By Ashford Fernandez
Zafer Taher, the CEO of property developer G&Co, is reaping the rewards of his strategy to stay put during Dubai’s financial crisis. With one property project due to be completed next year, and two more on the way, he’s confident that it’s still a good time to buy in the emirate.
Patience and a hefty price for keeping an undeveloped swath of desert has finally paid off for Zafer Taher. Back in 2006, the chief executive of property developer G&Co was scouting for assets that had the potential to become lucrative investments. The company finally settled on a 5 million sq ft plot of land in Dubai, in what is known today as the Meydan masterplanned development. Little did Taher know at the time that a global financial crisis that would bring Dubai’s real estate market crashing south was brewing.
“In beginning of 2008, we realised that perhaps we might be facing a scenario. We didn’t predict the global meltdown, but we thought that perhaps the international markets were a bit jittery at the time,” says Taher. “In August things started looking really dire and by November you know where we were.”
G&Co had to make a difficult decision: to leave the asset and wait for the crisis to end or sell at the first available price and cash out.
“Knowing Dubai very well, knowing that one day we will be so central because it was such a prime location, we decided to keep it, which was a very good decision,” Taher recalls.
He says the company sat on the asset at a very high cost until 2012, when the market started showing signs of recovery but project launches were still unheard of. It was then that G&Co found an opportune moment to launch the first major project after the crisis. There was appetite from investors and a lot of money on the sidelines in the emirate, says Taher. The company decided the “grounds were fertile enough and that people wanted Dubai to come back into the game”, he remembers.
In March 2012, G&Co took the plunge and launched Millennium Estates, a AED1.5bn project with 198 luxury villas on Meydan’s south extension. To Taher’s surprise, the units sold out in 40 days. He says the project’s “good fundamentals” such as location, price range and quality design were the main factors that played in its favour. Now, villas are expected to be ready for handover around mid-2015, almost six months earlier than originally announced.
Taher is proud of what the company has achieved so far, but says it wasn’t a walk in the park for the developer. Investors who bought into Millennium Estates can consider themselves lucky, he adds.
“For G&Co it was the first project and we needed to prove ourselves in the market. It’s very difficult for a new nobody to come into the market after the crisis,” he explains. “If you want to succeed you need to do better than others, you need to offer bigger, higher specs at a lower price point. We had to do a lot more in terms of price point, design and payment plan. It was a huge risk for us.”
At the time, it also didn’t help that the company was the only one to offer off-plan property for sale in an uncertain market, where investors’ fears needed to be assuaged, says Taher. “We had to offer something special and, with our business partners and advisors, we decided the price point and payment plan might help overcome those fears.”
Investors in Millennium Estates couldn’t have had it easier as far as payment schemes go. Payments for the freehold property were phased out with 10 percent on booking, 10 percent after 60 days, five percent after 120 days, and the remaining 75 percent upon handover of the unit.
Taher says the developer targets a minimum of 25 percent internal rate of return (IIR) on its investment in the project, and that offering a price range that was attractive to buyers was crucial to its future success.
“With Millennium Estates we are close. Remember the cost of financing for us because of the payment plan is higher, the cost of construction is much higher than your typical development, but these are all investments in G&Co long-term,” he says. “Perhaps our return on investment is lower today than where it should be, but we believe that building the brand name and taking it forward on the back of Millennium Estates will help us achieve better results in the future.”
Units started selling with a square footage price of AED1,050, below the closest benchmark, and by the time the last villas went this increased to about AED1,200. Villas in the gated community range in size between 5,400 sq ft to 6,800 sq ft of living space, promising residents large green spaces with walkways and common parks. The profile of investors who bought into the development couldn’t be more diverse, including Emiratis, GCC nationals, investors from the Levant region, Russia, Southeast Asia, China and Europe.
With the success of G&Co’s first major project, the company launched a second development about six months ago, this time catering to smaller families. Grand Views, a AED2.48bn undertaking, will feature 300 five-bedroom townhouses and 176 villas and is also located in Meydan. According to Taher, units were sold out “in no time”, reflecting customers’ satisfaction with G&Co’s offering in Millennium Estates. Work on the project has begun, with the completion date slated for end-2016.
Deriving confidence from the success of its previous projects and buoyant market conditions, G&Co this week announced the launch of a third development valued at AED2.8bn dirhams. Millennium Square will be a high-end residential community project also within Meydan Development. Millennium Square will feature 3,479 sq ft semi-detached villas starting at a price of AED4.3m. Investors will be able to pay 40 percent during construction and 60 percent at the time of completion.
According to Taher, the company wouldn't have launched another major project if it didn't have confidence in the Dubai market. He seems satisfied with the authorities’ intervention in the sector, saying it is necessary for regulators in “hot” and emerging markets such as Dubai “to be involved so that the overheating and cooling of the market is more regulated”.
“I think the regulatory authority in Dubai is doing a better job today for having a feel for the pulse of the market and acting accordingly by issuing new directives, rules and regulations,” he notes.
Taher says new supply to Dubai’s property market from now until the Expo 2020 is estimated between 20,000 and 22,000 units per year — a figure that needs to be kept in check. However, a difference of 4,000 units in a market such as Dubai is considered a healthy margin, he adds.
Unless external factors come into play or a regional war breaks out, Taher is of the view that certain areas in Dubai will never see a downturn in price, but could instead continue on an upward trajectory. He likens it to Monaco or to living around Central Park in New York City, where even during times of crisis values remained resilient.
“In 2008-2009, most of the markets around the world suffered a certain decline in prices, but the prime areas were not affected because the supply is so small and demand will always be high. Examples of those areas in Dubai exist today… and I think those will not be affected,” he says.
On the other hand, Dubai is running out of land and developments are moving south and eastwards, creating “new frontiers” where “a new breed of customer will take a chance and find a value proposition for himself”, Taher predicts. Those areas require large investments in development and infrastructure and may be more vulnerable to price fluctuations, he adds.
“But when it comes to the established locations, I think if you bought during the crisis you’re a lucky man and I think if you haven’t bought go and buy now,” he urges.
For the CEO, there are many reasons to be optimistic about Dubai’s property market. “It’s a sanctuary and an oasis in a desert full of conflict. It has infrastructure, schooling, top medical facilities and airports. It’s still a tax-free environment and the authorities are still quite gentle about the fees they charge people.
“Try and buy an apartment in Paris and you’ll pay upwards of 25-30 percent, and more when you’re done. [In Dubai], it’s quite a fluid and cheap process. Plus you make capital gains and you keep it all, and they’re not taxing you. You make a huge yield, and take it home. As a developer, I believe I’m in the best market. I’d rather be here than anywhere else frankly.”For all the latest real estate news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Congratulations on your success Mr. Taher. Dubai needs more developers like you.
This has the potential to be the best villa development in dubai. The Meydan district is truly spectacular, and with such close proximity to the airport and downtown. When ready it will be a million times superior to Meadows, Springs etc. Just visit the site, amazing stuff already. Congrats G and Co !!