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Fri 14 Mar 2014 10:58 AM

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Tricks of the real estate trade

Shehzad H Abbasi says Dubai’s developers are doing it better in 2014

Tricks of the real estate trade

Anyone involved with the real estate sector over the past ten years will have been asked the same question countless times: “Has the real estate bubble returned, and will there be another crash?”

I am asked this at least twice a day whilst meeting with bankers, agents, journalists, and of course, investors. This is not due to their statistical analysis, nor an imminent crisis, it is simply the mindset we are currently in. The old adage of bricks and mortar - or in this case, steel and glass – as a safe asset class was banished in 2009.

With this still fresh in the minds of many residents, there is an understandable malaise in the face of the current leap in property values and rental costs.

As someone fortunate enough to have been with a large property developer, I experienced the entire value cycle within eight short years (2005 – 2012).

In response to ‘the question’, my answer has always remained the same: Last time around, nearly everyone in the market - with three or four notable exceptions - was selling brochures, not properties. Yes, they were often beautiful, carefully worded, and almost artful in their appearance, but they were not properties. Paper was being traded for other pieces of paper, and values were assigned based solely on the goodwill of a name / brand / promise.

The difference now? Simple: Real properties are being traded. Off-plan sales are a distant second place to the dominant secondary sales market. But these are all things we already know. So what are developers doing now that they were not doing before? What has changed in the biggest game in Dubai?

The first and most visible example is the ‘elites’, the major master developers. Endless immaculate landscaping, shiny, well maintained buildings, and empowerment for end users of their communities have given these elites a strong lead in the race for sales.

There is no better sales brochure than a stellar reputation, and that reputation is earned, not printed. The new game at the highest level is to be elite in service delivery, community management, and facilities maintenance. Green spaces, play areas for children, parking, traffic flow, and accessibility to amenities such as schools, hospitals, and retail are now prime factors in purchasing.

The next is the ‘primaries’, these are the developers who had been focused on single buildings, but are now looking to enter elite territory. We all know about the lovely giveaways of cars & yachts, and indeed anything that could stimulate the interest of a potential client. Whilst this was seen as perhaps a low-brow form of marketing, there is no doubt as to its efficacy in gaining notoriety for developers employing such tactics.

Now these companies have to deliver on promises, and create the value their investors were assured, not just fiscally, but qualitatively. Some such groups have gone for the reputational rewards of taking prime locations, or partnering with elite developers to enhance their sales proposition. Others maintain the tried and tested brand alliance route. Names like Trump, YOO, and other global real estate marketing machines have risen again to reclaim Dubai.

For developers who are not yet in control of their entire surroundings, i.e. single building developers, let’s call these the ‎’tertiary’ companies; differentiation and quality control are key. The market is now entering a relatively mature phase, and end-user focus is on the rise.

Concept-phase developments based on a sustainability factor, or technology-driven products, are back. What is now important here is that the buildings are delivered, or well into the final phase of construction, before they begin to sell. Off plan still holds fear for investors into tertiary companies, but therein also lie the greatest potential rewards.

Looking at off plan sales, the market has become extremely tight, and payment plans are extremely important. Post-completion payment schemes are now becoming much more commonplace. This is a long way from the days of paying 10 percent every 60 days, whether construction was going on or not. RERA have done an excellent job in controlling this most volatile element of the real estate marketplace.

Banks are once again looking to finance developers, and the home finance market is buoyant after a shaky few years. Smart developers have tied up with banks to ensure their project can be completed with minimal pre-sales, and therefore ensuring maximum sales value. This also helps end users to finance their purchases via the same banks, and lends credibility to tertiary companies through bank brand association.

The first ‘P’ in marketing is ‘product’, but the next is ‘price’, so the easier it is to buy and the smaller the lump sums involved, the better the chance of a sale. The future lies in the ‘proposition’. The ‘place’ is now global, and as Dubai moves into its very own ‘elite’ city status, its developers would do well to strive for the same.

Shehzad H Abbasi was the Chief Operating Officer of Galadari Investment Office from 2005-2012, and now serves the boards of several major entities in the UAE as a reputation management consultant.

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Mr. MNF 5 years ago

Mr. Abbasi, a man who knows what he's talking about! well written.

AlexTT 5 years ago

Brilliant!!!! First of all I would to congratulate the young gentleman for having invented a new job (reputation management consultant?) for himself then proceeding with a long “analysis” using everything schoolboy cliché without actually answering the question.
So let me see if I can help his bewildered audience. Irrespective of al the clichés the answer is YES the bubble is here and before everyone with vested interests i.e.: everyone involved in the real estate game ask for my head on platter let me explain, Developers are still selling off plan, using the same old marketing “tricks”; Exclusive, limited numbers, Sold out in 60sec., gifting cars, boats, maids etc Estate agent selling/renting at 2020 prices, Government agency can’t control it even if they tried, banks would always lend money because that’s what they do.
Reality is the visa regulation(end users?) hasn’t changed, the real estate agents dictate prices and I'm running out of space, so good luck to everyone.

Mr. Ex-MNF+TNF 5 years ago

Great article

Mark Renton 5 years ago

"Endless immaculate landscaping, shiny, well maintained buildings, and empowerment for end users of their communities have given these elites a strong lead in the race for sales."

Really? Could the author please provide the details of any major community built by these "elite" developers where the end users have been empowered (by which I mean the HOA actually exists legally and has control over the community)?

As for "immaculate landscaping" and "shiny, well maintained buildings", there seem to be a handful of major communities where the owners are even remotely happy with both the quality of the maintenance and the service charges levelled by the developer.

who2 5 years ago

so there you have it folks, all explained so eloquently by a 3rd former on school break.

There was no global crisis, banks didn't fail, governments didn't need to be bailed out. No, the real problem was that companies were selling brochures, not properties.

Ah, that is good then.
So all those in prison on default, it was down to the printers. Blame them.

Watch for his next article on how eating too much can make you fat.

almax 5 years ago

Well done AlexTT. You saw straight through that haze. Of course we should all be taking advice from a has been COO of a developer turned reputation management consultant. I'm sure he himself was his first client after all his investors lost their money in 2008.

Observer 5 years ago

Thanks Mr. Abbasi for the explanation.
However you haven't answered the question, is this another bubble?
Humans are greedy and tend to forget quickly hence high chances of speculation and flipping are in the air.
Especially with a clear lack of proper regulations.

Dr. H. 5 years ago

I'm in the financial sector, so this was an interesting and balanced article for me personally. Then I read the comment below... I must say, I know what a reputation management consultant does, and it's not a made up term! Tut tut AlexTT!

http://en.wikipedia.org/wiki/Reputation_management

As for the market, there is only one developer who is actually doing this kind of good work in the market, and they built Burj Khalifa! Everyone else is playing / needs to start playing catch-up, and I believe that's what the writer said in the piece. Guess that makes me more Mr. MNF than Mr. Alex!

Steve 5 years ago

A great article, well written and well thought out, more please Mr Abbasi

Stevoo 5 years ago

Interesting article, having met Mr Abbasi a few times, I can definitely say he knows what he’s talking about. The article alludes to what we discovered after the crisis, that there remains only a handful of developers who can be considered when buying from, the rest just being self proclaiming marketing machines.