionality for our products. We do not design or create the concept, we merely deal with architects or interior designers, either well-known or fresh graduates, who may have impressive ideas and us, just do implement their creativities and put into their proper uses.
For instance, if we look at a table we question how to turn it into a chair and, at the same time, into a cooler, this is the type of things we are talking about. They are small houses true, so you cannot have a relaxing couch, a table and a sleeping bed, all of it in an apartment of 90m2. Our business is trying to give you all of that in the 90m2 apartment irrespective of the space and, allowing you to have the flexibility for your kids to be able to play and relax.
We get artful designers to create the look then our engineers create the functionality. That is where our wood business comes from. With the aluminum as I have pointed out, we are waiting to finalize with the Italians. We do not have a good profile in Lebanon yet, we have an OK profile, which is using the old technology. Europe has stopped using it maybe for ten years now, but we are still because, in my opinion, there is no demand for it yet and there is not enough knowledge about from the clients. We are not really much demanding for our doors and windows manufacturing, as long as they are double-glazed and they do not leak water. That is good but it is not what the technology is about. Today’s doors and windows have to be sound proof, leak proof, and energy efficient etc. The double-glazing procedure has to reach a precise standard to make sure it does not let the heat out or the cold out so that electricity consumption can be more efficient. This is what we are trying to create.
Simultaneously, we have a sort of joint venture with D.G. Jones, which is a consultant company in Lebanon dealing with major projects on here like “Sama Beirut”. They are one of the best construction consultancy firms in Lebanon. We have joined them for our projects to have a better understanding of our projects at the pre-design stage, as this is how it should be initially, and deliver better products afterwards. We wanted to do this for some time; we had had our architecture firm in-house, and we figured that it would be better to choose just the best in class in Lebanon, the best firm in its field and did business with them to give our clientele the best end users products. Eventually, we will probably re-grow the business into having a fully accommodated business as that has been our main strategy but given the situation and probably the size of Lebanon, I do not think we can handle owning everything. It is a small country and there are not enough people to adapt for it. However, there are very good companies, and we can work altogether, and each one can handle its own part of the business. So far, I think our new projects will be better, more efficient and better designed due to that structure. We are also choosing good consultants and architects with bigger portfolios so that we may be able to built enhanced projects this year and in the years to come.
You are actually doing business with D.G.Jones. What are the major projects you are working on together?
They are really well structured when it comes to management. They have been implementing a system and improving it for many years now. The system is perfectly suitable with our projects, and has been implemented with us as developers, as well as with other corporations. I believe though, this combination would pay off good results and that is beginning to show up in our projects. They have ventured with us on Rosewood, DREAMVILLE and CASAVILLE. We are co-managing these projects at the development management level. There is a lot we can learn from them.
Where does your revenue mostly come from?
The main income is from real estate business. It has always been as such. Factories and aluminum are extra earnings; they can generate more stable employments because they are not like the projects, where you hire engineers and managers for each one of our projects.
