losses

Oil field should boost sector

The discovery of a new offshore oil field is likely to boost Dubai’s economy, although its impact is hard to gauge until its volume is determined, say real estate executives.

With production to begin in 2011, they think the resulting hike in revenue could boost infrastructure development.

“It is hard to tell what impact this will have until we get more information on this,” says Charles Neil, CFO of Landmark Properties. “Then we can judge the impact it will have on finances and infrastructure. More money flowing into the economy will be a positive development. There would be an increase in people to work in production and housing, and revenue flowing in for infrastructure but without barrels per day it’s hard to say.”

Mohanad Alwadiya, managing director of Harbor Real Estate, says the discovery should boost investor confidence, but adds this largely depends on the oil field’s output.”This positive effect will surely rub off on the property market,” he adds.

“Irrespective of the capacity, it can only add to Dubai’s income stream,” says Aditya Awtani of Fine and Country. “The mantra ‘buy on the rumour and sell on the news’ has worked well for many equity traders. However, in the real estate market, especially one that has dropped significantly, investors naturally shall remain on the sidelines until there’s concrete data.”

As the oil field’s production picks up, it will have a positive effect on the property market as well, says Aditya.

“Experts are predicting approximately 10,000 barrels could potentially be pumped via the Al Jalila oil field. If this is to be believed, that would imply, at today’s oil prices, an additional $270 million for Dubai.” This would help reduce the emirate’s budget deficit, he adds.

Abu Dhabi villa prices expected to slide further

Sale prices and rentals of villas in Abu Dhabi are likely to drop as fresh supplies are entering the market and a number of people are shifting to live on the outskirts of Dubai due to its “affordable rates”, said real estate officials.

Already villa prices have dropped in various projects. “We expect this trend to continue during 2010 as more units are expected to be handed over and the number of people relocating from Abu Dhabi to ‘more affordable’ Dubai continue in the short- and medium-terms,” said Mohanad Alwadiya, Managing Director, Harbor Real Estate.

Currently, in Al Reef Villas a two-bedroom villa goes for Dh1.1 million, a three-bedroom villa for Dh1.6m, a four-bedroom villa for Dh1.7m and a five-bedroom unit for Dh2.3m.

“Villa prices in Abu Dhabi are starting to soften as more units start to flow into the market. This trend has affected the attitude of landlords and sellers and has forced them to be more flexible when it comes to price points and payment terms,” said Alwadiya.

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.

Making owners pay service charges a major challenge

A lack of transparency over the cost of maintaining a building, low quality standards and services and confusion over what is covered by service charges have angered owners and led to many refusing to pay the charges, say industry sources.

Adrian Quinn, Chairman of Dubai-based strata management firm Essential Community Management, said that if a building has service fee arrears of 40 per cent, it would not be possible to continue maintaining it internally or externally.

The available funds would have to be used to make payments to the Dubai Electricity and Water Authority, insurance companies, master developers and district cooling suppliers.

Essential Community provide strata management services to more than 40 developers in Dubai and has worked with master developers Emaar and Nakheel.

Quinn said the major challenge for the strata sector in Dubai is making owners pay the building service fees.

“The delay in the enforcement of the strata law is allowing many owners to avoid paying their strata service fees,” he added. “This is due to many developers not wanting to – or not knowing how to – recover the outstanding service fees via the terms and conditions of their contracts of sale.

“Most contracts allow for the developer to sell the apartment or villa in the event of non-payment and also recover all the legal costs and penalties.”

According to a recent survey by Dubai-based real estate broker Harbor Real Estate, the average annual service charges for buildings across Dubai are Dh16 per square foot.

“The highest service charges recorded were in and around Downtown Burj Dubai at about Dh22 per sq ft, while the lowest were in the Greens at Dh11 per sq ft,” said Harbor Managing Director, Mohanad Alwadiya.

“Consumers are no longer able to ignore the pinch of the economic downturn and investors and owner-occupiers alike are starting to evaluate very carefully the impact of service charges on the financial performance of their property and their own personal wealth.”

The survey, shared exclusively with Emirate Business, reveals that the overall average charge for villa communities is Dh2.5 per sq ft calculated on the overall plot size. Charges for villas are highest on The Palm Jumeirah, where the highest are between Dh4 and Dh5 per sq ft. “The lowest price is about Dh1.16 per sq ft for some of the villas in the Meadows community. This is broken down into Dh1.03 per sq ft for the general fund, Dh0.05 per sq ft for the capital reserve fund and Dh0.08 per sq ft for the master community levy,” said Alwadiya.

He said many developers who sold off-plan properties had not calculated the service charges at the time of sale, leaving many investors not knowing what the fees would be until the buildings were handed over.

“This makes it difficult for investors to determine the yield estimates on potential investments and adds a further element of uncertainty in an already uncertain environment. When buyers are considering purchasing properties, a unit that is complete with fees already apparent is more appealing than an off-plan transaction,” said Alwadiya.

“The majority of developers of projects that are still under construction do not provide service charge figures until the building is completed. On the other hand, most buyers and sellers, and even brokers, will not mention this important subject until the final stages of the negotiation process.”

Walid Jaafar, a partner at the Dubai-based Fichte & Co Legal Consultancy, said the official gazette announcement of Law No27 of 2007 on Ownership of Jointly Owned Properties in Dubai – the strata law – was published on December 31, 2007. Article 33 of the law says the legislation will come into effect within three months of the date of publication – ie on April 1, 2008.

“However, the law has still to be implemented,” said Jaafar. “The law does not address the issue of tenants. The law is intended to regularise the relationship between the owners of units in a specific development.

“This matter is usually left to the owner and the tenant to agree on. However, in practice, unless agreed otherwise between the parties in a tenancy agreement, the service fees should be covered by the owner.”

Fichte & Co has not yet seen any cases involving disputes over unpaid service fees, but does not exclude the possibility that a few are being reviewed by courts.

“In the absence of a regulatory law and the absence of any owners’ associations, the only possibility to file such cases lies in the hands of the master-developers or the sub-developers,” said Jaafar. “The claims in such a case would be based on the sale and purchase agreements and the master declarations attached to them.”

Quinn said that, once implemented, the strata law would create more transparency within owners’ associations. “If a building does not use all the budgeted funds in a year, the owners at the annual general assembly would have the right to decrease the next year’s budget or transfer the funds into the sinking fund,” he added.

The law makes it mandatory for every strata to have a 10-year sinking fund to ensure that money is set aside to pay for long-term capital expenditure.

“We at Essential Community automatically create a 20- or 25-year sinking fund to ensure all major plant and equipment are properly budgeted for on normal lifecycle cost structures.”

A strata general manager is appointed by the landlords of the building to create a draft budget, which is then reviewed by a board.

“After it has been approved by the board it is sent to all owners before the annual general assembly and is then approved there,” said Quinn. “After the meeting has approved all the agenda items it is then up to the strata general manager to enact all the motions and ensure they are carried out.”

Quinn said the most important duties of a strata manager are to oversee the facilities management companies to ensure they and their sub-contractors carry out the jobs they are contracted to do.

“There is a major conflict of interest if a strata management company has its own facilities management company,” he added.

Landlords will control what the owners’ association does and how it spends funds through the elected board.

“This means that the individual landlords will have some power in what the service fees will be and be able to rectify things. The enforcement of the strata law will make it possible to split buildings into multiple cost structures,” said Quinn.

“The first is the master cost structure, which would pay the master community service fees, buildings insurance, essential service costs, the managers’ fees, the facilities managers’ fees, district cooling charges, etc.

“The second cost structure would be the residential component of the building, so it would pay all the costs for the specifically residential component, for example lifts, foyers, gyms, pools and car parks. The third cost structure could be then the commercial portion of the building and cover all the commercial areas.”

Jaafar said: “When the owners have control of their buildings they will, through their board, review complaints of tenants and issues to ensure a good relationship is maintained.

“At present a tenant may have problems and issues with the building he is in, but the developer does not want to know about it or does not understand what they need to do to rectify them. There are some developers that are doing a good job in running their buildings, but everyone still has problems with conflicts of interest issues on maintenance items.”

Jaafar said according to Article 25 (2) of the strata law, if a unit owner fails to pay the service fees, the manager of the owner’s association would take action against the owner three months after notifying him through the notary public, enforceable by the execution judge in any competent court.

“However, the unit owner may object to this decision within the three-month period. In such a case, the execution shall be withheld until a decision in the subject of the objection has been reached.” Meanwhile, analysts called for the strata law to be enforced as soon as possible.

Nicole Betts, Senior Manager of Asteco Association Management, said that while Dubai awaited the regulations that supported the jointly-owned property law, Asteco had been working for several years with a number of high-profile clients well ahead of the implementation of the law.

“We have been helping companies establish informal owner associations, set up service charge and budgeting models, set community rules as well as facility management and service provider selection procedures based on best international practices,” she said.

“Some companies are actively encouraging owners to take control for themselves – albeit at this stage this has to be done under the developer’s name.

“A good example is the MAG Group which is dedicated to transparency. We have worked with them from conception of their MAG 214 Jumeirah Lakes Towers project through to delivering onsite management services to an informal owners’ association. Our team works closely with the owners’ management board to assist them to preserve, maintain and enhance the tower.”

Mohammed Nimer, Chief Executive Officer of MAG Group Property Development, said: “We have always operated in an environment of transparency, so it was natural for our company to introduce best practice in property management to enable owners to truly run their own buildings.”

Asteco has also been working with another developer for the V3 Tower, also located at Jumeirah Lakes, where handover to owners commenced recently.

“Our role is to administer day-to-day operations and assist in the formation of an informal owners’ association and a management board,” added Betts.

Brokers Must Adopt Fresh Approach

Despite the barrage of articles and opinions depicting economic doom and gloom of a mammoth scale, reports of tumbling property values, double-digit percentages losses by developers and property investors (the list goes on), no one is paying attention to the current state of the brokerage industry. The remaining standing companies still believe that, if things are done differently, with a client-centric philosophy, an incisive fact- based approach and a clear set of realistic objectives and values derived from truly objective assessments, the existence of real opportunities in the UAE real estate scene to create and build for the long-term was undeniable.

Pre-2008 saw all manner of people get into the real estate brokerage industry. The lucrative and easy to make commissions were too attractive to ignore. That is fine since there is nothing wrong in wanting to (legally) better yourself or income. But many thought their skills alone were what brought in results – none more so than the plethora of salespeople, who flocked to the field, many of whom were not familiar with properties.

Now, as the UAE property market matures through its first crisis, the nature of selling and buying realty is changing irreversibly and with it a lot of new industry and consumer trends are emerging, one of which is the lack of satisfaction of customers with real estate brokers. According to a survey conducted by Harbor Real Estate in October 2009, 61 per cent of consumers who bought property in the last two years are dissatisfied with the performance of real estate agents who brokered their purchases. What we have here is an indicator that brokerage companies need to shape up in order to survive during and beyond the financial crisis. The level of proficiency in effective consultancy, based on sound knowledge of the market and an understanding of the buyer’s requirements, appears to be the main shortcoming. Buyers today have choice and are more knowledgeable about the market, and they seek advice from professionals whom they feel they can trust. Unfortunately, in the majority of cases, consumers are left feeling disappointed. This lack of trust is producing a lot of challenges for property brokers, including questioning of their standard commission rates, lack of sole representation or appointment and negative pre-judgment and perceptions.

The main concern is that these problems are not only affecting bad and illegal freelance brokers only but also impacting the professional and experienced brokers and overall reputation of the industry as well.

Traditionally, real estate has been viewed as a sales industry. The scenario is radically different in today’s environment. Customers have evolved to become more educated, better informed, more value conscious and demand more for their dirhams. Their expectations of the companies and the brokers they buy or sell through are much higher. They are no longer willing to be pushed around by unprofessional brokers. In short, they want better customer service. So brokers have to work harder and spend more effort and time to regain the trust of buyers and sellers. They need to realise that true and sustainable success comes from repeat business and word-of-mouth.

Customer service is one of the greatest keys that can help real estate service providers succeed. It can literally make or break a company. This is so because the entire business, marketing, sales, leasing and profits depend on customers.

Great marketing can help brokerage companies acquire new customers, but it is great customer service that ensures that the customers keep coming back. According to our survey, most customers quit dealing with a certain brokerage company because of an indifferent attitude towards them from the business owner, managers and/or employees. A typical brokerage company will only hear from a handful of dissatisfied customers; most of the rest of the customers will just quietly go away and never come back. To further compound the problem, a typical dissatisfied customer will tell an average of seven to 10 people about his problem and the bad service offered by the company.

Pas du tout, encore une fois, si ce n’est pas à l’intérieur trop longtemps. Il y a un autre danger: il n’y a pas beaucoup d’espace et un mouvement négligent d’un tampon peut pousser plus lisez plus ici d’où il est plus difficile de l’obtenir. Mais il y a un moyen de ne pas verser un lit sans tampon: appuyez sur le diaphragme, puis la sélection sera temporairement bloquée sans “bouchons” externe.

Study Shows Consumers Dissatisfied With Dubai Real Estate Brokers

Harbor Real Estate interviews 178 owners as a way to develop future company benchmarks

Harbor Real Estate Brokerage, an integrated real estate service provider in Dubai, says that 61% of consumers who bought property in the last two years are dissatisfied with the performance of real estate agents who brokered their purchases, according to a recent study conducted by Harbor Real Estate.

The study interviewed 178 property owners over a four month period in a series of face-to-face interviews. Participants evaluated property brokers according to knowledge and skills, ethics and behavior, consultative ability, and empathy. The respondents were asked to rate their individual experiences on a 5 point scale ranging from excellent to very poor. Of those interviewed, 61% of respondents rated their brokers as either poor or very poor.

According to Mohanad Alwadiya, Managing Director of Harbor Real Estate Brokerage:
“What we have here is an indicator of an industry which is still relatively immature. The level of proficiency in effective consultancy, based on sound knowledge of the market and an understanding of the buyer’s requirements, appears to be the main shortcoming. Buyers today have choice and are more knowledgeable about the market, and they seek advice from professionals that they feel they can trust. Unfortunately, in the majority of cases, consumers are left feeling disappointed.”

The research, originally intended to serve as a barometer on service levels in the local industry, has provided Harbor with valuable insights into areas requiring development within its own operations. Harbor has already begun to benchmark and monitor its own service-level performance against those of its overseas affiliates, with the aim of surpassing service levels of established successful operations in mature markets.

Of those interviewed, 73% had purchased their property prior to the recession—set as October 2008—while the remainder had purchased their property after October 2008 (post-recession). About 23% of those interviewed purchased within the last four months.

About 12% of consumers who made their purchase prior to the recession stated that their experience was excellent or good. In the post-recession period, that number fell to about 11%, although satisfactory ratings improved from 25% pre-recession to 31% post-recession. In the post-recession market, 58% of respondents rated their experience as poor or very poor, brining the two year average of dissatisfied customers to 61%. The main causes of buyer dissatisfaction were in the areas of knowledge, consultative ability and empathy.

“What we are seeing globally is a race for improvement,” said Alwadiya. “Real estate has been under tremendous pressure due to the recession, and those who wish to thrive in the market will only do so by identifying and responding to the needs of their clientele. Because we are a service industry, we can benefit greatly from observing and adopting best practices of more established markets around the world.”

More information about Harbor Real Estate Brokerage, including “The Harbor Report”, a quarterly publication on news and trends in the real estate industry, can be found at www.harbordubai.com.

61% Unhappy with UAE Estate Agents – Survey

A new report has found that 61% of consumers who bought property in the last two years in Dubai are unhappy with the performance of real estate agents who brokered their purchases. The study, conducted by Harbor Real Estate, interviewed 178 property owners over a four month period. Participants evaluated property brokers according to knowledge and skills, ethics and behavior, consultative ability, and empathy. Of those interviewed, 61% of respondents rated their brokers as either poor or very poor.

Consumers Dissatisfied

Dubai Home Prices Fall 24pc in Q2: Report

17 August 2009
DUBAI – Dubai residential property prices fell by 24 per cent in the second quarter compared to the first three months of the year.

However, the number of sales and rental transactions has remained steady over the two quarters, signalling a renewed confidence in the emirate’s battered real estate market, property consultancy Jones Lang LaSalle said on Sunday.

Property prices are falling more slowly, and the gap between the prices that owners are asking and buyers are offering has narrowed, LaSalle said in a statement.

A separate report by the Harbor real estate brokerage said that its sales transactions doubled in number in the second quarter compared to the first, underscoring the idea that Dubai’s over-built market might have hit bottom.

“The narrowing gap between asking prices and achieved prices is an indication that the market is beginning to stabilise, albeit at significantly lower levels of pricing than those seen earlier in the year,” said Craig Plumb, Head of Research at Jones Lang LaSalle MENA.

The Dubai property sector collapsed in the aftermath of the global credit crunch. LaSalle expects that 22,400 new residential units will be handed over this year, even though developers have cancelled or put on hold more than $24 billion worth of  residential projects.

The downturn in Dubai’s once-booming construction industry has created a backlog of legal claims totalling almost £3 billion, The Times newspaper of London reported on Sunday. More than 180 claims have been filed this year, mostly by international  contractors. British firms are estimated to be owed at least £400 million on contracts in the UAE, the newspaper said, citing an article in Building magazine, a British trade publication.

According to LaSalle, the volume of sales and rental deals were stable between the first and second quarters of this year. By contrast, transactions decreased in number by 58 per in the second quarter from the same period a year ago.

“The stabilisation of transactional volumes is an important indicator, which reflects improved confidence among investors,” Plumb said.

Meanwhile, the Harbor brokrage confirmed that activity in the second quarter improved significantly over the previous three months, as more properties have become affordable for more people. Harbor noted that sales transactions, especially in the latter part of the second quarter, increased when compared with rental transactions, with middle to middle-lower income earners taking advantage of the new levels of affordability to buy.

“We look at factors that are likely to drive the recovery and the influence of the global economic recovery as it impacts the local scene here in Dubai,” said Mohanad Alwadiya, the Managing Director of Harbor Real Estate Brokerage.

“Harbor’s results for the second quarter were promising. Not only did we see a 55 per cent increase in the number of viewings but we also saw sales transaction double.”

Off-plan property sales are ‘dead’ and prices continue to slide.

While he said there were signs of stablisation of completed properties in areas such as downtown Dubai and the Palm Jumeirah, Alwadiya said investors lacked confidence in the off-plan market, where prices have slid up to 50 percent since the emirate’s property collapse last September.

“In some areas, mainly in off-plan, prices continue to drop. This is natural,” he told Dubai Eye radio in an interview.
“Confidence levels in off-plan projects is very low. Off-plan sales are almost dead,” he added.

On a brighter note, Alwadiya said his company had seen 45 percent more buyer queries in the second quarter, than in the first quarter.

Property consultant Colliers International said house prices in Dubai fell 41 percent and 9 percent in the first and second quarters in 2009.

Dubai-based Harbor Real Estate offers property advisory services to individual and institutional investors.