Damac Properties CFO calls for sensible post-delivery payment schemes

Adil Taqi talks about the company’s development strategy, industry issues and trends


18 December 2018
While the UAE property market is currently flooded with many post-handover payment schemes that extend from five years to up to 10 years, Dubai-headquartered Damac Properties has taken a stance not to offer anything beyond two-year post-delivery in order to manage its risks.

Adil Taqi, Group Chief Finance Officer of Damac Properties told Thomson Reuters Projects that the company has deliberately taken a stance that it will not offer a payment plan where its "equity is locked".

"We don't offer more than two years post-delivery schemes which we think are a manageable risk. Our profits may come over a slight period of time but our equity has to be out, and our payment plans reflect that," he said during an interview on the sidelines of Cityscape Global 2018 in Dubai. He said Damac offers such payment plans on a very limited inventory.

Dubai's apartment prices have plummeted 14 per cent in the third quarter of this year, in comparison to the same period last year, according to the Asteco, amidst weakening demand from local and international investors.

The value of Dubai's property transactions too declined by more than 20 per cent to 162 billion UAE dirhams ($44.10 billion) in the first nine months of the year, from 204 billion dirhams ($55.53 billion) recorded during the same period last year, according to the figures released by Dubai Land Department (DLD) earlier this month.

With S&P earlier this year stating that the negative trend to continue for the next two years, registering an estimated fall of 10 to 15 percent, developers are looking for innovative ways to attract customers.

On the flip side, small investors and first-time buyers are now finding it feasible to own a property in Dubai thanks to extended repayment plans offered by developers to boost sales in a softening real estate market.

Taqi pointed out that for the first time, there is a window of opportunity for buyers who wanted to buy finished products or where developers offered them ready units - move-in today but pay in two or three years.

But, by doing so, he fears private developers are also taking on major risks.

"These developers are actually taking deposits of people. I don't see any difference between them and banks. Basically, they offer a credit of longer period by managing the risk," he observed.

Moreover, "no one is looking at private developers" whereas listed entities like Damac are subject to many layers of disclosures and scrutiny.

"We have equity researchers and credit agencies looking at us. We have debt researchers looking at us because of the bonds in the capital markets. We have SCA [UAE Securities and Commodities Authority] and DFM [Dubai Financial Market] as regulator and market looking at us,"

But when it comes to private developers, "you don't know how much equity he has. You don't know what he has done. There I am concerned - for the industry, the health of Dubai, and the end-customers," the Damac official said.

Danger of debt

While there are calls for relaxing lending and financing terms for the real estate sector, Taqi warned against putting excessive debt into the system.

"If you put too much debt you know you're going to have a disaster. You look at every real estate or asset inflation that resulted in a disaster was fueled by cheap money," he explained.

He said the UAE central bank has done a fantastic job since the 2008 global financial meltdown to manage credit.

"Credit was well priced, so you could get mortgages at 3.5 percent to 4 percent. It was properly managed and that's important."

While the US central bank increased interest rates for the third time this year in September, Taqi said it's not necessarily a bad thing, "but credit needs to be managed".

"Make it available to the right developers and mortgages. If your product is ready, for say, on Sheikh Zayed Road and you're at a good price, who wouldn't want to take a 60 percent LTV [loan-to-value]," he said.

Catching up on JVs

As a new trend, Taqi said, Dubai has begun to see more and more joint ventures (JV) taking place between developers and landowners for projects.

"Dubai is somewhat new to this because every landowner thinks he is a developer. But if you take UK, Spain, or the US, you will find that landowner, developer and capital owner (banks, insurance companies, and pension funds) are actually three different capacities," he said, however, adding that off late, the Dubai market has begun to see the separation of capacities.

"And I think it will increasingly happen as landowners are realising that they are actually getting better value for their lands - be it over a longer period of time - but through partnerships. This enhances the efficiency of the economy and of the industry," he said.

Backing his argument, Taqi explained that if a developer comes in and puts capital in the land, he deploys equity up front. "His shareholders would want to return that equity and that return would have to be reflected and paid by customers," he said.

But if a landowner does not sell his land and comes into the JV, Taqi said, in that case, the cash gets deferred. "And the developer is able to offer better prices because his returns from the equity deployed are enhanced through equity management and, as a result, end customer gets a better product," he added.

Talking about Damac, he said the company's doors are always open to JVs. "If somebody has a sizable plot of land and doesn't know what to do with it and there are no buyers for it, of course, we will look at it," he said.

On the question of market revival, Taqi said he expects 2019 to be similar to this year, but added, after that even if the market weakens by five to six percent, "that should be alright".

"After that [2019] your upside potential is a lot bigger than your downside risk," he concluded.

Last month, Reuters reported that Damac Properties reported a 68 percent plunge in third-quarter net profit as revenue dropped. The report said the developer reported a net profit of 230.8 million dirhams ($62.8 million) for the three months ended September 30, according to a statement to Dubai's bourse. This compared with a 719.3 million dirhams profit in the year-ago period.

(Reporting by Syed Ameen Kader; Editing by Anoop Menon)


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