If you can’t sell it, auction it. That seems to be the mantra many in the United Arab Emirates’ troubled real estate market have adopted as they try to offload properties.
On May 19, Madania real estate company took the lead by auctioning four properties. Sherwoods, a real estate consulting firm, followed suit and auctioned 21 lots on June 4. Coldwell Banker also received a permit from the Dubai Land Department (DLD) and is planning to conduct an auction this summer.
But the auctions have run into some problems. Despite more than 100 people showing up at the Sherwoods auction, not one property was sold out of 24 on offer.
“There’s so much bad news, everyone’s scared and is holding on to their money… If I had access to the sort of money being asked for, I would buy,” Anwer Moola, a Dubai property owner, told The National newspaper. “A five-bedroom villa, for example, can still be rented for [$50,000 or $55,000] a year.”
But experts believe that the auctions are the best way to get an accurate price for properties in a market where buyers and sellers have vastly different ideas of a “fair price.”
“The auction removes the price and puts the product out in the market, and it allows people to look at it and make their opinion on what the property is worth,” says Raymond Kuceli, chief executive officer of Madania Real Estate. “The price that is generated gives an indicator to the seller on where exactly their property sits in the marketplace.”
Executives at Sherwoods say the properties auctioned so far have not been distressed assets, but units that have been put on the market with no interested buyers.
“None of the properties were taken from lending institutions, but we certainly have people who agreed to sell below the original price that they paid,” says Jeremy Mayhew-Sanders, head of investment & developments at Sherwoods Independent Property Consultants.
Still, both Kuceli and Mayhew-Sanders agree that there is a possibility for distressed properties to also be included in future auctions.
On the auction block
Property auctions are still new in Dubai and come at a time when the market is in its worst downturn, so the results were not surprising — both auctions bids failed to attain the lowest price set by sellers.
“We knew we would struggle to sell anything on the night of the auction, and if we did it would have been a great bonus,” says Mayhew-Sanders.
Kuceli says the outcome of the auction was satisfying, since some properties achieved competitive bidding and bidders showed interest after the auction was over.
“For us we had a good turnout, we had some bids. And we had negotiations afterwards, too,” says Kuceli of Madania’s auction, where two of the four properties on offer received bids.
At the Sherwoods auction, 17 bidders were present in the room and at least seven lots received bids. Bidders also showed interest after the auction, where a deal for a $1.6 million penthouse in the Emirates Crown closed.
“We are working on land deals which may or may not close, but I hope they will,” says Mayhew-Sanders.
Land department
Any company that wants to hold a public auction has to get an auction license from Dubai’s Department of Economic Development and an auction permit from the Land Department.
Companies can auction as many properties as they want, but should submit details for every property in order to receive approval. If all the information is submitted at once, the process might only take a couple of days, says Kuceli. The fee for obtaining an auction permit from the Land department is $545.
The Dubai Land Department also charges 2 percent of the sales price of the property. The system is for completed properties, and dealings with foreclosures and inherited properties have yet to be specified.
Planning ahead
The first two auctions might not have been very successful, but that will not keep companies like Sherwoods and Madania from planning future auctions in the hopes that they can build on the level of interest and success.
Sherwoods is planning another auction in November. Mayhew-Sanders says he is not sure how many plots the auction will include, but it will be easier than the first one.
“Our next auction will be very focused on dealing with stock that we feel confident we can sell,” he says.
As for Madania Real Estate, Kuceli says “we were looking… at the second week of July because we want to get more properties online.”
With eight properties confirmed and aiming for 15, Madania’s Kuceli believes more investors will show up, having familiarized themselves with the auction process.
