We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Sat 31 Jul 2010 04:00 AM

Font Size

- Aa +

Timing is everything

Damac Properties started operating in new markets and stopped launching new products before many rivals – both of which have produced results. Here, Ziad El Chaar discusses survival, credit markets and good contractors.

Timing is everything
El Chaar endorses a back-to-basics approach in selecting contractors.
Timing is everything
Change in socio-economic development has made Beirut a target for the company to develop its luxury towers.

Damac Properties started operating in new markets and stopped launching new products before many rivals – both of which have produced results. Here, Ziad El Chaar discusses survival, credit markets and good contractors.

A downturn can change the priority of a whole market. The rise and rise in the building sector for many years of the last decade in Dubai saw projects launch nearly every week; new deals were struck, designs were drawn up and tomorrow became the new today.

A sharp market correction shortened that future-gazing. As credit markets applied a freeze to the construction supply chain, the priority became not dreams on a drawing board but the gritty reality of finishing projects and securing income.

Damac Properties, perhaps in equal parts lucky and far-sighted, put a halt to their new projects earlier than the depth of the downturn, in 2008. Since then, says Ziad El Chaar, general manager, the focus has been on construction and delivery.

“In the last nine months we’ve awarded 20 projects which have a value of US$3.6 billion,” he says in the company’s temporary sales office in Media City, a plush marquee containing models of their towers in stand-alone glass cabinets. “This translates from the projects launched in 2007 and 2008 to now focus on the building and delivery of those projects. It was at that time when we thought: here is the right time to stop – now is the time to complete what we launched. 2007 and 2008 were very strong for us and the market, but market dynamics change.”

Some of its most eye-catching work is in its home emirate. Dubai Marina (Ocean Heights, Marina Terrace, The Waves), Palm Islands (Palm Springs, Palm Terrace), Jumeirah Lake Towers (Lake View, Lake Terrace), and projects in the International Media Production Zone [IMPZ] (The Crescent, Lago Vista), the monolithic Dubai International Financial Centre (Park Towers) and the Discover Gardens (Terra Del Sol 1 & 2), represent a roll-call of the city’s big projects as the group aims to fulfill the residential demand.

Though the developer is synonymous for some with Dubai, it operates in 20 countries. Part of DAMAC Group, the real estate arm of that business had plans to expand into new markets since its inception, and early ventures into Lebanon and Egypt, among others, are now also coming to fruition in the form of contract awards.

For El Chaar, these markets represent a combination of domestic demand and existing development plans coupled with the creativity of an incumbent company.

At the centre of Lebanon’s capital, Beirut, for example, is Solidere, the company developing and reconstructing the capital district. Last month Damac awarded the enabling work contract to Zetas Apex Foundation Technologies SAL for Damac Tower, its first project in Solidere’s area, which will see the firm work with Versace, the Italian design house.

Changes in the social dynamic of Lebanon was one cause of the design and build the project, says El Chaar. “Lebanon now has about 15 million working abroad, many of them will want an apartment back in their home capital, which has only about 4 million people. So there are more people living abroad who want a base in the city than there are city residents – that’s where the demand is coming from.”

El Chaar is one such Lebanese expatriate, and he points out that the market in the country had grown between 2006 and 2010, where other countries had suffered a stand-still, such as Egypt in 2009.

Returning to the company’s home market, El Chaar echoes what must be familiar to all developers handing out contracts in the last year: there are so many contractors to choose from. This is surely better than the reverse if you are a developer, but El Chaar says the scrutiny of contractors still needs to be as vigilant as ever. “Besides a long-term relationship you‘ve got to know if the company can meet the requirements of the projects – [you have to ask:] do they have the experience and skills and financial ability?”

He adds that though Damac will often have a shortlist in mind, it is open to all tenders.
The GCC in the last year has also been the battleground between developers and investors, as unfinished projects clash with delivery promises made to off-plan buyers. El Chaar points to the company’s recent record of project ’hand-overs’ in the last year as solid support of the company’s decision to stick with the same off-plan selling model.

“By the end of this year we would have delivered around 4,000 units, so we have that track record of delivery, even though it’s hard to please everybody.”

The current payment structure started in 2003, and entails an initial payment of between 25-30% of the item’s value followed by 5% installments for each equivalent completion stages of the project.

“I think this gives a big boost to credibility all round, that investors can see what they are paying for and that work is being done.”

Demand for luxury is still solid, he insists, adding that investors from neighbouring countries are still drawn for three key elements: firstly, its position; secondly, its infrastructure; and thirdly, the solid service.

“Today these things are still important, and at the same time the apartments are more affordable. I don’t see any great competition [from other destinations compared to Dubai] as a place to move to. Damac Properties is still building the projects, and although there has been money lost from the apartments coming down in value, the cost of building them has also come down too. You can therefore work by a back-to-basics approach: selecting contractors who have been through the ups and downs, knowing how to come through something like this.

“We all come through tougher and we’re adapting to a new reality.”

This new reality includes a changed outlook for the project creditors. The financial world is reluctant to engage with the construction industry now, El Chaar concedes, primarily due to the long-term nature of projects and the relative lack of liquidity.

One of the big adjustments is to develop a sustainable cost model. This includes, he adds, adjusting valuations of projects to those of 2010 compared with the lofty prices of three years before. Banks will be scrutinizing these projects to get what is typically called ‘mark-to-market’. “Everyone knows there are business lifecycles, and definitely real estate is tied to the credit market.”

Transparency for creditors received a boost in June with the launch of the Tayseer scheme, a partnership comprised of the government, the Dubai Land Department, banks and developers and investors that seeks to help the completion of projects and help buyers who have encountered their own liquidity issues. Support will be based on certain conditions, including that the developer must have paid fully for the land, must be able to prove good collection from investors as well as having completed and sold a minimum of 60% of the project.

Of the 40 projects shortlisted in the first phase, three are Damac developments, El Chaar reveals, though declines to name them. To secure funding, the project must disclose all financial details, including instances of investor default, to the Dubai Land Department and the Real Estate Regulatory Authority. These two bodies will effectively act as mediators with the banks, “bridging the information gap” and increasing clarity to aid further investment.

“The real estate markets will not advance without the banks,” says El Chaar. “Tayseer is effectively helping liquidity among customers, helping to finance the developer and for investors who can’t complete their payments.”

Most of the company’s money is from “self-financing”, a mixture of stakeholder equity along with the profits from previously completed projects. Today, the company looks forward to completing 7,000 units in total by the first quarter of 2011.

“Six years ago the main task was to take the company international. We opened offices in Kuwait Qatar, Egypt and others, and the diversification paid off.”

Arabian Business: why we're going behind a paywall

Real news, real analysis and real insight have real value – especially at a time like this. Unlimited access ArabianBusiness.com can be unlocked for as little as $4.75 per month. Click here for more details.