By Gerhard Hope
Exec slams trend that precipitated property bubble and subsequent crash
Selling off-plan, a trend in the UAE that precipitated the property bubble and subsequent crash, is “a dead marketing tool.”
This is the view of Hazem S Al Nowais, COO of Waha Land, developer of the Al Markaz Industrial Estate in Abu Dhabi.
“We had to wait for the right time and the right completion. I think the market now very much wants to see finished, quality product,” says Al Nowais. Phase 1 of Al Markaz is approaching completion.
“Not only is off-plan really a dead marketing tool, I think off-plan for industrial units is not even an option. I mean you can market an apartment or office off plan in days gone by, but I think to market an industrial warehouse is ridiculous.
“So we waited for the right time. We started our marketing campaign about six weeks ago; we targeted what we thought was the market segment that would be looking at this, and the response has been good to date.”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.
...but that is still developing speculatively. If you want to manage your development risks then you only build if you have a market demanding your product, securing an end user before you spend money building it. It strikes me the UAE still has some learning to do.
A cautionary message for Nakheel, and any other developer trying to set the clock back, which I hope gets through. Off-plan is history whatever the real estate asset class!
Thank you Mr. Al Nowais! I have thought this a bad idea from when I first came here in July 2008 and saw the greed it created in so many people.
I bought a new home in UK years ago but I could only buy once it was almost completely built and only required the finishing to be done. I had a lot of financial security if the builder didn't meet the deadline.
I will not buy off-plan and hope that people will look at this and revert to a new model, which I'm sure will avoid future 'bubbles'.
@Unrealitywatch It seems you are the one who has alot of learning to do ..... who said that the only way to manage business risk is to get money from your end user before you even have a product for them? This theoretical garbage that business schools tried to push down peoples throats culminated with the global collapse (still ongoing).
I wonder why it is legally even possible to sell Off Plan.
@Markus maybe you should try to educate yourself a little bit better. Buying off-plan is a perfectly fine approach when in a properly functioning market (not Dubai, clearly)
Part of the garbage that you learn at business school is that people have different appetites for risk and a properly functioning market will allow different actors to slice the risk and redistribute it for a price. Without that ability everybody's lives would be worst. And no, a properly functioning market is not one where profits are private and losers are socialized. You do not learn that at business school, most likely at Congressman school.
By offloading the risk the seller can offer a lower price to the buyer (less risk but also lower profit). The buyer benefits from the lower price (but at the cost of assuming a certain risk and the inconvenience of having to wait for delivery)
I agree that in Dubai the price I personally would be willing to pay for an off plan property is fairly low.
what happens if you have an islamic mortgage and you only start instalment payments after hand over. if it never gets built , who bears the loss?
Every property I have ever bought has been bought "off-plan" with the exception of my current Dubai property. Generally you get rewarded for the additional risk and inconvenience you take by a discount of as much as 25-30% and the developer gets early cash flow that is crucial to ensure a decent payback on the project. There is nothing inherently wrong with it; it is a perfectly ethical and sensible approach - in a properly regulated market.
In Dubai however, there is nothing approaching a properly regulated market and a large proportion of the investors are poorly informed, greedy and unsophisticated. Combine these conditions with a truly epic world economic crisis and you get the sort of mess we have now. Mix in a general lack of concern for the plight of expatriates (who can all leave if they don't like it - yes, we know) and the arrogance of the developers and you have truly special recipe for misery.
On that basis I predict the next bubble in 5,4,3,2,1....
Off plan is only dead in the water in Dubai because of the lack of regulation in the off plan market. If developers were penalised for non or late delivery people would feel some confidence that their investment had protection but fact is there is no protection for a buyer. My real estate contract has been in breach of completion by over 2 & a half years & all RERA say is employ a lawyer. A lawyer quoted about 300,000 dhs to go to court to fight for a refund & compensation for lost income....i cant afford that so my other option according to RERA - sit and wait- so a developer can breach a contract & not be penalised yet if it was in the reverse and i was late with my payments interest to me would be 10% a month on the outstanding balance..the whole situation is utterly ridiculous & those in charge of Real Estate in Dubai should be ashamed of the developer biased system they created as thats whats responsible for the lack of off plan market and nothing else.
Read very carefully Markus. Securing an end user doesn't mean getting people for money up front. It means having a contractually binding relationship. We are also talking about the commercial sector here, where in established or mature markets development risk is managed by securing a tenant, your finance and development agreement from the outset. In most instances no tenant or purchaser is going to handover any money until completion of the development, so the construction risk still rests with the developer and/or contractor. The problem with the UAE is the real estate legal system is vague and immature to adopt this approach. Not sure if you are a developer of any repute or practical experience but I do agree business schools produce a lot of garbage. Did you go to one?