Concrete commodities

The phrases 'there's no such thing as a free lunch' and 'you don't get something for nothing' usually ring true 99 times out of 100. Perhaps the exception to the rule, though, is Dubai's much-vaunted and now world-famous real estate sector.

For the past couple of years, many of the city's property development firms have been offering enticements to customers to buy into their residential and commercial real estate projects. The 'free gifts' offered to prospective homebuyers range from flashy automobiles to luxury holidays and free apartments.

With the number of residents rising by around 8 per cent a year, Dubai's population is expected to reach two million by 2010 and 3.5 million by 2015. Add the fact that demand for accommodation in the emirate far outweighs the available supply, and it's hard to see why the city's real estate developers feel the need to offer enticements to customers who should be chomping at the bit to take premises of their hands. However, some key players in the sector feel that such methods are cheapening the city's real estate market.

"The practice of offering such enticements sometimes changes the perception of some developers. You will not see the big three of Emaar, Nakheel, and Dubai Properties using tricks to sell; they concentrate on value, and a quality product," says Rashid A.W. Galadari, chairman of Galadari Investment Office (GIO).

"When some developers began to use gimmicks to lure investors, it was undoubtedly profitable for those companies to do so. But, for the market as a whole, it did cause some to stop, and wonder 'Why the sudden onslaught of offers? Maybe there's a slow-down in purchases? Perhaps demand is falling, and the market is cooling?' So the effect of these marketing concepts was to decrease the perceived stability and growth of the sector, when the market was actually bullish. Instead of concentrating, on a management level, on their build quality, value and products, it was simply a blinkered and easier route to personal gain."

One company that offers incentives to its potential customers is Dubai-based Damac Properties, which has been giving all manner of freebies away for the past couple of years. The company a real estate subsidiary of Damac Holding has 17 residential projects either under way or completed around the region, including the Beirut-based 'La residence' development, which was co-designed by Ivana Trump. The firm also has four office projects and five retail offerings in its $10 billion property portfolio.

Freebies galore

Damac first started offering enticements to prospective property buyers during the 2004 Dubai Shopping Festival (DSF) when it offered a free Audi car with the purchase of apartments. Meanwhile, in 2005 Damac offered overseas customers buying apartments in its Lago Vista development in New Dubai a holiday in the emirate valued at up to 10 per cent of an apartment's price.

However, the firm really cranked things up a notch earlier this year, when, as a support sponsor of the 2006 DSF it offered a free brand new Jaguar X-Type vehicle with any purchase of a studio or one-bedroom apartment in the emirate. Buyers of two- and three-bedroom flats were offered the superior 2006 Jaguar S-Type, while higher-end customers snapping up penthouses or duplex apartments were offered a top-of-the-range Jaguar XJR. Meanwhile, those keen to buy an office floor in Executive Heights were offered ten 2006 Jaguar X-Type cars.

If you thought that wasn't enough, during the recent Dubai Summer Surprises (DSS) festival, Damac Properties offered a free studio apartment (worth approximately Dh500,000) in its Lago Vista development to customers buying selected apartments, retail or office space within its Dubai projects.

Peter Riddoch, Damac Properties' CEO, said the "mega-offer" would reinforce the company's "commitment to always add substantial value to the customer".

While many onlookers may believe the practice of offering enticements hampers the UAE's real estate market, Riddoch sees it as Damac merely "providing the most creative promotional deals in the market," as he said when he launched the firm's 2005 holiday promotion.

Damac may well have been one of the pioneers of this aggressive style of marketing within the region, but many other firms have since jumped on the bandwagon. Everything from free plasma television sets, tickets for major events, robotic pets, smart-home systems, fitted kitchens, furniture bonds and attractive financing deals have been offered by Dubai's real estate firms over the past 24 months.

Enticing offers

The 35-storey Global Lake View development in Jumeirah Lake Towers, which is set to for completion in December 2008, is offering 70 per cent financing through its association with Tamweel, for example. Meanwhile, Dunes Dubai is offering an Dh9,999 first instalment option and zero per cent interest for 42 months along with a fully-fitted LG kitchen in each of its apartments at Dubai Sports City.

While these offers may well be good news for some property buyers, it, there are those who say it could be detrimental to the real estate market itself. Alexander McNabb, group account director at Spot On Public Relations, believes the practice has the potential to reduce both product quality and differentiation.

"When developers offer free gifts to shift units within their developments, they may not realise it but they are basically creating a zero-value market," explains McNabb.

"If this continues, people won't be buying a property because it has more quality, they will buy because of what comes free with it. This practice doesn't build up trust in the developers because you have a lot of unrealistic marketing going on and little true differentiation. With this, there is a danger that you will rip the value out of the market."

It is clear that the increased competition within Dubai's property market has driven some developers to market themselves aggressively in a bid to get ahead of the game. This growing competition is highlighted by the fact that the real estate sector contributed $3.18 billion to the emirate's gross domestic product last year, compared to just $1.70 billion in 2001.

Red-hot market

It is also evident that the speed and power with which Dubai's real estate sector hit 'boom' status is almost unprecedented. And the fact that the market was red-hot for a period of time meant that more attention was focused on profiteering than building design.

As the market developed, competition increased, as did the choice offered to consumers. However, during this period many 'development' companies were formed in a bid to cash in on the massive demand a phase that GIO's Galadari feels was hugely detrimental to the organic growth of the sector.

"As the competition grew, most developers thought 'Okay, I need to start improving my products, I need to raise the design quality, and the level of finishing'. There was a refusal by them to spend more on materials, layouts and interiors. Instead, what they thought was 'I'm going to start giving away gifts as incentives, because I can still sell the same product if I have some gimmicks attached.' Some developers did not accept competition in the sense of raising their own game to stay at the top," says Galadari.

"It all comes down to management; the true test of management quality is when a market is highly competitive. During the peak of the boom people started going out into the market and saying 'right, if you buy this, you get a car for free, you get a gadget, you get another apartment', it's a sign of internal weakness in an organisation, and shows a lack of faith in their products."

Yet, the habit of offering incentives to prospective homebuyers has gone on for years in the more mature Western markets. Philip Lumsden, a former sales executive with one of Britain's top real estate developers believes the practice is harmless and shows that a market is competitive and mature.

"The company I was with offered very good home-financing deals, fitted kitchens and even cars to shift more properties, but we weren't the only ones doing it. Everyone was at it and some still are if your rivals offer one thing you need to respond by offering more," says Lumsden. "When the quality of the houses and apartments for sale in a particular market are all of a uniform and largely good standard in terms of build quality, then it becomes much harder to sell them because the competition is at the same level, so you need to offer something different."

Galadari doesn't buy this, though, and believes there are still too many developers in Dubai who fail to consider the end-user and build quality in their pursuit of easy money.

"A home should have memories because you watch your children grow up there and every single one has to be special, but for some of the people developing today, it is no more than a route to a quick buck," states Galadari.

"If an apartment can be given away as an incentive, then the amount of money being made on the original purchase is beyond the margins achievable for a high-end residence, based on the current market prices for sales versus construction cost. Therefore, profit has to come from the construction side, and materials savings; it follows that the quality and durability of the home is at risk."

The writer is a freelance journalist based in Paris.