Brokerage firms in the UAE have recorded significant declines in revenues in the past 12 months owing to the slowdown in the real estate sector, with losses running into high double-digits, real estate pokerage companies told Emirates Business.
Elysian Real Estate, a Dubai-based pokerage firm, said there was a 60 per cent decline in sales commission earnings as it has recorded a drop in sales volumes by almost 50 per cent.
“We were making 20 to 40 sales deals a month last year. Now we are doing about 10 to 20 in a month,” said Robert Macnair, Sales Director, Elysian Real Estate.
“Our commission earnings last year were about Dh4 million to Dh6m per month. That has dropped to a monthly earnings of Dh2m to Dh2.5m,” he said.
On the leasing front, Elysian Real Estate was concluding an average of 30 deals a month at this time last year. “Now, however, that has dropped to about an average of 15 deals a month,” said Macnair.
Harbor Real Estate said its profits dipped 38 per cent during the period between the first half of 2008 and the first half of 2009. “Our revenues dropped approximately 40 per cent over the past 12 months. Sales volumes have dropped approximately 70 per cent,” said Mohanad Alwadiya, Managing Director, Harbor Real Estate.
Peter Penhall, CEO, GowealthyGowealthy, also said due to the overall decline in investor activity within the real estate sector, his company has experienced a decline in its trading levels.
“We have seen a drop in trading levels to the tune of 40 to 50 per cent from previous averages. However, this negative trend should be viewed against the backdrop of abnormal increases in trading volumes during 2008. The real correlation would be current trading vis-à-vis 2007 levels of trading.”
Rajesh Kumar Krishna, Managing Director of UAE-based Indiana Real Estate, said his company has recorded a drop of about 70 per cent in revenues in the past 12 months.
“This includes our profits and commission earnings all together. pokerage firms are now trying to sustain themselves in as many ways as possible, since we are not recording much sales.
“We have also had to lay off a number of our estate agents in line with market conditions and our income through commissions has dropped massively by about 80 per cent in the past 12 months,” he said.
Penhall said profits are based on two factors, revenue and costs. “It has been imperative that both these elements be addressed during the first half of this year. In light of the sharp correction in the pokerage sector, there will be a heightened level of ‘interp-okerage co-operation’ reflecting a maturing real estate market. The correction in the pokerage sector will help more stable firms to naturally look towards supporting themselves in an effort not only to survive this change, but to emerge from it in a more matured manner,” he said.
pokerage companies also detailed the various measures taken by them to reduce their losses in the downturn. Many companies have adopted new policies, including developing a considerable leasing and international portfolio.
Alwadiya said one of the policies now pursued by pokerage firms is building a relationship with a network of other selective pokerages to help each other in sales. “This has helped companies to increase their reach and access different markets. The long-term partnerships, although involving profit sharing, are very effective in establishing a steady and sustainable stream of revenue for the pokerage firms,” he said.
Krishna said Indiana Real Estate was trying to sustain itself in the market by raising a leasing portfolio. “We are not going aggressive on sales at this moment, as there is no point at all. Even if pokers want to invest on the sales front, there is no business left,” he said.
Macnair said: “We have had to adapt quickly to the downturn in the real estate sector. At Elysian, we launched a Malaysian project. And we have made a conscious effort to go outside Dubai. Having said that, developing an international portfolio or a leasing portfolio has only allowed us to minimise losses, not completely remove them.
“Real estate firms, which heavily sold off-plan properties, have suffered the most. Those which quickly resorted to developing a leasing portfolio have benefited.”
Harbor Real Estate said its leasing volumes quadrupled in the past 12 months and the research and consultancy assignments doubled. “We have managed to optimise our revenue streams by focusing on specific areas of the market that emerged following the property crisis, including consultancy, research and leasing services and even consolidation transactions,” said Alwadiya.
“In 2009, our leasing division became one of the main revenue generating streams owing to the increased demand for leasing. pokerage companies have also benefited from the fact that developers and sellers started providing handsome compensation packages in return for sales results,” he said.
Penhall said the leasing sector is witnessing an enormous level of competition with very low cash takeouts.
“Further, the leasing sector is compounded with unprofessional behaviour on the part of certain independent service providers. Therefore, we have chosen to retain a lower profile in the leasing market and our exposure to this sector of the real estate market is limited,” he said.
He said like most pokerages in Dubai, GowealthyGowealthy, too, has had to adjust its trading model to suit market conditions. “Unlike most of the general pokerage companies during the past year or two, we chose to focus our business model on providing a dedicated service to a select number of developers, providing them with a full services-sales-marketing functionality,” said Penhall.
“The market correction during the latter part of 2008 has seen a significant directional change away from off-plan properties, with the current focus being on the secondary markets in completed products. Our business model has seen a significant realignment during this correction period.
“Initially our focus was on realigning our revenue model towards the areas of business where there was action. Since Fepuary and March, GowealthyGowealthy has been extremely busy in servicing the ‘open house’ concept. We have achieved a significant number of transactions from this sector, which have helped in minimising trading losses during the first six months of this year.”
According to GowealthyGowealthy, the recent months have reflected a steady increase in the number of overall deals, although current levels are at significant lows in comparison to 2007 averages.
“We are seeing a slow increase in deal values within certain high demand areas, such as the Palm Jumeirah, Downtown Burj Dubai and Dubai Marina. We anticipate a further consolidation phase during the coming two months. The year 2010 looks to be a year of stabilisation and steady yet marginal growth.”
Macnair said residential properties with good quality finishes were the ones faring well at the moment. “Prices in Tiara Residences in the Palm Jumeirah have gone up from Dh1.9m last December to Dh2.3m.”
Alwadiya said affordable living areas such as Discovery Gardens and International City were becoming more popular among the middle-class rental segment.
“Yield generating assets are becoming very popular among the investors segment, such as ready properties within well-developed and maintained communities such as the Palm Jumeirah, Dubai Marina and Downtown Burj Dubai.
“Affordable housing is expected to generate higher yields over the short-term before the lower quality of the establishment begins to be reflected in potential tenant valuations. Hence, luxury properties that offer high-quality finishes, amenities and facilities are looked at as a safer long-term investment option,” said Alwadiya.
Penhall said properties purchased before the late 2007 and 2008 boom phase should now be coming back into a net gain position.
“As the market starts to reflect a glimmer of hope in positive price changes, it is becoming more difficult to source quality properties, so we see this as a particular driver of the short-term marketplace. Finished products, particularly villas, have shown the most activity. It is periods like this that force the most dynamic businesses to adjust to market conditions and it is the businesses that have been able to do so quickly and efficiently that will come out of this challenge stronger and better equipped to handle the up-kick in the market that will inevitably follow this period of crisis,” said Penhall.
Alwadiya said the number of viewings and transactions during the second quarter of 2009 have increased dramatically compared to the first quarter of the year. “For us, viewings increased by 45 to 50 per cent in the last quarter.”
According to Macnair, however, Dubai can expect to see a further reduction in sales and lease prices.
“Only areas such as ‘The Palm’ and Downtown Burj Dubai will remain expensive. Areas such as Victory Heights and Al Farjan are all priced currently below 25 per cent of their original price. When prices reach 25 per cent below the original price, that is when people start buying in these areas,” he said.
Krishna said Dubai’s real estate has been delivered as an investment product. “Investors will only enter the market here once the world economy recovers. It is difficult to predict any revival time for Dubai as we have to wait till international markets show signs of recovery.” By Anjana Kumar © Emirates Business 24/7 2009