Property companies are branching out of their core businesses to create revenue streams and help maintain the value of their buildings and flats and to retain tenants.
Developers take the plunge
From pampering guests at trendy health clubs to meals on wheels, property developers are branching out from their core business to try to beat the economic downturn. Emaar Properties, Sorouh Real Estate and Aldar are among the companies that have entered new business areas as new property projects dry up. During the past 12 months, residential property prices in Dubai have fallen 49 per cent from their peak in the third quarter of last year, while projects valued at US$24 billion (Dh88.15bn) have either been scaled back, delayed or cancelled, according to the property consultancy Jones Lang LaSalle. "The market today is moving from an asset-creation phase into an asset-management one, where you don't need to do so many new buildings. What developers need now is to maximise the value of the existing ones," says Craig Plumb, the head of research at Jones Lang LaSalle. In these tough times, developers including Dubai Properties, Deyaar, Nakheel, Union Properties and Omniyat have created their own property management divisions. And more recently, Sorouh Real Estate has joined the club after teaming up with Capital Investment, which is based in Dubai. Their new joint-venture company, Khidmah, specialises in property management, and has 240 staff at Sas Al Nakhl and Golf Gardens, a recently delivered villa complex from Sorouh. They help residents at the state-of-the-art fitness club, maintain the swimming pool, and even check if the grass has been watered. All of them wear the same white shirt emblazoned with "We are the service." "Creating in-house property management is a natural progression for developers," says Vincent Easton, the director of sales at the property broker Engel and Volkers. "Developers now are looking to maximise their profits where they can. They want to diversify their own operation and also keep maintenance costs under control." Deyaar, which already manages more than 16,000 units, plans to double the size of its property management portfolio during the next five years. "During the past year, Deyaar has been working with a long-term strategy of diversifying its income streams and our planned expansion in property management is in line with this overall strategy," says Markus Giebel, the chief executive of Deyaar. Khidmah, though, aims to stand out from the competition and introduce a more comprehensive property management plan to the UAE. "Property management is not only about leasing," says Sutton Turner, the chief executive of the company. "Property management companies here tend to outsource the services. We are doing it in-house: the leasing, resale, landscaping, cleaning the swimming pool and taking care of the infrastructure, among other things. "It is a western model that I brought here because I ran a similar company in the US." Residents of Sas Al Nakhl and Golf Garden can ring Khidmah's call centre and discuss a range of issues such as a problem with the swimming pool, fitness centre or airconditioning. "We were having such a hard time finding good quality service maintenance that we felt we had to establish that business to retain the quality and to cut costs," says Mr Turner. While service management is a logical progression for major developers, other companies are taking more radical steps. Emaar Properties, for example, is shifting into the healthcare business. By the end of this year, the developer will open its first three medical centres and clinics in Downtown Burj Dubai, the Meadows and Arabian Ranches, following a partnership deal with the US private healthcare company, Methodist International. "Health as a business is big business. It is quite a good move by Emaar and the first example of this kind in the UAE," says Mr Easton. Emaar plans to expand throughout the region and hopes to open hospitals in the UAE, Algeria, Egypt, Saudi Arabia and Turkey in the next five years. Aldar Properties is also considering the healthcare sector, but has already moved into education and catering. In addition to running schools through its subsidiary Aldar Academies, the Abu Dhabi-based developer recently opened a catering operation for its workers. "Aldar is producing and developing a myriad of developments and the investors look at our business as something that is more interesting because it has schools, marinas, etc which adds value," says an Aldar spokesman. Mr Easton also believes the UAE's major developers need to spread their wings and expand into other sectors if they are to continue to grow. "Diversification is the key in the property industry," he says. "Developers are looking more and more at leisure and service industries around their developments." The market is lucrative in these areas, but margins are smaller than in sales. "We have been in the business for nearly six years and we have doubled our property management portfolio every two years," says John Stevens, the property management director of Asteco, the largest independent broker in the country. It is a people intensive business and therefore a volume business. The operational profit is great but not the net profit. You have got to have a large portfolio." Even so, there are other considerations, according to Mr Plumb. He believes maintaining property values by improving maintenance and services is key. "More than the revenue from the service, the most important thing now is maintaining the value of the asset," Mr Plumb says. "That is the biggest challenge for the next two years, both from a physical aspect and in terms of leasing and financial management. The leasing market is becoming more competitive." Mr Stevens agrees that happy tenants will translate into stable rental prices in both the residential and commercial sectors. "Two years ago, the tenants where a secondary consideration," he says. "Now you don't want your tenants to leave. There is a change in the focus and the landlords can see it." The new team of Khidmah is aware of this and conscious of the challenges ahead as they take over the running of Sorouh's Sun and Sky Towers on Reem Island, a mixed residential and commercial complex. "We are focused now on Sun and Sky Towers," says Mr Turner. "This is a massive project. We will have to hire at least another 150 people." firstname.lastname@example.org