Real estate developers in the UAE are having to consolidate their projects and delay schedules to stay profitable in the shrinking market, as SEBAN SCARIA and ZARINA KHAN find out.
Developers in the UAE are turning to consolidation and postponement strategies to survive the credit crunch that has hamstrung their sector although they are couching their altered plans in optimistic terms.
Dubai Lifestyle City a project so opulent it claims no real competition in an emirate where luxury is a byword suspended sales in October and has pushed back its construction schedule.
"We planned it to be delivered in the second half of 2010 and now we are delaying it by six months to a year with handover in 2011, which is not that much given the present market conditions," Raza Siddiqui, Executive Director of DLC, told Gulf Business.
Those conditions include a delay or cancellation of some 45 per cent of the UAE's projects ,valued at Dhs4.77 trillion, construction research consultancy Proleads has estimated. An HSBC report estimates that those projects are valued at some $75 billion.
For DLC, Siddiqui said sales of the remaining 31 villas in the exclusive enclave would reopen in six months, which is when he expects the market to have stabilized. DLC will also offer the 100,000 square feet of commercial space allotted for "Italian brands", which DLC is being "picky" about selecting, only after the community is opened.
"Everyone feels that Destination Dubai is not going to fail because of anything. Just like Dubai did not become that destination overnight, it will not crash overnight. This is not a crash that we're seeing: it's a soft landing, a correction that was required. Property valued at Dhs1,500 per square foot was [previously] selling for Dhs4,000," he said.
And while Siddiqui pointed the finger at other projects although none he would compliment with the label of 'competition' - he claimed DLC was never one of the inflated offerings. Though its luxury accommodations are valued about Dhs20 to Dhs60 million, he said they were "value products".
"We were never unrealistic with our costs. We are selling Dhs2,500 per square foot on average [for] a branded, serviced, furnished, property. Dubai Lifestyle City was never meant for speculators but for end users who are looking for the privacy and size that we offer."
DLC is a part of Dubailand a massive Tatweer undertaking with 45 theme-based projects, including amusement parks, hotel complexes and leisure facilities.
In January Mohammed Al Habbai, Dubailand's Senior Vice-President, told local media that DLC was one of the projects going ahead as planned begging the question of whether delays and consolidation can be considered part of 'the plan'.
Fellow mega-developer Deyaar is also couching its new strategies in neutral terms. Earlier last month, Deyaar Development announced it was putting 25 per cent of its planned projects "on hold".
"The 25 per cent of the portfolio that we have decided to hold on to are those which have not been announced, launched or sold. We have the land bank, the designs were ready but we decided not to launch because of the recession," said Markus Giebel, CEO of Deyaar. He did not clarify, however, which of the projects would be included in the delay.
As far as projects that have already been launched are concerned, he said Deyaar was anticipating infrastructural hurdles in few of its projects, but would aptly compensate
the customers.
"We have two or three projects in our portfolio, which we are not so confident on getting the infrastructure on time. Construction has started on one of those projects, but we are likely to take a hit. If it doesn't make sense to hand over the project, we will come up with innovative solutions to help the customers," Giebel said, without elaborating on the compensation plans.
The developer, which had a reported net profit of Dhs1.1 billion in 2008, is also following another strategy that has gained popularity among its peers - softening of payment terms.
"As part of its finance strategy, Deyaar will choose a couple of properties which it had sold during the real estate boom time and reduce the prices of those properties to reflect the current market prices," Giebel said, without revealing the names of the properties.
The company has also teamed up with three banks to provide mortgage support to its customers that find it difficult to meet its repayment obligations.
Dubai's developers are not the only ones forced to rework their plans to stay afloat in the real estate "correction", as Siddiqui put it. The Bloom Gardens in Abu Dhabi will be allowing its buyers to renegotiate their payments.
"We are going back to the existing buyers in Bloom Gardens in Abu Dhabi with the revised prices and payment plans," Hani Shammah, the CEO of Bloom Properties, was quoted as saying in the local media. "This is not taboo for us. We have revisited the prices in line with the construction costs. We are passing on the declining construction costs to the end-user."
Bloom Gardens, like so many of the UAE's property projects, apparently fell victim to its own success with many speculators signing on to the development. With the bottoming out of the market, however, those investors have discovered that there is little end-user interest in such costly accommodation and are being forced to keep the properties they had never budgeted to be able to make payments on.
While the medium to high end of the market deals with the loss of its supposed client base, more agile developers are trying to rework their projects to tap into the segment that still remains - the UAE's middleclass, which needs affordable housing.
Aldar Properties says it will be targeting that available client-base which has been at the mercy of the rental market for years.
"Earlier, we were looking at high end, now we are looking at middle [range]. Supply and demand are changing," Sami Asad, COO of Aldar Properties, told local media at the sidelines of Arab World Construction Summit in Abu Dhabi last month.
Its retrenchment strategy involves reworking projects that were still in the planning stage to make them more affordable. Aldar is also looking at space allocations in housing and office space to rework them to appeal to the middle-class market.
Similar moves are expected from the UAE's other developers in the coming weeks and months as the real estate market shrinks further. Abdul Aziz Al-Ghurair, speaker of the Federal National Council, told the World Economic Forum in Davos that the UAE should spend part of its sovereign wealth fund to revive the economy and delay property projects as demand vanishes.
© Gulf Business 2009
