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A price correction is normal in real estate and an indicator of sound fundamentals, says Tim Boswell, CEO of Ocean View Real Estate, who is very confident the market is set to change gears for the better this year.
We see promising developments happening in the country with huge infrastructure [projects] being carried out all over the place, new hotels and buildings being constructed and handed over across Dubai, hundreds of people with approved mortgages and roads packed with traffic, resting all doubts about a market crash.”
Boswell adds that various external factors such as the strong US dollar and plummeting oil prices have led to the present slowdown, but also points out that despite such conditions, some of the most remarkable deals in Dubai real estate history were concluded this year.
What are your views on the slowdown and howis it affecting the market?
The price correction and strengthening of the US dollar have kept many people from purchasing property, which has slowed activity in the market. However, this does not indicate a crash, which many people fear. The sluggish market was mainly because of the exchange rates that have been against us over the past 18 months.
Even in this desperate market, we have seen some good end user business happening in the city. Some of the most expensive deals ever in Dubai real estate history were concluded this year. These include the most expensive sales of a garden home for Dh18.3 million, a villa for Dh70 million, and a 38,000-square-foot signature villa plot for Dh185 million — all on the Palm Jumeirah — as well as the most expensive off-plan residential plot for Dh64.8 million, to name a few. These deals clearly signify that if sales people work hard, the market still offers good business opportunities and rewards.
Why do you think a company like Smith and Ken (S&K) had to close down or others are laying off staff? What are the factors that are making it hard for brokerage companies in the UAE?
I believe [the closing down of] S&K received far too much publicity, which is creating a negative sentiment about the Dubai market. This bad publicity is putting off other brokerage firms’ business.
The market will see some companies closing down, and new entrants coming into business, and also comprise those of us who would never run away because this is a real market.
When the Iran market opens up, I anticipate many new companies to come to the UAE and do business with the country because Dubai is the undisputed business hub of this region.
It is true that Dubai is becoming expensive and slow activity has made it tougher to manage brokerages.
We also have reluctant buyers who do not want to pay the 2 per cent broker’s fee. Agencies find it difficult to run a business on 1 per cent fee.
However, every Ramadan and summer business [usually] gets quieter, but when people are back from their holidays they start spending again and business starts to pick up.
How did Ocean View avoid being in the same boat as S&K? Did you feel at any point in the past that you were in danger of losing business?
We cut down our expenses by 25 per cent, but didn’t lay off staff, as many of them are experienced brokers who have been with us for eight to ten years. However, three months ago we had to cut down their salaries and reduce marketing expenses. We also shifted to paying our rentals monthly now, rather than quarterly.
Being in the business since 2002, our staff has experienced the recession-and boom journey of Dubai’s real estate market. The other old players and us in the market successfully came out from conditions a lot worse than this. The formula is simple: keep fighting. Don’t just go to other countries thinking the grass is greener there because nowhere in the world is real estate easy.
It is true there are too many brokers in Dubai, but the fact is good brokers are still making money. Moreover, good companies sustain themselves for years in the real estate business. The realty market in the UK is 150 years old and it has seen two world wars, but the property market is still there. It has seen several hundreds of companies come and go. Some remained because they kept fighting regardless of the market condition.
How do you think the authorities and brokerage firms should deal with such market conditions?
Running a company in Dubai is not cheap any more as it is mandatory to have a large office if you need more than 20 sales people, plus the backup staff. I sold my properties to keep my company going, as operations are expensive if you want a bigger company. Moreover, billionaires will not deal with smaller companies. In my opinion, there is a need for a government department that would hear and advice real
estate companies that are headed for trouble.
There should be a division where companies with an honest background can seek assistance around three to six months before folding and running off from fear of being thrown into prison. This way the government can prevent underhand negotiations and avoid bad publicity for Dubai.
When the Expo 2020 bid win was announced, property owners saw it as an excuse to raise prices. Then, the Dubai Land Department (DLD) increased the property transfer fee from 2 per cent to 4 per cent, the UAE Central Bank put a mortgage cap of 65 per cent and the dollar became strong — all this in just months.
Perhaps the DLD should consider reducing the transfer fee for a period of six to 12 months to help the market recover, in my view.
What other facts do you wish to highlight about the Dubai real estate market?
It’s true there was reduction in activity this year compared to last year, however, the percentage of decrease was lesser than what’s indicated by consultancy companies in their surveys and reports. This is because properties remortgaged over the past 18 months were recorded as regular deals by the DLD.
Last year, many people had approved mortgages but did not purchase new units. Instead, they remortgaged the property and used the money to upgrade them. Recently, the DLD changed the system so now remortgages will be recorded as remortgage transactions. Recent surveys about the market have not taken into account the remortgage transactions when indicating the reduction in deals.
We also hear that the DLD is going to increase the transfer fee from the current 4 per cent to 6 or even 8 per cent.
However, I believe the DLD is a lot more in touch with the current market conditions and will never make a counterproductive move, as slowing the market any further will not help.
What’s your views on market trends?
We are seeing buyers take extra time to purchase units than before in the hope of grabbing a better deal. However, I strongly believe the price correction phase is over and by mid-September I expect the market to become very busy for rentals and sales. In fact, with the agreement between the US and Iran, the market can come through within a week.
I even anticipate exchange rates to get better sooner and will have a positive effect on the market.
Source: Hina Navin, Special to PW