With property prices falling, investors shying away, and lending scarcer than ever, real estate companies and developers are fighting to survive. Deyaar, one of the biggest real estate companies in Dubai, is managing the crisis with a highly refined five-step strategy, says Markus Giebel, the company’s chief executive officer. The most important tenet of the plan is to reduce loan default rates, which have been high — up to 50 percent — since the market slowdown began.
“With this strategy, most developers can safeguard themselves throughout the crisis,” says Giebel.
Easy payment plan
Deyaar offered its customers the Deyaar Easy Payment Plan (DEPP) which gives them greater flexibility in meeting payment obligations, however, “anybody who says easy payment plans solved the problem is wrong. It has just delayed it. The crisis is way too deep,” says Giebel.
After having eased payment plans, it is time to reduce prices.
“We had a couple of projects that were priced a little bit on the high-side [given] the crisis,” says Giebel. The decrease in construction costs has helped ease Deyaar’s expenses and allowed for lower property prices. For example, the company implemented a 30 percent price reduction on Bristol Office Tower, 25 percent on Bristol Residential Tower, 30 percent on Oxford Tower, and 25 percent on Fairview Residency, all located within Business Bay.
If a buyer bought too many units and was not able to handle payments due to the ongoing crisis, Deyaar will buy back some of these units, leaving the buyer able to pay for the remaining units.
The projects up for consolidation are the ones yet to be built or in their early stages of construction, and constitute 25 percent of the company’s portfolio. These projects are the Deyaar Park, Mirar Residences and Deyaar Enclave.
“We have a couple of projects that we haven’t started [building] yet, but were 100 percent sold. They are in the middle of nowhere in the desert. They will not come up because they will not be as rich as we believed,” says Giebel. Deyaar is offering customers who bought into these projects the option to transfer their ownership to another project or get a refund.
After implementing all the previous steps, “there will still be 10 to 20 percent of buyers who will default,” says Giebel. For that purpose, Deyaar, along with Dubai Islamic Bank, created a fund which will be between 500 million AED ($136 million) and 1 billion AED ($272 million) for acquiring Deyaar properties from defaulting buyers. The fund has secured $54 million so far from regional investors and will be launched beginning July, says Giebel. It will offer these properties for rent for a couple of years before putting them back on the market. The reason why Deyaar does not sell these projects, as Giebel explains, is that more supply would destabilize the market, driving prices down.
“I cannot be seen driving prices down because we are a publicly traded company… so the fund is a tool to guarantee my cash flow, stabilize the price and make a lot of money for the industry,” he says.
Giebel explains that for a company to achieve or maintain a solid financial position, it must take care of its cash flow and debt. Once that is done, the company will not have to depend on past contracts and projects to secure its position, but will be able to look at new opportunities arising in the midst of the current crisis.