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Sun 27 May 2012 08:31 AM

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Back to building

Sun and Sand Developers is bucking the trend in real estate, with managing director Rajan Israni convinced the boom times are coming back

Back to building

“Most master developers were stopping their projects, people were saying that they will leave Dubai, but at that time, we believed in ourselves and went ahead with our work,” says Rajan Israni, managing director at Sun and Sand Developers, a real estate developer group.

Israni’s decision to keep sprinting in one of the most turbulent times of the real estate industry, allowed him to see the timely completion of his project, Suntech Tower, in Dubai Silicon Oasis (DSO). It also helped the company earn the Dubai SME 100 award, making it the only real estate group to earn a spot in Dubai’s top-performing small and medium enterprises last year.

Costing AED60m ($16.33m) and housing 81 offices, the commercial building may not measure up to the more prominent mega-projects in the United Arab Emirates, but it stands high for its sustainability, especially during the recession-injected year of 2009.

Dubai’s property sector was hit hard by the downturn, with billions of dollars worth of projects either put on hold or cancelled, after real estate prices fell more than 60 percent from their peak. According to Citigroup, a massive $719bn worth of projects have been cancelled or delayed in the MENA region, with the UAE accounting for 57 percent of these.

“In the industry, there are two important components for any real estate developer to decide his costs: land and construction,” explains Israni.

Fortunately, he bought his plot of land directly from DSO for AED105 per square feet, a couple of years before the economy grew exponentially in 2008. If he had waited till then to complete the purchase, the property would have been at its peak, totalling up to AED300 per square feet.

Apart from getting the land at the original price, Israni also maintained lower construction costs, as numbers particularly dropped under the wrath of the recession.

“My main component was steel. When I made the purchase in February-March 2009, it was for AED1,550 per metric tonne, [as opposed] to June-July 2009, where the rate of steel was AED5,500 per metric tonne.”

Israni also points out that labour was available in abundance at the time: “And so, my cost of construction came down fifteen to 20 percent,” he says, adding: “That is why we thought that we will continue with the project, we will be able to complete it, and within one year, we will be able to either rent or sell.”

In a period characterised by slow pre-sales and hesitant banks that did not want to touch the real estate market, Israni chose to self-finance his project. The move stretched his elasticity, as it allowed him to provide his costumers with various payment schemes, one of which vibrantly stands out.

“We thought: how can we encourage people to buy,” he says, adding: “The main difficulty was getting the finances for them from the bank, so we decided to introduce lease-to-own.”

The lease-to-own concept is a regular practice in the residential sector, but it is not a recurrent theme in Israni’s commercial world.

Under this plan, the company allows the buyer to use the office by paying just 30 percent of the value. The remaining 70 percent is paid through ten post-dated cheques (PDC) of seven percent value each in bi-yearly installments.

“So the payment time is five years. After that period, the property is theirs,” says Israni. He added: “What’s truly unique with this payment plan is the option to exit. After a minimum of one year and a half, buyer can exit if their businesses are facing extreme hardships.

“The only penalty will be a seven percent installment and we shall return all unutilised PDCs and also the 30 percent initial payment. Thus, the buyer ends up paying a sort of rent for using the premises and the only liability is a cancellation charge,” Israni said.

This scheme does the job as it strengthens consumer confidence in buying office space. But, Israni does not stop there, as he offers a different incentive to drive potential customers into renting his property.

“We give an option of up to one month rent-free period to [newly established] companies,” he says, adding: “During that time, [for instance], the company could arrange its license and complete all the necessary formalities.”

In addition, if tenants wishes to sign the contract for longer period, say three years, Israni provides them with fixed rent, free of increment.

Looking further into his bag of spurs, Israni offers all his customers extra amenities.

“In most buildings, developers construct shell and core, so no partitions, no tiling, [among other elements],” explains Israni, adding: “We did something different.
We thought we would give the customer a finished product.

“A floor box is provided in each office, for instance, so tenants would not have to deal with cabling. Secondly, if a customer wants more space, one third portion of the wall is solid, while two thirds is a gypsum partition, so they could remove that partition, and two offices would become one,” he said.

The building is also secured as visitors do not have direct access to the lifts.

Moreover, to place Israni in total control of events and to consequently facilitate processes for customers, the group serves as a one-stop shop, providing in-house contracting expertise, marketing and even facility management services.

Israni’s attempts to draw tenants into Suntech are still in progress — Out of 81 offices, twelve have been sold and 46 have been rented: “I expect to do more deals in the next three to four months,” he says.

Once the remaining offices have been handed over to customers, Israni’s plan is to sell all 81 offices to investors. “So if I am selling 81 offices, there will be 81 owners instead of just me as the owner,” he explains.

Israni will then regain his capital of AED60m, and with that amount back in reach, he will venture into the company’s future project: “We will not start work on our next project until we have our own sufficient funds in hand,” he says.

Due to the recession, a large number of offices have been left over, leaving landlords in the commercial market troubled. Israni highlights the key challenge fought off by companies in the real estate sector.

“The main challenge is financing from banks. Most of them think it is better to finance retail and hospitality, as the risk factor is less,” he says, adding: “They already started to think of lending to the residential sector, so hopefully the second phase will be commercial. I think, in a year or two, banks will go ahead with financing real estate.

“We are not telling banks to finance the real estate developer. We are telling them to finance our end user, a company,” he says. That will push more tenants into the commercial sector, allowing it to pick up again. Looking into the future, Israni is concentrating mostly on Dubai, as the group has already created a land bank of ten plots in various strategic locations across the city.

“We will expand to other parts of the UAE in specific and the GCC as a whole when we complete work on those plots and when the market recovers,” he says, adding: “For the coming seven to ten years, we will be here in Dubai.”

However long it may be, Israni is well prepared. He has learned to value any challenges that come his way as instruments that will pave the road to success. “The competence of an entrepreneur is tested during the most challenging times. In business as in life, adversities are not mere obstacles, but rather stepping stones towards success,” he says.

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