Dubai brokerage firm goes bust

Dubai - Fall in revenue and intense competition drive S&K Estate Agents to file for bankruptcy.

S&K Estate Agents, also known as Smith and Ken, a prominent real estate brokerage in Dubai, has closed down for business and filed for bankruptcy. Over 80 employees have lost jobs, the company announced in a statement on Tuesday.
The fall in global oil prices and devaluation of the Russian rouble have translated into weak demand for Dubai property. This has resulted in a decline in the volume and value of property transactions in Dubai in the first half of 2015. Operational activities have, therefore, become unviable for property brokerages.
S&K Estate Agents attributed the decision to file for bankruptcy to a deteriorating property market in Dubai. The firm has been terminated in its entirety and handed over to liquidators to pay back creditors. Its offices in Dubai and Los Angeles are no longer active.
"The revenue being generated by the business drastically reduced over the first half of 2015, without enough income to cover operational costs," S&K said.
"Current Dubai market factors didn't help, as 2015 property transactions, both in number and value have plunged. This situation was exacerbated by increased advertising prices from property portals and recurring internal issues faced with agents. These factors, combined with the increased costs of licensing and visas, made the situation untenable," the statement added.
Transactional activity
The Dubai Land Department (DLD) on Monday said it recorded 23,000 real estate transactions worth Dh129 billion in the first half of 2015. The department said sales accounted for Dh53 billion while mortgages accounted more than Dh65 billion.
"Data from the Dubai Land Department show there were just 7,300 apartments and villas sold in Dubai over the first six months of 2015, compared with around 14,000 over the same period in 2014. This represents a fall of more than 52 per cent in the volume of sales activity in the residential market. Against this background, it is not surprising that brokerage firms are having to adjust to the lower levels of market activity," said Craig Plumb, head of research at JLL Mena.
Average residential sales prices have fallen by around two per cent quarter on quarter in Dubai, as per consultancy CBRE's market report for second quarter. The largest value drops were recorded in prime areas.
"The rental market has also seen marginal deflation in rates during Q2 2015, posting the first quarterly drop since 2011. Higher end areas, including Dubai Marina, Jumeirah Beach Residence, Palm Jumeirah, Greens and Jumeirah Lakes Towers, have suffered some of the heaviest declines, with rental rates falling between one to four per cent," said Mat Green, head of research and consultancy UAE, CBRE Middle East.
S&K said its reputation had suffered from client complaints. "Poor service levels provided by the brokerage led to a number of complaints from clients, which deterred repeat business opportunities and created a poor reputation for the company, which is the graveyard for any serviced-based company," it said.
Last ditch measures
Meanwhile, the company also conducted a recruitment drive to save the business. But, it failed to yield results.
"Additional support, advertising, incentives and training had been provided to existing and new agents to try and aid their growth and development to increase sales.
"As a last resort to find more experienced agents, the shareholders invested a considerable amount into a heavy recruitment drive in the first half of 2015, using recruitment agencies in both Dubai and the UK. However, the fruits of this process did not transpire in time to save the organisation," S&K added.
According to official data, there are more than 2,300 firms registered with the Dubai Land Department to offer brokerage-related services.
"We believe the brokerage market is saturated - too many agencies without the population and investment to match. Also, many smaller competitors dropping fees to one per cent per transaction to win business has made it increasingly difficult for larger brokerages to compete," S&K explained.
Mario Volpi, a Dubai-based property analyst, said the property market has been very tough in the first half of 2015.
"Buyers are taking longer to decide on transactions. There are not many deals happening. Real estate companies that can sustain the level of advertisements to be in business will survive. Companies have to keep advertising in online portals and print publications to keep their names at the forefront of people's minds today," he said.
"More bankruptcies and closures of property brokerages are inevitable. From a human perspective, it is bad news that so many people have lost jobs. However, from an industry perspective, it is good to lose a few agencies. It's not the first real estate agency to close and it won't be the last. There are too many in the market."
- deepthi@khaleejtimes.com

• Dubai