Friday, Sep 05, 2008

Gulf News

Dubai: As managing director of investment projects Robert Lee has a key role to play in NakheelNakheel's $100 billion-plus development portfolio.

Lee joined the company in 2004 as director of development and assumed his current position in March 2007. He is responsible for NakheelNakheel's strategic long-term assets, with a focus on large-scale mixed-use developments.

Lee's responsibilities include projects such as The Palm Monorail, Gateway Towers, Dubai Promenade, and the Village Centre, Bumrungrad Hospital Dubai, as well as the agreement with Cirque du Soleil to develop a permanent show on The Palm Jumeirah.

Lee is also playing an important role in NakheelNakheel's international expansion. He hails from Canada, where he graduated in business from the University of British Columbia in Vancouver.

In an exclusive interview, Lee tells Gulf News that it has become more complicated to negotiate contracts with construction companies amid rising building costs.

Gulf News: NakheelNakheel has a huge development portfolio. What is it that you want to achieve in terms of a grand vision?

Robert Lee: NakheelNakheel as a company plays its part in Dubai's grand vision. When people come to work with us in various forms of investments, we have a different response. As a provider of real estate, we set the tone and we tend to take the leadership position.

There have been issues about the conditions of workers. What benchmarks have you set for labour facilities?

Rather than talk about it, we decided to build [workers' accommodation] ourselves. When we finish our Omran project, there will be 30,000 units. We are putting them in the Waterfront area and different parts of the city. It sets higher standards for labour accommodation, we have clinics, sports fields and shops.

The level of accommodation is much better than people are used to. It does cost more. After all, contractors will pass this higher cost to us, and we are prepared to absorb it because this is the right thing to do for the city. We are raising the bar for everybody to follow. The units we are building are for workers on NakheelNakheel projects.

Is it difficult to source workers these days at the wages that were being paid in the past?

There is a global real estate boom and there is a shortage of talent. If you are talented, you are needed anywhere. What you have to realise is that Dubai still represents one of the best places to work.

There is a real estate cycle; in some places it is up and in other places it is down. Now there is a downturn in the UK, and more CVs are coming from that market. In general, there is a shortage of workers in Dubai. It is a supply and demand thing, so whenever there is a shortage, the price goes up. We want to be the employer of choice.

A simple solution is to pay people more money; but that is not the [only] solution. We want to make working experience more rewarding. We want to make people feel more empowered and satisfied in working for the organisation.

We are not a construction company, so we tend to attract high-calibre talent, which is about more than money. There are construction companies that are looking at various markets for sourcing labour.

Have you faced any work slowdown or project delays because of labour shortage?

No, that has never been the case. One needs to look at the amount of the construction activity. So how we procure our contracts is important. As developers, we cannot stand by and watch costs go up ad infinitum.

We need to have a cost certainty. We are putting more and more judicious mechanisms to ensure that there is a good balance between the contractor's ability to deliver at a reasonable profit and at the same time make sure that they are responsible for cost containment. Cost certainty is within their responsibilities.

Material cost increases are beyond the control of developer and contractors. How are you managing this situation?

Our supplies come from around the world. We do not source materials directly; it is the contractor's job to do that. We have a simple notion: hire the best contractors and let them do their job. It is not our job to be involved in actual construction. As part of Dubai WorldDubai World, NakheelNakheel is a global concern and we have opportunities and partners around the world.

If we find sources of materials that construction companies may not have access to, we can facilitate their import. For example, we found sources of steel in countries from where Dubai was not importing before.

How has cost escalation changed your relationship with contractors over the last few years?

It is a catch-22 situation. When I came to Dubai in 2000, construction was probably in one of its lowest peak periods. Contractors would come to us and say 'please give us any job.' Now the tables have turned.

Now contractors are waiting for developers to go to them. There is something wrong with this picture. We need to have a balance. Soon the tables will turn again. It will happen sooner than later. We structure a deal where there is a win-win situation for both of us.

We have some very good partners who understand the benefits of long-term mutual growth. We have many top-level international construction companies telling us that they have identified Dubai as a key market and chosen NakheelNakheel as one of few companies to work with over a long period of time. That is what we want to hear.

Some contractors say that developers do not want a cost-escalation clause in the contract. Is that something you are doing?

It depends on what materials they are talking about. When you say cost escalation, it has not happened in the whole bunch of materials. So when a contractor comes to you and says 'I want cost escalation in everything,' you tell them: 'I am sorry that is not practical and that is not reflective of the market situation.'

If there are genuine cost escalations, they come up with a structure and a transparent mechanism to prove that those increases were out of their control. If they just come to us and say 'give us 20 per cent increase,' we say 'that is not the case.' If you look at electronic items, costs are actually coming down. So why should we pay more for something whose cost is going down?

Steel prices are volatile on a week-to-week or month-to-month basis. It has gone up in the last two years but that does not mean it is going to continue going up in the next two years. The worst mistake people make is that they look at past trends and think they are going to continue. Your have to understand what caused those cost increases, and what the ways are to mitigate them.

Does that mean it has become more complicated to negotiate a contract these days?

Absolutely. It takes much longer because the Dubai real estate market has entered a new phase. There is more transparency, and we have more regulatory safety for buyers.

Environment, health and safety requirements are prompting everyone, including contractors, to be more educated and to have a different way of building things. The market needs a paradigm shift. We cannot continue to build with a huge labour pool. We need to start building smarter.

There is a general perception that the market is driven by speculation. What is your response?

If the market is positive, there will always be some speculation. If you do not have any speculators, the market tanks. So speculation is a sign of growth potential. Having said that, we do not want the whole market flooded with speculators. There is currently a shortage of housing units. What we try to do is curb rampant speculation.

We are putting in plans to discourage buyers to sell anything unless they have held it for one year. If you come to a NakheelNakheel sales launch, there is a limit as to how many units you can buy. You have seen in the market when people bought 10 and 20 units at a time. That is not the case anymore. We want real buyers.

Recently there has been so much talk about transparency, and even a NakheelNakheel employee is facing a corruption investigation by police. NakheelNakheel is also doing an internal audit of its employees. How is this being done?

Let the process take care of it. It is not fair to talk about it until it is finished.

Do you think the recent reports of corruption will have an impact on buyer behaviour in the real estate market?

I call it the issue of transparency. It is a great thing because it makes everything clear for buyers and gives them more confidence. That is why I welcome what Rera [Real Estate Regulatory Authority] is doing in protecting the buyers.

These regulations will ensure that Dubai's real estate market stays at international levels. They will make it safe for anybody to own real estate in Dubai.

© Gulf News 2008. All rights reserved.

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