Developer plans IPO around 2018
Schon Properties, which is developing a Dh5 billion master-planned community within Dubai Investment Park, is diversifying its development portfolio by expanding its hospitality and retail assets that will multiply its recurring income and make the company financially sound and its business more sustainable.
The move mirrors portfolio diversification strategy of major property developers – Emaar Properties, Aldar Properties, Dubai Properties Nakheel and Damac Properties – that helped them expand cash-generating assets and make these companies less vulnerable to external shocks and economic slowdowns and make them more profitable and sustainable, after the 2008-09 financial crisis.
All these developers now have sizeable commercial, retail, hospitality portfolio, in addition to built-to-let assets – that fetches recurring income and makes them less dependent on the built-to-sell properties. Schon, one of the victims of the 2008-09 crisis, is also following the similar path for its future growth and sustainability.
The Dubai-based developer is also considering the possibility of floating the company in one of the international stock markets to expand its shareholder base, a top company official told Gulf Property.
“Now that Schon Properties is delivering one of the largest mixed-use master-planned communities in the UAE, the company is looking at its next phase of growth and development,” Noorul Asif, Chief Operating Officer of Schon Properties, said.
“Although it is in early stage of strategic thinking, the company has the option to grow organically, through acquiring land assets and by floating the company in one of the stock markets through an initial public offering (IPO), We have started talking to a financial advisor on the strategic direction as the organisation is maturing and moving to the next level.
“As an organisation, we are done with the vanilla projects. We’ve done that a lot. Now, we want to add value to our customers,” he said.
Schon’s master development is a cluster of 51 mid-rise building comprising of 4,500 apartments including 2,700 serviced apartments to be managed by international operators. It was launched in 2005, with the clusters of eight-storey buildings in seven zones at Dubai Investments Park due to be finished by 2008. The delays have been attributed to road widening, the economic downturn and securing utility clearances.
In recent months, the company has mobilised resources to deliver the project, which is on track for completion in June 2020 – ahead of the World Expo 2020.
“Dubai Lagoons is well positioned to serve a good chunk of the tourists who will be visiting the Expo 2020 for a period of six months,” Asif says. We are just a station away from Expo 2020 site as the new extension of Dubai Metro will pass by our project.”
He said, beyond the mega event, Dubai Lagoons will continue to serve a large number of tourists due to the project’s close proximity to Dubai South – the 140 square kilometre master-planned city – that will host Al Maktoum International Airport which is slated to be the world’s largest single-site greenfield airport development project with a capacity to handle 160 million passengers annually.
“Once passenger flights starts to pick up at the Al Maktoum International Airport post 2020, Dubai Lagoon will be one of the closest neighbourhoods from the airport – yet distant enough from the usual buzz of the airport operations,” he says.
“Dubai Lagoon’s 2,700 hotel apartments will be ideal to serve a growing number of tourists – mostly families and give them an extended home away from home.”
Schon Properties last year delivered the Schon Business Park, a 1.65 million square feet commercial property that hosts 270 offices, 90 retail outlets and 1,700 car parks.
Gulf Property: In view of the lower oil price, what is your view on the overall economy of the UAE? Do you think the economy will suffer due to low oil price?
Noorul Asif: Dubai’s economy has been built on imagination, not oil. Its economic growth is powered by vision. Therefore the price of oil has little or no impact on Dubai economy – which is well diversified.
Dubai is no longer dependent on oil. In fact long before the drying up of oil, Dubai had begun to diversify its economy and prepared it for the post-oil growth. The emirate’s economy is more reliant on trade, retail, aviation and tourism, in addition to real estate and construction.
The economy is moving well and I believe mega events such as the Expo 2020 will drive economic growth. I sometimes measure the economy’s performance with the intensity of road traffic. The heavier the traffic, the better is the performance of the economy. Higher traffic means more people on the move, more cars on the street, more spending on fuel or other expenses. Higher traffic is a reflection of increased mobility. So, the increase in traffic means increased public mobility and more people on the move.
What is your view of the overall real estate market condition? It looks like property prices and rents are still declining.
The market is well regulated now. Investors’ money is protected by the law and the money goes to a trust or escrow account which developers can’t access unless approved by banks who releases the money after inspecting the construction progress. So, there is a trust factor built in.
Market fluctuation is part of the economic cycle. Prices will go up and down depending on the demand and supply situation and that’s quite normal. Dubai’s real estate market is more real in that sense – there are real developers, real buyers and there is real demand. The market is no longer driven by speculation.
Also the market has moved from luxury and super luxury segment to the mid-market to affordable homes. Over the last 15 years, developers have been delivering luxury properties, so much so that the demand for luxury properties is less. That segment might be under pressure due to lack of demand. But demand for other segments is still high.
So, the demand is more on the affordable homes. Obviously, prices of affordable homes are much lower than those in the luxury segment. That’s why one assumes that the prices have gone down drastically.
There is a general perception that the property prices are on the lower side. That’s far from the truth. We see a lot of movement in the market. The ticket size might have gone down – due to the lower value of the affordable homes.
However, a lower price of assets in not a bad thing. It attracts investors who could count on higher return on investment (ROI) and that’s good from an investment point of view. In fact, affordable homes offer a better ROI than those in the luxury segment.
For example, a Dh700,000 investment in a one-bedroom or two-bedroom apartment could give an annual rental yield of Dh80,000, at least. That’s more than 11 per cent ROI. Which means you could get your money back in less than 9 years! You can’t get that anywhere else.
In Dubai, a residential property usually fetches 8 per cent rental yield, or ROI. Although the same is lower in commercial properties – about 5 per cent – it is still good as offices usually bring a lot of footfall and if tenants are reputed brands, then the value of the property appreciates on its own. It’s a good trade off.
So, I do not think downturn is a bad thing. You have plenty of opportunities during slowdown – you just need to invest in the right property and at a right location.
Do you think Dubai is building too many units that the market might not absorb?
Dubai’s growth is vision-driven growth and it will be driven by government’s vision.
For us, the next phase of growth will be driven by Expo 2020 and the associated business surrounding the 25 million tourists coming in that year. Hospitality will be a major driver for Dubai – which needs more than 60,000 hotel rooms, in addition to the 85,000 rooms and serviced apartments currently existing.
So, we also felt the need to support the government’s vision – that will create opportunity for all of us. That’s why we are dedicating a larger portion of our master development Dubai Lagoons towards tourism and hospitality. We are dedicating 2,700 units of the 4,500 apartments for the hospitality industry. They will be hotel apartments and managed by international hotel operators.
As a developer, we will retain a third of the 2,700 units for ourselves – to increase our recurring income.
So you are diversifying your portfolio? Is that a strategic direction for future?
Yes, absolutely. As a developer, I do not want to put all my eggs in one basket. Besides, we need to build our rental portfolio to boost recurring income.
Return on investment in hospitality sector is faster – to the tune of 12 per cent per annum.
So, if an investor buys one of the service apartments, say for example for Dh1 million, he could easily count Dh120,000 per year, based on a 70 per cent occupancy calculation. Which means an investor could recover investment in a little over 8 years’ time. That’s excellent from an investment point of view. So, through hospitality portfolio, we are able to offer a better value for investors.
You have already delivered Schon Business Park – your first major property. Could you kindly describe the facility?
The Dh1.2 billion Schon Business Park is a large commercial building consisting 270 offices with a capacity to accommodate 4,000 employees. The ground floor consists of furnished offices and 90,000 square feet of retail area, catering to a population of 60,000.
We have successfully delivered it last year and buyers are using it while others are preparing to set up their facilities. It was a commercial success for us.
However, as a developer, we feel that we have offered a greater value to our customers who would benefit from rental growth as well as capital appreciation. This will serve businesses well as demand will pick up as we move closer to the Expo 2020.
Your biggest investment is a mixed-use development at the Dubai Investment Park. Could you tell us how it’s progressing?
Yes, it is our biggest project to date. In terms of development value, it’s worth Dh5 billion today. However, if you ask me next year, the value will be much higher, due to fast capital appreciation.
It’s a master-planned development consisting for seven projects with 51 mid-rise buildings offering 4,500 apartments including 2,700 hotel apartments that are separated by a Crystal Lagoon and connected through a podium complex spread across 500,000 square feet that will host a number of facilities including retail stores and fine-dining restaurants.
We are preparing to hand over keys to our first batch of home buyers in April 2017 when the first project is delivered. Then we will keep on delivering project by project till the entire project is completed by June 2020 – ahead of the Expo 2020. By then, the new Dubai Metro line will start operating and our residents could just walk to the adjacent metro station.
In terms of location, we are ideally located – just one metro station away from the Expo 2020 site and a few more stations away from Al Maktoum International Airport – which will become the largest airport in the world when completed.
The price of our property will continue to appreciate as the air traffic at the new airport picks up – and when Emirates Airline shifts its base to the new airport by 2025. Ours will be one of the most wanted residential and hospitality community for all.
Could you describe these hotel apartments? Who are they going to cater to?
We are looking mostly at family tourists. The complexes will have a day care centre – where children could be taken care of – while the parents keep themselves busy.
Having said that, the hotel apartments are also ideal for business travellers and we are going to see many of them staying with us due to the close proximity to the new airport.
The community will also have 500,000 square feet retail space that creates a shopping mall with convenience and lifestyle stores, so that the residents and tourists do not have to go out of the community for essentials.
How did your recent sales campaign go with the buyers?
We had extremely good response and we are happy about it.
How is the company doing in terms of financing the project?
As a developer, we are well capitalised to deliver the master development project, regardless of the sales progress or lack of it.
The company will go ahead and deliver the project – and we have the financial capacity to do it without touching the buyer’s money.
Therefore, no one should now worry about delays in delivery. If at all, there might be a six-month variation due to construction and logistics – but not due to us or payment issue, which is well in control.
What are your future growth plans?
As a long-term player, we are a firm believer of the Dubai success story and will continue to be part of the story. Therefore, we are currently reviewing our long-term growth strategy and there are three ways to look into our future.
One of the obvious choices is to grow organically – which we will grow anyways. The other option would be to acquire lands and grow in partnership.
However, we are also considering offering our shares to the public for them to become part of our growth story. We are still looking at the options and will make a decision when the time is right.
However, hospitality sector will be a major growth area for the group, simply because Dubai will continue to be a very popular tourism destination. The emirate needs more hotel rooms and we want to contribute to that vision of the government.
Dh7 billion development portfolio
8 million square feet developments launched till date
1.6 million square feet delivered till date
Dh1 billion land bank value
A charismatic leader, trainer, marketer and an out-of-the-box thinker, Noorul Asif, the Chief Operating Officer of Schon Properties wears several hats.
A wealth of experience pooled from his diverse professional background has honed Asif into a well-rounded individual with powerful managerial skills and armed him with an understanding to work on multidisciplinary platforms successfully. Having charted many paths, the man who began his career in IT has eventually settled as a real-estate industry leader with a decade-long association with the sector behind him.
From someone whose interest in real-estate industry grew from buying a few buildings, it was Asif’s astute business acumen and the zeal to experiment that led him on this uncharted territory. His decade-long association with Schon Properties witnessed his quick growth in real-estate, while his analytical navigational skills helped the company explore new avenues. Asif’s significant contribution to generating sales in Schon Properties’ initial years geared the company to a good start and in the next 10 years he masterminded several transactions, investments, acquisitions, mergers and business spinoffs worth over Dh1 billion.
From creating a formidable team to bringing on board new contractors, Asif has had his finger in every pie. He was also the man behind successfully raising the first institutional money for Schon Properties. Currently, he is in the process of devising a team structure in sales for the company that will serve as a mass production assembly line. Like most of his previous endeavours, Asif has taken an innovative route in coming up with a concept never practiced in UAE real-estate industry before.
With a degree in Computer Science from the US, Asif’s career spans over four countries dotted with a number of achievements.
Over the years, Asif’s commitment to his work and his passion has won him several accolades. From the Best Trainer award, to Author of Best Business Model to Exemplary Customer Satisfaction Award, his worth and dedication has been appreciated on a number of platforms.
Using his vast knowledge of IT, combined with his role as a consultant, Asif has used his skills to propel his way within the real-estate industry.Today, his thorough knowledge on the subject identifies him as an authority who can be depended upon to present an astute perception of the industry’s highs and lows.
Schon Properties has launched iSuites – a lucrative investment product that not only offers the investor more than 12 per cent return on investment, but also will help contribute to the economic growth of the UAE and help realise the country’s vision 2020 and 2030.
The iSuites envisages smart modern living of functional and futuristic facilities. The full-serviced hotel apartments are ideal for upwardly mobile couples or small families coming to Dubai on a short-term corporate assignment that allows the head of the family to work or get himself trained while the spouse or family could enjoy quality time amid affordable luxury.
Investors and buyers could purchase a hotel suite or a service apartment suite that will be managed by international branded chain hotel operators and offers buyers a higher income of 12 per cent or more.
“Our study shows that an investor could get 12 per cent return on investment from our latest offering – iSuites – that will help investors make more money with less pain,” Noorul Asif, Chief Operating Officer of Schon Properties.
“This calculation is based on a 70 per cent occupancy on an actual room rate of Dh550 per night, and after deducting all the expenses. The investor could make a net income of 12 per cent minimum per annum. Which means, on a Dh1 million investment, an investor would get Dh120,000 per annum net and could recover investment with a little over 12 years.
iSuites strategic location being next to the world’s largest airport – Al Maktoum International Airport – assures high occupancy rates and secure income for investors. The iSuites features over 52 restaurants and cafes boasting outdoor areas overlooking the Crystal Lagoon.
There are kids play area’s and nanny services available for all guests. Bank, retail, spa’s, supermarkets, pharmacies, healthcare facilities, and shopping are available at the Laguna Centrale Mall located less than 50 metres distance to the iSuites.
iSuites is minutes away from the EXPO 2020 site, which aims to attract 25 million tourists to Dubai from 2020 onwards. Additionally, the EXPO 2020 site will be used as the Dubai World Trade Centre (DWTC), hosting all major meetings, conferences, exhibitions, and events.
DWTC events are a major driver of tourism to Dubai with major events such as Gulf Foods attracting over tens of thousands of people to events to the city.
The strategic location further ensures investors the peace of mind of secure income and high occupancy rates.
Established in 1971 in Singapore, Schon Group has over 45 years business experience in the region.
The company was founded by the Schon family, whose origin could be traced back to Pakistan. The group has solid foorprint in Pakistan, UAE, Germany and Singapore.
Schon Properties, the development arm of the group, has a portfolio under development of 8 million square feet in Dubai, valued at $2 billion (Dh7.3 billion). As of August 2016, Schon Properties has delivered over 1.6 million square feet in Dubai.
Schon Vision 2021: Hospitality focused to cater to shortage and demand for hotels and hotel apartments in Dubai. Schon believes tourism is the future of Dubai and all products offered to buyers will be in line with this vision.