Dubai realty in a healthy phase: Damac chairman

Damac chairman and chief executive Hussain Sajwani is buoyant about prospects of the property market, writes Deepthi Nair

Think luxury real estate in Dubai and a prominent name that springs to mind is Damac Real Estate Development Limited. One private developer that remained steadfast even during the property slowdown of 2008-09 as smaller builders went insolvent, Damac leveraged the market crash to acquire land parcels at strategic locations in Dubai at attractive prices.

In hindsight, this policy has paid rich dividends as the dual-listed developer’s [in London and on the Dubai Financial Market] product portfolio is spread across large swathes of land in premium locations. Over and above the sprawling master developments Akoya by Damac and Akoya Oxygen in Dubailand, and an array of luxury serviced hotel apartments in the Burj corridor and Business Bay under its hospitality division Damac Maison, the developer further spent $86 million in 2014 on acquiring more land in Dubai.

“As a property company, our prime asset is our land bank and we continue to invest in it. We have been buying land since 2002. We were one of the first developers to buy land in Business Bay and the Burj area when sites were up for sale. We also have more undeveloped land in Abu Dhabi,” Hussain Sajwani, chairman and chief executive of Damac Properties, told Khaleej Times during an exclusive interview at his office.

A strong advocate of the credentials of the Dubai property market, Sajwani believes no other international property market is comparable to Dubai.

“Be it in terms of long-term political stability, currency stability, open rules and regulations, immense growth potential, excellent infrastructure, zero tax, number one airport in the world, logistics, quality of life, which city can replace Dubai today?” Sajwani said.

Even when markets such as London, Singapore, Japan and New York offer yields in the range of two to four per cent, investment in Dubai property could fetch you six to seven per cent profit, the CEO said. 

Stable market

Despite all the talk of the property market heading for a slowdown in sales and rentals in 2015, Sajwani remains unperturbed.

“We are in a very healthy phase in the property cycle. After a 25 to 30 per cent upswing in prices and rentals in 2013 and 2014, we are now in for two years of healthy growth and market stabilisation. If we were looking for another period of 30 per cent price growth, it would have led to a bubble,” he said.

“Single-digit growth in sales prices will be the norm going forward,” Sajwani said. Coming from the CEO of one of Dubai’s most well-capitalised developers with an excellent track record to boot, this should be welcome news to long-term investors and owner occupiers who are averse to wild pendulum swings in the market.

However, there are expected to be pockets that belie these trends. “Some areas such as the Burj corridor may perform better than the overall market with 10 per cent average annual growth rates, say compared to outlying areas like Dubai Silicon Oasis,” Sajwani added.

While Damac handed over 3,553 units in 2014, a similar number of units is estimated to be delivered this year as well. The chairman was quick to dismiss analyst talks of an oversupply in the residential sector in 2015.

“Typically, it takes around two to four years for any oversupply to be absorbed. If you are in a growth city like Dubai, the market recovers in one or two years. If you are in a sleepy place, for instance Spain in Europe, it could take around seven years. But, Dubai is a growing city and it quickly absorbed the oversupply emerged in the wake of global financial crisis in 2008. There was a balance between supply and demand in 2011. The Arab Spring helped expedite this too,” he said.

After an estimated delivery of 25,000 residential units this year in Dubai, Sajwani, in fact, foresees a supply shortage in the property market in 2016.

“There are around four developers who dominate and control 90 per cent supply in the Dubai market. All of them are mature, have strong financials, are experienced and have learnt from the crisis.

Focus remains on Dubai, GCC  Dubai — While Dubai continues to remain Damac’s home market, the developer is making forays into overseas markets as well, with the handover of its first foreign project, Al Jawharah in Jeddah — a portion of the project is designed by Versace, in 2014. “We are also in Qatar, have two towers in Riyadh [one is designed by Fendi Casa, another by Paramount] and delivered two towers in Abu Dhabi. But going forward, our focus will remain heavily on Dubai and the GCC,” said Hussain Sajwani, chairman and chief executive of Damac Properties . Meanwhile, serviced apartments represent 25 per cent of Damac’s product portfolio. “We cover the entire luxury market spectrum – from high-end serviced apartments under Damac Maison, another category of hotel apartments called NAIA, villas, low-rises and high-rises building projects,” Sajwani said. To a question, he said Damac has no immediate plans to list its hospitality division. Falling oil prices Speculation is rife about the effect of the recent oil price decline on the UAE’s property market. However, Sajwani is quite gung-ho.  “I don’t see an impact of oil prices on the property market since Dubai’s economy doesn’t rely on hydrocarbons. Dubai’s budget is more dependent on other sectors like trade and tourism,” he said. “Also, the UAE has a diversified approach in trading with other countries. Even if oil prices remain low for the next two to three years, with large oil-producing countries suffering budget cuts as a result, there are other countries that can benefit from low crude prices, like India, Pakistan and African countries. Dubai benefits from being a unique hub to around 40 countries in the region,” Sajwani said. — deepthi@khaleejtimes.com

“Over the last two years, all the developers managed their inventory and sales in a very prudent manner. So, you don’t see any mega project being launched overnight and dumped in the market. For instance, at Akoya by Damac, we launched units in phases for the market to absorb it.” 

Regulators are vigilant

Speculators, that breed who spelled doom for the market in 2008, are an inevitable part of any property industry, admitted Sajwani. “The practice occurs in markets like London, Hong Kong, Singapore, etc. All governments and regulatory agencies around the world try to control it. It is healthy to a certain extent.”

He said the Real Estate Regulatory Agency’s (Rera) move to hike transfer fees and the mortgage cap have certainly curbed flipping to a great extent. At Damac, customers are required to pay 20 per cent of the property price upfront upon purchase and a further 20 per cent after six months. By forcing investors to commit 40 per cent of the total price initially, speculators kept at bay, he said.

“Our competitors have contractual clauses that prevent customers from selling until the tower is complete. It helps when the market is controlled by a few developers. The danger was in 2007-08 when we had around 200 developers who were willing to sell at any price and there was no regulatory oversight as well. So, currently there is only healthy percentage of speculator participation in the market,” said Sajwani.

The chairman had praise in store for the regulations imposed by Rera on the market. New regulation requires that developers pay for the land in full, have a build permit, a 20 per cent bank guarantee and money deposited in the escrow account before commencing on building a project. Construction progress is monitored end-to-end and audited escrow software lets the Rera monitor how much each customer has deposited into the account.

“These rules apply across the board to both government developers and private ones. This was not the case earlier. This is commendable by global standards. However, we can reinvent the wheel. But overregulation is not good for the market as it can lead to bureaucracy. We don’t need more paper work. Everyone is happy with the level of regulations today,” Sajwani said.

After the excesses that led to the market meltdown, banks are now lending prudently. The mortgage caps put in place by the UAE Central Bank have polarised the market.

“Leverage in property is essential. But I am against overleveraging, say an LTV (loan to value) of up to 90 per cent of a property price. That encourages speculators. People who are buying property should put reasonable equity into the asset,” he added.

— deepthi@khaleejtimes.com