Danube plans step into real estate development

Move is part of a trend where contractors are getting directly into propertyImage Credit: Gulf News Archives

Negotiations are on with master developers to acquire a land bank. Once the first project starts rolling, the plan is to mobilise another one within a span of a few months and thus keep the pipeline active. A separate company will oversee real estate development.

“There is room for a new developer to make a mark; currently you have an Emaar, Nakheel or a Damac and then there’s a big vacuum,” said Sajan. “Where our core activity in building materials helps is on our cost of development — I foresee a 10-15 per cent cost benefit and that will be passed on to the investor.”

In fact, there is a trend now for construction companies to try their hand at development. Arabtec has just set up a property subsidiary, and contractors are also starting to take up direct equity in a project in lieu of upfront tender fees. For developers too, this is a winning hand as this ties in contractors’ interest across the duration of the project and once it is completed as well.

For its project, Danube plans to bring on board banks that can offer competitive mortgage deals to buyers. “A couple of banks are talking to us. The way we want to structure the marketing and selling of units is attain 30-40 per cent sold through the soft launch phase and then come in and put out a strong message to the market,” said Sajan.

“With future projects, we can make a move on creating more upscale properties and create an identity for the brand.”

As for its building materials division, the focus will continue to be to reduce reliance on sourcing from China.

“It now stands at 50 per cent and what we have done is start sourcing more from factories in Spain or Greece,” he added. “Many of these are operating at minimal capacity utilisation and there are pricing gains accruing to us from placing orders with them. For wood, we are placing orders from the US, Canada and Germany.

“It does not mean we will ignore China...but we do not want to be in a situation where there is over-reliance on one source. Multi-sourcing means if a deal is not favourable, we can just walk away.”

Company will go easy on India options

The GCC will continue to provide the bulk of the revenues for Danube in the mid-term, according to its chairman. This will be through a mix of revenue generation as a building materials supplier for projects as well as through retail operations done through its own Buildmart store network.

The UAE accounted for 40 per cent of group revenues of Dh2 billion last year, while Saudi Arabia and Oman helped with 30 and 20 per cent respectively. In Saudi Arabia, its cut-and-bed steel facility will go operational this month. There is also a melamine processing facility in China.

However, one market that the group does not have plans to raise its profile is India. “There’s always been an issue with bureaucracy; under-invoicing is another problem you get confronted with a lot,” said Rizwan Sajan. “These are all hurdles in the path of getting things done there.”

This year the group is looking to generate turnover in the region of Dh2.3-Dh2.5 billion.

Source: Manoj Nair, Associate Editor, gulfnews.com


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