By Lubna Hamdan
Real estate agents were earning $500m a year in commissions. But Covid-19 has left them fighting for their futures
Dinners at Zuma, drives in Porsches, open houses in Armani suits, handshakes in $20,000 watches and $6m deals closed over rounds of golf - welcome to the life of some of the UAE’s top property agents. A sluggish market didn’t stop those in Dubai making nearly $300m in commissions during the first nine months of 2018 alone, while the countrywide figure could easily be estimated at half a billion dollars.
Real estate transactions in Dubai even jumped by almost 10 percent in Q1 2020 compared to Q1 last year, with a total of 10,243 compared to 9,317, according to figures by Property Finder. The total is the highest number of sales transactions recorded in Q1 in the city since 2017.
Yes, real estate brokers in the oil rich Emirates were having the time of their lives. Just two months ago some were still boasting of private island tours in helicopters on the way to holiday in the Seychelles.
How the world has changed. Today Covid-19 has forced brokers to swap their Zuma dinners for Zoom meetings to discuss not multi-million dollar deals, but whether they should brace for a crash expected to be worse than the 2008 financial crisis.
Property sales have, unsurprisingly, come to a near halt as countries around the world adhere to strict lockdown measures to curb the spread of the virus. The UAE announced a 24-hour curfew for two weeks on April 4 and has since extended it.
“I don’t think we’re going to see a crash, no [but] there will be an element of distressed sales”
“I worked in the US during the 2001 internet recession and then during the 2008 financial crisis,” Haider Ali Khan, the CEO of online property portal Bayut.com, tells me. “They were difficult times, but mobility wasn’t restricted then. Now the whole world is restricted. These are truly unprecedented times”.
In the front line of the war against coronavirus are the brokerages, the smallest of whom are expected to pay the highest price.
“We can’t get away from the fact we’re in a crisis. We can’t do business. We can’t really earn money at the moment,” says Andrew Cummings, managing director at Dubai-based LuxuryProperty.com. “Sales have definitely slowed down, a lot.”
But mention the word ‘property crash’ to Cummings and he instantly turns on his persuasive charms we can only assume work well on potential buyers.
“I don’t think we’re going to see a crash, no. There will be an element of distressed sales but if anything, Dubai’s incredible handling of this pandemic means a lot of people will be looking at Dubai and saying, where will I want to live with my family if this happens again? And Dubai sits very strongly,” he says.
Cummings even boasts of selling an AED20m ($5.44m) villa in Jumeirah Golf Estates and an AED7m ($1.9m) plot of land at La Mer as recent as last week, and says areas like the Palm Jumeirah have seen a surge in interest.
People have been crammed in apartments for so long, he says, they’re shifting their interest to bigger spaces like villas with gardens they can enjoy in case they’re faced with another pandemic and forced into quarantine.
“Sometimes the brokers don’t understand and perceive us as a big company that is very wealthy... but like any business, who can afford to go a month without revenue?”
“Even with penthouses and apartments, people are asking, what’s the size of the balcony? What’s the size of the terrace?” he says, laughing.
Better Homes’ group managing director Richard Waind doesn’t predict a drop in prices either, as the past five - six years have left little room for elasticity, but he expects a quick rental recovery post Covid-19.
“There’s a lot of pent up demand for rentals at the moment. People have been sat in their apartments for five weeks and are wanting to get out and get more space. We’re taking on more inquiries from people looking at villas, so rentals will recover quite quickly,” he says.
We could all use some of his optimism. Waind even predicts an economic boost “like never before” once the lockdown is lifted.
“I suspect that there will be a human desire to get out there and live again and spend money again and see our friends again and get the economy moving again like we’ve never seen before, off the back of an economic shock like this,” he says.
While a slight recovery in Asian markets where Covid-19 has nearly subsided has given some hope, today brokers can barely afford advertising space in online property portals.
“I used to get 50 calls a week on my phone, and now I’m barely getting one a day,” Marwan Yasin tells me. He’s a financial specialist at Abu Dhabi-based Miramar Property Management, one of nearly 100 brokerages that has pulled its listings from the UAE’s largest real estate website Property Finder in March.
Brokers must pay large sums to portals like Property Finder, Bayut and Dubizzle to be featured on the platforms, with some paying nearly AED1m ($272,000) in yearly fees.
“People are emotional during these times and I understand it”
Last month 260 brokerages in the UAE came together to form a united front in a bid to pressure the portals to provide three-six months’ worth of advertising fee relief as Covid-19 lockdown measures hit the sector.
Property Finder initially offered brokers one month free on their platform Data Finder, followed by a 33 percent discount for the next two months. After pressure from brokers – and 9,000 listings pulled from the website – it came back with an offer of two free months.
In our hour long conversation, Property Finder CEO Michael Lahyani tells me brokerages are being “emotional” and panicking too early on, when the UAE has only been in lockdown for less than three weeks.
“Some of them are panicking. We’ve been in a lockdown for two weeks, and it’s being extended for another week, but to come out and ask for three months [free]? Of course it’s going to take time until the market picks up again but who says there’s not going to be any business for three months?”
The Dubai Land Department (DLD) was still registering transactions last week, “It’s not like you cannot technically close a transaction,” he says.
“These are small businesses that are afraid of the future and uncertainty in the market and they don’t have banks that would help them with a loan in this market so they’re turning to us, as in, who’s going to help us? Let’s turn to Property Finder…
“We believe we’ve been forward thinking with this. But you know, people are emotional during these times and I understand it. There’s so much uncertainty around how long it will last and there’s a little bit of a panic,” Lahyani says.
But Better Homes’ Waind disagrees and says discounts are a matter of ‘life or death’ for smaller brokerages.
“These portals are totally predatory. They know they’ve got us over a barrel”
“It’s a little disingenuous calling anybody emotional in this period,” he says. “People are trying to navigate and keep their companies afloat in what is a challenging time. For some of the smaller brokerages in particular, those costs will be life or death if they’re not getting any income in.”
Property Finder wasn’t the only one to hesitate in providing relief to brokers. Its rival Bayut originally offered to defer brokers’ upcoming cheques by three months, and later decided to provide them with one free month of advertising and a 50 percent discount for the two months to follow. Since then, it has stepped up support and offered real estate brokers across the UAE with free space for 20 listings irrespective of whether they’re partners of the platform.
While Dubizzle, which is owned by Netherlands-based OLX Group, also waived broker fees for the months of April and May, its primary focus “has always been on the long term and sustainable value creation for all of our stakeholders,” Matthew Gregory, Director of Sales at Dubizzle, says in an email statement.
It is for that reason that Cummings of LuxuryProperty.com believes portals would not have caved to brokers’ demands had they not been pressured.
“They [portals] all need to look and see how they can make this more sustainable… The sad fact in this industry is a lot of people are reliant on these portals so they don’t have a lot of marketing strategies... a lot of people survive by these portals.
“These portals are totally predatory. They know they’ve got us over a barrel. They gave us what they gave us because they knew we didn’t have a lot of choice. And that’s going to come back to bite them at some stage because we are going to need them to start being more flexible,” he says.
Lahyani is taken aback by Cummings’ statement when I ask him what he thinks.
“There’s a lot of pent up demand for rentals at the moment”
“I’m not sure the industry recognises that we actually paved the way for these package reliefs to happen. Had we stayed put in our position, our competitors would have stayed put as well,” he says.
In his defence, Property Finder has had to lay off 100 staff members and close two markets – Morocco and Lebanon – to be able to provide a two month relief for brokers.
“This is not Europe where the government is [paying] 80 percent of your salary. We have to figure this one out on our own… Sometimes the brokers don’t understand and perceive us as a big company that is very wealthy and can afford to navigate through this crisis without any challenges but like any business, who can afford to go a month without revenue?” he says.
Cummings recognises the sacrifice. “Property Finder has actually done a lot internally to do this... They’re hurting... It’s taken a bit to do that,” he says, adding that his company LuxuryProperty.com has also had to furlough eight of its 15 operations staff.
“There are challenges we’re all facing and it was important for us to see that our partners in the portals were also experiencing challenges. It’s not fair for us to lose 25 percent of revenue while they offer [us] a 5 percent discount. It’s not comparable,” he adds.
Bayut, on the other hand, has “gotten away without feeling any pain,” according to Cummings. “Bayut haven’t done any of that. I’m not aware of them reducing salaries or doing anything. So at the moment I think Property Finder, in many ways, have felt some pain to give us that, whereas Bayut are sort of getting away with not feeling any pain. We don’t want them to feel pain but our businesses need to survive,” he says.
Bayut CEO Haider Al Khan has confirmed that the company has not laid off staff, but tells me he needs “a bit more time to reassess what’s going to happen.”
For the brokers to survive Covid-19, the portals will need to go back to the basis of their business models: inflexible 12-month contracts that limit brokers’ abilities to adapt to market demands.
“The days of 12-month contracts strictly holding us in, are gone. All the portals must move towards more flexible contracting to enable brokerages to respond to market demand... We all have hard working brokers who are commission-only who are not able to do their day jobs and not able to go out and earn money at the moment,” says Cummings.
“We are partners to these portals and they’re important to us but equally, we’re important to them. They can’t survive without us and we can’t survive without them so we all need to come together to get through this crisis. Whilst the initial relief provides some respite, this is not the end and we will need to be looking at more flexibly moving forward,” he says.
The 12-month contracts give portals the upper hand, and could result in small brokerages closing down. What brokers are hoping to see post Covid-19 is a “rebalancing” of the relationship.
“Being locked in on the annual contract where they hold your cheques, in a crisis like this, they start cashing people’s cheques, some businesses will go bust…” Cummings says. “They need to look at contracts that aren’t handcuffing us in to long-term inflexible contracts secured by post-dated cheques. That needs to be over.
“Without us they won’t survive and have crazy hundreds of millions of dollars valuations. But ultimately, sadly, because the market is reliant on them, it gives them a lot of power.”
Lahyani argues that all year round subscription models are crucial to the survival of portals, which would otherwise be limited to seasonal clients. Yet considering Covid-19 has left nearly all of us settling for less, maybe the portals should too. Maybe if everyone took only what they needed, there would be enough for everyone, and maybe then, we would not have to wave goodbye to the brokers after all.
*Recent media reports falsely stated that brokers had removed 20,000 listings from Property Finder. The real number, according to both the portal and brokers, is around the 9,000 figure.
Commercial and residential tenants in Dubai are in as strong a position as ever to negotiate new contracts, according to the latest market report from Core Real Estate.
The outbreak of coronavirus continues to cause economic uncertainty, with many employers choosing to reduce hours and, in some instances, salaries.
However, research from Core from Q1 this year suggests that this may provide an opportunity for those in the rental market.
The report said: “We continue to see enquiries and online searches as tenants are either looking to find the current rental value of their property to help them negotiate with their landlords or to relocate and reduce their rental outflow.”
Most industries may be suffering due to the coronavirus, but Dubai-based Azizi Developments claims its projects are “in full swing” since construction is exempt from the 24-hour government mandated lockdown.
The private developer’s projects in Mohammed Bin Rashid City (MBR), Palm Jumeirah, Dubai Healthcare City, Al Furjan, and Downtown Jebel Ali are underway and construction is progressing swiftly, it said in a statement.
While construction has indeed been exempt from the 24-hour lockdown in Dubai, the city has followed in Abu Dhabi’s footsteps by limiting the movement of blue-collar workers from one Emirate to the other.
But Azizi Developments insists it’s on schedule to deliver projects. In the first three months of 2020, it said it constructed over 1,326,978 sq. ft of built-up area (BUA), with a monthly average building progress of nearly 8 percent.For all the latest Property 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.