Some firms are revising their payment structures to make financing easier for home buyers.
Developers go cold on speculators
Developers are steering away from speculative home buyers and focusing more on end-users as the global financial meltdown and uncertainty in the home economy forces them to adjust their business plans. Some firms, instead of reducing prices, are revising their payment structures to make financing easier for home buyers. Others are attempting to strike deals with mortgage lenders to ensure customers have access to funding.
The move to target end-users marks the end of an era of rampant off-plan sales to speculators, where in some cases an entire building would sell within a day of being launched. Off-plan deals involve selling the property before construction is complete. Property brokers have also experienced a fall in the resale prices of off-plan property in Dubai and Abu Dhabi, with key developments such as Al Reef in Abu Dhabi and Downtown Burj Dubai dropping about 10 per cent.
"We said three years ago that speculative demand was controlling the market, where people were not interested in who was building or whether the building would go up," said Zaid al Ghoul, the chief financial officer of Union Properties. "They were only interested in paying five per cent and then flipping the property. The market is now approaching the end users, who by default are smarter than speculators in terms of being more cautious. They pay attention to detail because they are putting their life savings into a property; they are not planning to flip it. They are also running away from escalating rents."
Changing conditions have also prompted developers to focus more on trying to reach their desired market. "Our main decision has been to slow down the speed of sales, rather than have a price war with our competitors," said Walid Abdel Latif, the director of sales and marketing at Define Properties. "It's not like before, when developers used to sell a building in 24 hours. We will focus on end-users and long-term investors and this will take time."
Mr Latif added that the company was hoping to attract more buyers from overseas, as well as looking to make deals with mortgage providers. "The market change has made us improve and expand our sales team," he said. "We are building good relations with mortgage providers so we can provide clients with a one-stop shop of services." Still, developers are concerned that limited liquidity in the market will lead to buyers falling behind in their payments. "The situation is hurting everyone," said Ankur Mehta, chairman of Stallion Properties, the developer behind the Santorini project on Marjan Island in Ras al Khaimah.
"I'm more concerned about future clients paying their instalments on time. It will affect our cash flow. We have an in-house legal team that keeps on top of payments and sends out regular reminders." Some developers are offering support to buyers who default on payments, while others are involving construction firms and financial and legal advisers more in the pricing of their projects. "If buyers have a problem with payments, we will help them," said Mohammed Sultan Al Qadi, the chief executive of RAK Properties.
"We will be flexible with them. If they come and ask for a delay in payment for one or two months, we will tell them OK." Mr Latif said: "We won't necessarily drop prices, but we will enhance the way the payment structure is offered. At the end of the day, the customer is evaluating the total value of the deal and the benefits from it, not only the price. "We also have a pricing committee. For example, the construction director, chief financial officer and legal adviser are involved in pricing and looking at all aspects of covering costs."
While developers were coming up with ways to better protect themselves from a slowdown in property sales, they were unlikely to drop their prices, particularly when overall construction costs remained high, said Wahid Attalla, the chief executive of Spectrum Consultants and a member of the board of Ras al Khaimah-based developer, Rakeen. "It would be a big mistake for a developer to drop its prices," he said.
"What's happening today is because of panic and an uncertain future. Buyers are holding on to their money regardless of whether the price is high, low or has been reduced." Mr Attalla said buyers were exercising caution as they questioned whether a developer had the finance to build a project or if they would secure a mortgage. "There is also the expectation and hope that prices will come down," he said.
He added that Rakeen was monitoring market conditions daily before making any changes to its strategy. "It is premature to make any drastic decisions right now. The situation could resolve itself shortly, or it could worsen, whereby you reach a point when you take drastic action," Mr Attalla said. Analysts said the property market was less vulnerable to the tightening credit conditions than markets in the West because only about one in four properties was financed with borrowings - a relatively low figure. firstname.lastname@example.org email@example.com