Dubai Property Market: Under pressure

Dubai Property MarketBrokerages that opened in the recent real estate boom face difficulties identifying and accessing clients in a slow market l Image Credit: Courtesy of Cityscape Global

While real estate brokers braced for the traditional lean months of Ramadan and summer, many have been under extra pressure as the industry feels the effects of cyclical price corrections, the oil price slump and devaluation of the Russian rouble, among other factors. The sluggish market conditions have knocked out some players, such as S&K Estate Agents, while others had to lay off staff.

Industry insiders admit the market is witnessing a slide in transactions, but they also say that good companies are doing good business. “The Dubai market is still very good and real, serious buyers buy in these market conditions,” says Suraj Rajshekar, General Manager of Rocky Real Estate. “There are great opportunities to do business. Companies that are closing down did not have a long-term vision, funds or management skills, as they had started only when the markets were good.”

Rajshekar says the cycle gets repeated when the market picks up, as hundreds of companies will again take advantage of favourable business conditions, although many of these are likely to fold when the market slows down.

Well-managed companies, on the other hand, are always prepared to thrive even in a downturn, he adds. Kalpesh Sampat, Director of SPF Realty, agrees that there are still plenty of business opportunities under current market conditions. “We do not even see a slowdown,” he says. “We agree secondary sales are slow, but we sold over 150 off-plan town houses at Jade at The Fields in Mohammad Bin Rashid City in five weeks during Ramadan. Many agencies like ours [also] focused on under-construction projects.”

Winning new business mainly depends on an agency’s strategy as several new buildings enter the market, explains Sampat.

“I would only assign 10-15 per cent of the blame on Dubai market factors, as every one goes through bull, bear and stable phases, and real estate is no exception,” he says. “Agencies would always do well if they planned well to control costs, constantly improve their balance sheet and retained earnings.”

Sampat adds that companies in crisis are mainly those that are managed poorly or do not have the proper strategy to operate in a slow or stable market. The size of a company and the segment it caters to have no serious impact on its performance, while firms that hire indiscriminately and fail to control their expenses are the ones that suffer the most when the market is weak.

He explains that some brokerage companies forget about the fundamental risk of overleveraging, which often lands them in a difficult situation.

Agencies in crisis

Andrew Cleator, Luxury Sales Director at Luxhabitat, believes that two kinds of agencies have begun disappearing from the market. First are new companies that only appeared over the past couple of years to ride the real estate boom. Then there are the mid- and high-profile brokerages and possibly an odd international franchise that did not get the Dubai property recipe right.

“It’s important for the players to note that bringing in high numbers of inexperienced brokers and splashing out on expensive marketing, thinking Dubai is going to be a walk in the park, will ultimately hit a wall sooner rather than later,” says Cleator. “Moreover, the newcomers who entered in the past few years possibly only had access to a small number of clients, which in the past was sufficient to balance the books. But recently this has led them to struggle, as their core investor clients have become more cautious.

“There were a number of smaller brokerages established to transact for their own family and/or community members from their homeland. However, being so reliant on a limited number of income avenues, these agencies [faced] pitfalls.”

Other factors

As the market witnessed a drop in the number and value of property transactions in the first half of the year and led to some brokerages going out of business, Phil Sheridan, CEO of Fine and Country, says the adjustments were to be expected.

“I currently sense a negative sentiment in the expat community, but I have every confidence in the vision of Dubai’s rulers to continue to provide an enriched [market] environment.”

Sheridan adds that real estate agencies should diversify their revenue streams to include leasing, property management and commercial sales and others, to remain steady even in tougher market conditions. “Far too many brokerages [have been allowed] to be established, many of whom are ill-equipped in the absence of sustainable business plans to survive,” he says. “Consequently, the brokerage market has been weakened and that undermines consumer confidence in an already fragile market. Hence, I predict a 50 per cent [reduction] in agents and agencies, unless they merge or consolidate.”

Cleator believes that the large number of brokerages is also affecting the market. “The Dubai Land Department [acknowledges] this and is actively trying to reduce these numbers by implementing more strict measures when issuing and renewing broker and brokerage licences,” he says.

Changing norms

Some of the measures implemented by the government include setting a considerably higher broker test pass mark, limiting the number of agents a new brokerage can employ, and dishing out large fines to brokers who mislead clients, act unprofessionally or disregard the code of ethics.

“This possibly is another underlying reason for the recent closures [of many real estate firms], but ultimately it will result in a much more professional and ethical real estate market, which the more professional companies have always strived for,” Cleator explains. To remain in business, several smaller firms have started dropping their fees from 2 per cent to 1 per cent per transaction. “Market conditions have dictated them to reduce their fees, but I sense it will undermine the market and further splinter it, with a further loss in consumer confidence,” warns Sheridan.

Sampat describes such tactics as short-sighted measures, which he believes will not last for long. “The brokerages charging 1 per cent will have to compromise on their level of service, ability to continue to generate quality listings [due to low print and online marketing spend budgets] as well as their ability to attract top sales and back-office staff,” he says.

“All of these will not allow them to compete with the larger brokerages.”

Source: Hina Navin, Special to Property Weekly


For Rent


View more properties

For Sale


View more properties