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Lots of smoke, where’s the fire?
The increases in Dubai have not corresponded with the actual economic growth of the country and it was inevitable that, at some point, they would have to fall back in line.
For VIP Waterfront, spurring that market change has meant significantly cutting profit margins, although Garin is quick to note just how huge those margins were. "For these developments, we run at profits of between 100 and 300%," he explains. "If we start taking profits of 40 or 50%, that's still great.
That's better than developers in the UK or USA, plus there are no taxes here in Dubai. We'd previously considered cutting margins but feared that it would have looked as if there were something wrong with the project. This gives us an opportunity."
His company is fortunate in being able to offer these ‘normalised' prices, as it's still early in the sales process and, therefore, can reduce prices retrospectively for those who have already invested. Developers who have sold 60% of their projects can't afford to do that and reducing prices now would breach investors' rights and open developers up to accusations of manipulating the market or false promises.
Facing up to the challenge
Master developer Limitless, therefore, has taken a different approach, holding back on selling plots of land on its Arabian Canal project to sub-developers until market conditions improve. This is an example that many master developers - thanks to the magnitude and lengthy time scales of their projects - may increasingly choose to follow.
"Everything is ready to sell, we're just judging the best time to start selling," explains project director Ian Raine. "We haven't set a definite date yet, but obviously we need to take into account what's going on. We haven't made any changes but if conditions mean we have to react, then we will."
In summary, adaptability is the key. In the past, GCC real estate has been in such high demand that developers have been able to dictate their own terms. Now, the market is retaliating and it's those who best acclimatise to these fresh set of circumstances that will flourish.
Sherwoods' sales director, Vincent Easton, certainly agrees. "The days of buying a property in the morning and ‘flipping it' in the afternoon are gone. In response, developers will have to start re-thinking their building projects and design for the end-user market."
Easton says that an adjustment in attitude on behalf of developers will be vital in a more mature market. "Luxury high-rise penthouse apartments and deluxe villas are fine for one sector of the market but more thought has to be given to the middle and lower income brackets.
Developers need to locate and design affordable housing for people who work here and provide assistance in financing in line with salary."
Significantly, Easton does still see a bright future. "Sherwoods has been in the UAE for over 20 years and been through tough times before, including the Iran-Iraq war and the Kuwaiti crisis.
Through transparency, honesty, trust and solid professionalism, we'll not only face the challenges ahead but also increase our percentage market share."
"The environment in Dubai is still very friendly for developers," continues Slava Garin. "No taxes, flexible laws and a supportive government, it's close to ideal.
The Land Department has tried to restrict the short-term market in order to ensure the overall market and the measures are perfect, but perhaps it was a bad time to introduce them given the current crisis. Had they been brought in six months ago, the crunch would be felt even less at the moment."
A new kind of investor
So, how long will the slow down last and what, in Garin's opinion, is the wider prognosis for developers? "It's important to remember that this is global and not confined to the GCC.
There are many factors, such as the new US president, the Chinese reaction...all these things are interconnected. That said, I think it's normal for things to be a little sluggish over Christmas and winter.
We'll see things start to improve in March or April and, whereas 80 to 90% of investors in the past have been in it for short-term profits, there'll be a new generation who are attracted by the area's economic growth and advantageous market."
Adel Lootah, executive director of Dubai Property Society, is slightly less optimistic. "As the US and major European economies are facing severe slow down, it is not likely that our regional markets will escape from the effects.
However, as they have matured, regional markets have differentiated themselves from other emerging markets in the eyes of investors as being quite stable; this, of course, is essential for would-be investors choosing where to invest their money while the current global market experiences difficulties."
One thing that is certain, however, is that the balance of power has swung considerably and now unquestionably lies on the side of the end-user or long-term investor. Developers will ignore the demands of this market sector at their peril.
"With excellent opportunities available, owners and medium to long-term investors will benefit," surmises Vincent Easton. "They will definitely be more selective in their choices, demanding on the range of leisure facilities offered and in search of high quality finishing."
Quiet confidence and patience, then, is being preached. It's time to reassess and reevaluate exactly who new developments are aimed at and how best to market - and price - these.
It is, perhaps, also a time for growing up from the indulgent, reckless abandon of UAE real estate's teenage years and adopting a more considered resolution for its mid-20s. It is not, however, a time for blind panic. The room is not on fire; it's simply being redecorated.
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