PNC Menon is a busy man — it takes several months to lock an interview into his diary. But on the day of our meeting in Dubai, the Indian-born real estate developer exudes characteristic warmth and courtesy, refusing to allow Arabian Business to leave without a bowl of Middle Eastern halva and repeatedly asking whether we have enough milk in our tea.
A long-term UAE resident and Omani citizen, Menon is founder of the Sobha Group of companies with operations spanning India and the Middle East. Edging towards 70, he ranked 11th in the Arabian Business Richest Indians in the GCC list last year, with an estimated net worth of $1bn and a huge villa in Dubai’s wealthiest neighbourhood, Emirates Hills. Before starting his current work in the UAE, he cultivated an impressive reputation during decades as an interior designer in Oman, with work on the Sultanate’s flagship Sultan Qaboos Grand Mosque and Al Bustan Palace Hotel, as well as other projects in Qatar and Bahrain.
Given his prowess, he is surprisingly humble, but at the same time boldly proclaims he wants Sobha Group to become one of the “top three real estate brands in the UAE” and intends to spend the next five years consolidating the business to achieve that.
Best known in India, where it has a listed entity on the Bombay Stock Exchange with a market capitalisation of $386m as of February 6, Sobha Group has been quieter in the UAE, gradually building its reputation for delivering understated luxury properties. “We are still developing, still establishing ourselves, and we expect Sobha to become a very strong brand here in the near future,” Menon says.
The company is delivering two main projects within the master-planned Mohammed Bin Rashid Al Maktoum City to the west of Dubai’s Burj Khalifa/Downtown area: District One, which is being delivered in a joint venture with Meydan Group, and Sobha Hartland.
The $ 8.5bn District One scheme near Meydan Racecourse spans a 1,000-acre site and includes more than 600 villas in phases one and two. The $4bn Sobha Hartland project, which comprises 344 villas & townhouses and multiple apartment blocks over 183 acres, is scheduled to deliver its first apartment block at the end of this year.
The two projects are huge and Menon has had his hands tied since they were unveiled in 2013 and 2014, respectively. The first villas of District One phase one are complete and due for handover by April 30 (the majority of villas in all three phases have been sold off-plan since the launch of the scheme’s third phase last February, he says) and the first phase of Sobha Hartland is scheduled to be completed by the end of 2017.
With construction well under way, Sobha Group has started to unveil other projects in the UAE, including the 70-unit Hartland Estates — Quad Homes project close to the Dubai Water Canal, and a 53 million sq ft resort called Firdous Sobha on the mangrove coastline in Umm Al Quwain, north of Dubai.
Sobha Group is also understood to be planning its next large-scale Dubai residential scheme similar to its projects in the Mohammed Bin Rashid Al Maktoum City. Managing director Raj Chinai told Arabian Business in September that the scheme would be the group’s first foray into a new submarket it terms ‘affordable luxury’ — expected to help it target a wider audience.
Menon refuses to reveal further details about the project pending confirmation of a joint venture deal with an as yet unnamed partner.
“We are definitely getting into this project but it is sensitive. I can’t tell you anymore right now but we should be announcing it before June 30,” he says. He also declines to reveal the scheme’s planned location, but it is thought to be an area in which Sobha Group is not currently operational.
Analysts suggest that Dubai’s real estate market has bottomed out after a two-year period of falling sales prices and flat demand. But in a cyclical market subject to regular peaks and troughs, it is not surprising that Sobha Group wants to diversify from its upmarket luxury offer.
It was reported in 2015 that villa prices at District One started at $4.2m (AED15.5m) and rose to around $6.9m (AED25.5m). Larger ‘mansion’ villas were being sold in excess of $25m (AED90m) — making them some of the most expensive in Dubai.
Menon tells Arabian Business that while Dubai overall “has not come down drastically”, the slowdown that hit the market — particularly in the luxury and super-luxury segments — from the second half of 2014 has affected the speed of sales of Sobha Group’s units. Reaching for a piece of paper, Menon draws a pyramid of bias to illustrate greater demand in the mid-segment of the market than at the very top.
“This is generally the case in any buying pattern; for any product on earth there will be bias in the lower segments. I see this affordable luxury segment as being prices ranging from AED1m to AED5m ($270,000 to $1.36m) — and the beauty of that is that it will have five times, six times more volume than the apex of the pyramid.”
Does this indicate a move by Sobha Group to eventually enter the burgeoning affordable housing segment, too, with prices under AED1m? He says no. “We’re not planning to be in the lower end.”
Gesticulating to the upper tiers of the pyramid, he adds: “We want to keep our brand associated with here. I think we are primarily a high-end company. A lot of compromises on cost and quality have to be made to operate at the lower end of the market so it’s better for us to be here. It’s safe for us and it fits with our philosophy. You’ve seen our product? You understand.”
Menon is fond of drawing diagrams. Later in our interview he draws a map of Dubai and shades in the geographical hotspots in which he believes the most development will take place in the years to 2030. His vision is for a 300-sq km patch from Dubai Marina/Jumeirah Emirates Towers to Dubai Downtown, bound by 30km of Sheikh Zayed Road to the west and stretching 10km inland from the highway. “That whole area will be filled up,” he states.
“There are two powerful spots at either end but over the next ten years there could be a barrage of developments happening either side of them as each cluster is expanded and new satellite developments spring up. This will form a dynamic ‘second city’ away from Deira, the old heart of Dubai.”
He insists demand is there, even in a flat market. “There are approximately 500,000 occupied homes in Dubai at present. What is the potential then? Suppose the population is expected to grow at a rate of between 3-5 percent over the next decade, as forecast. Let’s take an average of 4 percent. Even then, we are talking about 20,000 additional units that need to be built in Dubai.
“Of course there will be competition, but in terms of sustainable competition, any real estate developer would need to have three things: the right brand, the right ability to run a business, and the right location. Really there will only be about ten meaningful operators in this space, so yes, demand is there.”
In 2015, Menon told Arabian Business that Dubai’s property market would be “back to normal” by the year end. At the time, research by Knight Frank had disclosed that luxury property prices in Dubai had dropped 1.9 percent in the previous quarter as the market continued to cool. Time has since told that villa prices in the emirate continued to drop by an average of 1-2 percent in subsequent quarters before appearing to stabilise at the end of last year.
Menon concedes his forecast was wrong but insists the market has bottomed out in the past three months and looks set to recover this year. In any case, he says, there will always be demand for stock from established, reputable brands. “Last October, November, December we started to see the ripples of the market picking back up again. I would not say that it’s back to normal but I have a feeling it will be by the second quarter of 2017.
“But look, the real estate market is cyclical. Demand started springing up in the second half of 2012. That positive cycle continued throughout 2013 and 2014 but the second half of 2014 it fell off again, and continued in a negative zone throughout 2015 and 2016. But it’s not 100 percent negative.
“Those brands like Emaar and Damac [Properties] — and even Sobha — have still been able to sell, even if it is only to 50 or 60 percent of the market that was there before, showing there is consistency in the market. This is particularly the case in Dubai, which is probably the most important — and well regulated — real estate market in the Middle East and Africa region.”
Menon says he is “extremely confident” that Sobha Group is close to its “dream” of being perceived as one of the three best brands in the UAE because its track record with District One and Sobha Hartland demonstrate it can sell a high percentage (about 60 percent) of units even during a negative cycle.
He will not be drawn on the private company’s financial performance, stating: “It is not double-digit growth — this is a cyclical business, you cannot consistently grow year-on-year, which is one of the most unfortunate parts of the real estate business; it’s very difficult.” But he claims that over a five-year period, which typically includes a two-year downturn and two-year uptick, the company has managed to sell on average $820m worth of real estate — and that is its minimum sales target in the five years ahead.
Sobha Group is fully-financed at present, Menon says, but fundraising with banks is a “continuous process”. He says the business has a strict debt-to-equity ratio to keep it healthy. “Generally, I say if debt is ‘x’, equity has to be at least 2x or 1.6x — this is safe.”
With such bold plans for growth in the UAE, it comes as a surprise that Menon says he has no plans to expand the business elsewhere in the GCC or the Middle East. Instead, he wants to crack the US, UK and other Western markets from 2020, following a period of consolidation.
There are also no plans for an additional public listing, at least for the next five years. “We are looking at a few things, some talks [are] happening, but I am in no hurry.”
He says he does not intend to tap the potentially lucrative Asian market, saying he is fearful of high levels of corruption in some countries.
“We have decided not to go into Asia and some other countries because one thing I have started feeling and making company policy is that if corruption is there, we would prefer to avoid that country,” Menon says.
“Dubai, for that matter, is one of the safest investment destinations in the world, with high business standards and ethics, so we are very happy here and by 2020 [we] intend to be in just India, the UAE and one other non-Middle Eastern, non-Asian country.
“India, unfortunately, is a country of corruption but I don’t wish to choose another [like that]. Suppose you go to London, you do not have to pay bribes; similarly, if we go to the US we do not have to pay bribes.” Does he pay bribes in India, then? “I never said that,” he answers.
Of course, if Sobha Group expands to the US, it will have to grapple with the uncertain political climate that has descended since the appointment of Donald Trump as president.
Menon does not directly comment on this, but seems outraged by the immigration ban on citizens of seven Muslim-majority countries — a policy that was being challenged in US courts at the time of writing. Following reports that Kuwait had instigated a similar, Trump-style ban (which the Gulf state vehemently denied) Menon laments, “Will this become a practice in the whole world?”
The businessman, who spent 28 years building a reputation as an interiors contractor in Oman after leaving Kerala in 1976, described his development of the Mohammed Bin Rashid Al Maktoum City masterplan as “the most exciting thing to have happened in my life”, in an interview with Arabian Business in 2013.
There are undoubtedly plenty of exciting projects in the pipeline for Sobha Group if it is to fulfil its ambitions in the years ahead.
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