More Dubai real estate agencies are expected to merge or close down before the end of the year as intense competition puts pressure on margins, industry members have told Arabian Business.
The slowdown in sales volumes as the market stabilises has caused margins to decline by as much as half, as brokers fight to close the fewer deals available, agents said.
“I’m personally aware of six companies closing down in the past few months, two of them were heavyweights,” Terra Casa Real Estate director Zishan M. Khan said.
“I believe we will have more real estate companies closing down within 2015. I also believe there are going to be some mergers between companies, but that’s not a bad thing because that way we will have a more solid industry and much more professional consultants.”
One of those heavyweights was S&K Estate Agents, which said a deteriorating property market in the emirate contributed to its decision to file for bankruptcy in July.
"Simply put, the revenue being generated by the business drastically reduced over the first half of 2015, without enough income to cover operational costs," S&K said at the time.
According to agents, there was an influx of real estate companies launching in the emirate at the start of 2014 as the market began to recover from the 2009-10 crash.
The stabilisation this year means profits and salaries are no longer as attractive.
Core Savills CEO David Godchaux said costs also had increased as Dubai’s economy recovered.
“The market is growing less fast and costs are higher. A lot of real estate firms that had based their business plan on more favourable market conditions are finding life difficult because they need to adapt to what the new market conditions are, with lower margins,” he said.
“The number of brokers is probably going to decrease in Dubai because some are going to be pushed out by higher costs.”
Godchaux said margins of more than 20-30 percent were not exceptional last year, but now 10-20 percent was more common.
The squeezed profits inevitably led to some unscrupulous agents acting illegally, however he said this was a small number.
Overall, the Dubai market was far more mature and stable, in line with other advanced markets in the West. Margins also were more in line with other major capitals, rather than emerging cities.
“We’ve come to a situation where there’s still room for growth but not at the same pace,” he said.
Adam Wisher, head of development advisory and real estate research at Cavendish Maxwell, said competition was “as strong as ever”, leading brokerage firms to invest heavily in public relations and marketing initiatives and on-line platforms to provide a competitive edge to their service – all the while, adding to costs.
“It is also encouraging to see some agencies investing in the education of their new brokers to help them learn the real estate market before they start work – we think that these companies will ultimately stand the test of time. However, with more agents than ever and lower transactional volumes something will have to give…” Wisher said.
Despite some agencies not faring well, experienced brokers were launching their own ventures and recruiting, he said.
Khan agreed that some agents were still taking on more staff – but competition for those jobs was tough.
“As a matter of fact, the job applications for the position of property consultants in our company have tripled in the last few months” he said.
“The most surprising - or not - thing is that many of these consultants don’t have the basic knowledge of how real estate works, which clearly proves the lack of training provided in such companies.”
He said real estate brokers in the Dubai market were now defined by their “service” and “knowledge”.
“Let’s face it, Dubai real estate is maturing and is getting healthier. It’s getting more in line with other real estate industries around the world,” he said.
“Most of the people buying right now are either end-users or long-term investors. This also means that they are rightfully very demanding. Just a simple viewing does not do the trick anymore.
“The company providing the best service gets the client. Professionalism, honesty, transparency and ethics: these four traits are the key to success or even survival.”
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.