acquisitions

Dubai’s properties need people

The emirate’s real estate sector can only pick up if Dubai’s population grows, says a new study. Transparency and better customer service are also essentials.

Dubai’s real estate market is facing a massive oversupply, and will need a quick growth in the emirate’s population in order to recover, according to the latest report released by property broker Harbor Real Estate.

“In 2010, oversupply will be an issue in the market. An estimated 60,000 residential units and 30 million square foot of office space are coming on stream by the end of 2011,” the report said, adding that Dubai Marina and Jumeirah Lakes Towers alone were expected to see around 10,200 new units in the next two years.
Dubai’s population declined between 5 percent and 8 percent in 2009; the city will need to see a growth in its population to increase property demand and “kick start the industry again,” the report said.

It’s also not going to be easy to attract existing investors. Demand last year was dampened by the lack of available credit and the tightening of lending rules by mortgage lenders. In 2010, investors are expected to be extremely cautious, the report said.

“Gone are the days of the easy sale to the investor. Simply put, many people have been hurt by the real estate price correction. In effect, they have developed a risk aversion, which will take some time to overcome,” it said.

One of the key things essential to increase the confidence of consumers in the market is to increase transparency, the report said. Currently, laws and regulations about disclosure are limited.

“Investors, especially those from overseas, need to feel that their rights will be protected and, in case a dispute arises, resolution will be equitable, accessible and timely,” the report said.

The timely release of economic data will also help people assess the feasibility of their intended investments.
“Buyers, particularly those with cash are the new kings. This year, real estate professionals will need to serve the customer and serve them well. The main drivers of buyer dissatisfaction have been in the areas of knowledge, consultative ability and empathy. This responsibility does not only lie with brokers but also with developers who must ensure that end-consumer needs are understood,” the report said.

Dubai’s authorities have already started taking measures to regulate the emirate’s property market. Most recently, Dubai’s Real Estate Regulatory Agency (Rera) said on Sunday that it has signed a new deal with the Ministry of Labor to officially recognize real estate brokers as a separate professional category. Labor cards and residency visas issued to brokers will now include their designation, instead of categorizing them as sales staff. The authority said that the move would help to remove bogus brokers from the market.

“This is the first step towards a complete classification of the real estate professions in Dubai,” Marwan bin Ghalita, CEO of RERA, said in a statement, adding that the move will promote “transparency and professionalism” in the property sector.

In 2009, Rera announced that property developers in Dubai will have to pay the complete land price before selling off-plan developments and will also need to inject at least 20 percent of the project’s value before beginning construction.

Late last year, the Dubai Land Department also said that it was planning to introduce a new law to protect the rights of property investors during the first quarter of 2010.

How mergers could save the property and financial sectors

Mohanad Al Wadiya, Managing Director of Harbor Real Estate Brokerage, shares his thoughts on upcoming mergers

For many players in the local market, mergers and acquisitions appear to be a logical solution to stay afloat during the global financial crisis. Opinion is divided as to whether these mergers and acquisitions will have a positive or negative impact in the short and medium terms, and it is too early at this stage to predict success or failure. Nevertheless, it seems clear that without these actions, the result would be a freeze in financing facilities and diminishing activity in the property sector, which would have an adverse effect on the overall economy.

Within the financial sector, these kinds of mergers really started as early as last year. It all began when Amlak and Tamweel announced a merger to create Emirates Development Bank in November 2008. The new bank will have access to federal funds and hopes to strengthen the UAE’s home finance sector. The merger news gained considerable media attention and created veryhigh expectations.

In terms of property development, we have seen similar mergers within the last year. Dubai World, the major property and ports conglomerate, recently consolidated its management and property operations of Leisurecorp, Dubai Maritime City, and the Dubai Multi Commodities Centre, all of which it owns. The property divisions of these companies will now be run by Nakheel, another property arm of Dubai World.

There is also continued discussion of a merger between Deyaar Development and Union Properties, with news about the latter having liquidity problems and losing its long-time chief executive recently.

While these developments are important for the sector, the most significant merger in the region is currently being discussed between Dubai Holdings’ ‘Big 3’ companies and Emaar, a most popular developer in the Middle East. Dubai Properties, Tatweer, and Sama Dubai—collectively known as ‘The Big 3’—are fully-owned subsidiariesof Dubai Holding Commercial Operations, a holding company of Dubai Holding Group with total assets of Dh126bn at the end of 2008, as quotes by Emaar.

There is a growing consensus among the officials involved that allowing healthy businesses to acquire companies in jeopardy of failing could stabilise the economy by bolstering confidence in both the financial and property sectors. For some of these companies, merging with a partner that has a strong balance sheet is a pressing and essential step in preventing dissolution. Other benefits include leveraging economies of scale and having stronger negotiation positions with regard to suppliers and contractors. The mergers will allow companies to work together to achieve long-term, strategic benefits by uniting complementary businesses into a single, sufficient and more successful operation. For the property sector, these mergers will also allow consolidated companies to have better control of the overall supply introduced into the marketplace and the quality of the products and services offered. This will definitely have a positive impact on the market in the long run.

On the other hand, there are concerns that these mergers will place heavy burdens on the stronger companies
involved. These partners are not just taking over assets, but may also be inheriting large liabilities and debts. Furthermore, these mergers are likely to generate a lot of uncertainty among the investors and shareholders involved. Investors might have to accept further delays until these mergers are finalised, and will then have to evaluate the impact of the mergers on their investment.

Whatever the impact, the number of mergers involving financial and property organisations is increasing. For these new companies, the ability to provide prompt, transparent, and practical information that guide all stakeholders through the merger process and expected outcomes could make the difference between success and failure from the public’s point of view.

Secondary Market Prices in Springs and Meadows Surge

Secondary market prices of properties in the Springs have increased in the range of 11-33 per cent since the beginning of this year, while prices in the Meadows have surged in the range of 16-19 per cent in the same period, according to a real estate firm.
Vineet Kumar, Head of Sales, Asteco said: “In Springs, two-bedroom villas currently sell for Dh1.5 million onwards, up 36 per cent from Dh1.1m at the beginning of this year. Three-bedroom villas start from Dh2.8m from Dh2.6m in January.
“In the Meadows, current prices for four-bedroom villas start from Dh3.8m, up 18.75 per cent from around Dh3.2m at the beginning of the year. Five-bedroom villas, meanwhile, are around Dh4.4m now, up 16.5 per cent from Dh3.8m on January prices.”
According to Asteco, in the fourth quarter of 2008, prices for two-bedroom villas in the Springs were around Dh1.75m. In Meadows, a four-bedroom villa was around Dh4.5m during the same period, while a five-bedroom villa was around Dh5.2m.
“Prices in the Springs and the Meadows have seen a quarter-on-quarter steep fluctuation owing to market conditions. It would seem that prices are trying to find stability in these developments and their current levels are trying to catch up with the third to fourth quarter prices of last year,” said Kumar.
He said prices were static in the first quarter and began to rise from the second and third quarter.
Claire Collier, Manager, In-Style Real Estate said: “Currently the average price of a three-bedroom villa in the Meadows is in the region of Dh3.9m and Dh5m. A four-bedroom villa in the Meadows is also in the region of Dh3.9m and Dh5.5m. A five-bedroom villa is currently around Dh5.9m to Dh7m.”
Mohanad Alwadiya, Director, Harbor Real Estate said: “Prices appear to have stabilised in the Springs and the Meadows largely due to the increase in demand.
“The residential market is currently being driven by a flight to affordable assets. The mid- to low-income earners, who were previously excluded from the market due to high prices, are now taking advantage of the new levels of affordability. Projects such as the Springs and the Meadows are in demand, with buyers taking advantage of prices which are anywhere between 35 per cent and 50 per cent lower than the peaks of 2008.”
“When it comes to sales, we have noted a small segment of owner-occupiers that are after building equity rather than wasting money on rent,” he said.
“Overall, although villas and townhouses demand a higher tag price compared to apartments, we believe the investors will still be interested in investing in villas due to the high demand and the high return on investment that these components have been delivering.”
Collier said the Meadows is geared more towards the end-user, since it has became more affordable. “The Springs is a mixture but still offers a good buy-to-let market and is the affordable choice for young families that require a garden area.
“Also, as an Emaar project, banks have been more inclined to lend on it. The Meadows and Springs are both older and more established communities, so when some projects were put on hold, buyers turned to these developments to move into as their homes.”

Merger saga expected to continue

Lack of clarity leaves investors and shareholders anxious.

For many in the local real estate market,
mergers and acquisitions appear to be a
logical solution to stay afloat during the
global financial crisis. Opinion is divided
as to whether these moves will have a
positive — or negative — impact in the
short- and medium-term. Yet, it seems
clear that without these mergers and
acquisitions, the result would be a freeze
in financing facilities and diminishing
activity in the property sector, which
would have an adverse effect on the
overall economy.

Within the financial services sector,
the merger plays started as early as last
year. It began with Amlak and Tamweel
announcing their plans of coming together
to create an institution that would have
access to federal funds and strengthen the
country’s home finance marketplace.

When it was announced in
November last year, the possibility of
an Amlak-Tamweel joint venture gained
considerable media attention and
ratcheted up expectations.

In terms of property development,
we have seen similar plays within the
last 12 months. Dubai World, the portsto-
property conglomerate, recently
consolidated the management and
property operations of its subsidiaries,
including Leisurecorp, Dubai Maritime
City and the Dubai Multi Commodities
Centre. The property divisions of these
companies will now be run by Nakheel,
also part of the Dubai World portfolio

Rumours swirl around about a
possible alliance between Deyaar
Development and Union Properties,
stoked even higher by recent news about
the latter having liquidity problems and
losing its long-serving chief executive.

But, the most significant merger
possibility was thrown up quite recently,
with Dubai Holdings’ three real estate
arms — Dubai Properties, Tatweer, and
Sama Dubai — initiating the process to
cobble together an all-encompassing
marriage with Emaar.

Way to ward off dissolution

There is a growing consensus among
those involved in fine-tuning the process
that allowing healthy companies to
acquire those at risk of failing could
stabilise the economy and bolster
confidence in both the financial and
property sectors.

For some, merging with a partner that
has a strong balance-sheet is an essential
step in warding off dissolution. Other
spin-offs include leveraging economies
of scale and getting into stronger
negotiating positions with regard to
suppliers and contractors.

In an ideal context, mergers allow
companies to work together to achieve
long-term, strategic benefits by uniting
complementary businesses into a single,
self-sufficient and more successful
operation. When it comes to the
property sector, consolidated companies
have better control of the overall supply
introduced into the marketplace and the
quality of products and services offered.

Inheriting liabilities, debts

On the other hand, there are concerns
these mergers will place a heavy burden
on the stronger companies involved.
These partners are not just taking over
assets, but may end up inheriting large
liabilities and debts. Furthermore, the
mergers, once they are effected, are
likely to generate a lot of uncertainty
among investors and shareholders.
Investors might have to accept further
delays until these mergers are finalised.

Whatever the end result, the number of
mergers involving financial and property
organisations will only increase. For
the new entities formed thereafter, the
ability to provide prompt, transparent
and practical information could be the
benchmark for success or failure from the
public’s point of view.

The writer is the managing director of Harbor Real Estate