'When the market reaches the bottom, new investors will come'

However, there is the odd developer or two out there who had no reason to change course. It's not that they are oblivious to the state of the market, but they are using a strategy that works come boom or bust. HH Investment and Development Company can lay claim to have done just that.

Rather than being a developer going solo, HH takes on projects from inception to completion and beyond on behalf of select clients, bringing its expertise in finance, marketing, design, development and property management to the table. In addition, it benefits from partnerships with the likes of Dubai Contracting Company (DCC) and the architectural firm DXB-lab.

Thus, when the market was on a high, HH did not face the pressure of launching a project every other week and then selling units off to a horde of speculators. The developer has just handed over the O14 office high-rise in Business Bay and has an eclectic collection of projects, which includes islands, private villas and boutique offices.

HH takes its name from the initials of its founders, Shahab Lutfi Harmoozi and Mohammad Al Hussaini. Property recently met with Lutfi at his swanky office overlooking Jumeirah Beach for a refreshingly transparent chat on how he views the market.

HH was set up back in 2007, what was the impetus to do so?

It started with DXB-lab and we got involved in designing a lot of buildings. When we worked on O14, we thought why not take it a step further. I am not an engineer myself, but come from a finance and real estate background. So we created HH, which works not only with our own designers and third-parties as well, creating its own identity.

Our design office, DXB-lab, focuses on a certain style. From a developer's point of view, we didn't want to be put into a box. It's a taste issue. We have contacts with a lot of international architects to choose from the right project, depending on whether it's a resort, private villa or staff housing.

Your portfolio is varied, but the O14, because of its location and looks, stands out. Would you repeat it elsewhere?

The O14 excels through extremely low maintenance. Normally buildings in Dubai have a life of around 30 years. But this one, since it is mostly concrete and steel, will last much longer and will look the same for a very long period. We wouldn't replicate it, but will try to do something even nicer. The market is different now, it may not accept a building like this.

Why not?

In the current environment it is actually cheaper for developers to buy unfinished buildings rather than construct them from scratch. You can get good bargains if someone knows how to structure the deals and you have the funding.

Are you planning to buy?

No, at the moment we are focusing on finishing our current projects and developing management services. We have developed the capability of learning from a few projects that we initially started and invested in. We manage all the new projects on behalf of clients for a fee.

We started a property management arm last year, and it takes care of around two million square feet of office and residential spaces, towers and villas. We are constantly adding to our portfolio approaching clients to manage their units in completed buildings, like for example the Executive Towers. Then there is also our leasing portal, I'd say it's a personalised relationship strategy.

We're close to building and unit owners. We use the network, my own and that of board members, to try and penetrate the market.

Above all we treat any property or project like our own.

Which of your projects are still under construction?

We're currently managing the Phoenix Tower — which is almost complete — for one of our clients. It is located in the Dubai Residence Complex opposite Dubai Silicon Oasis. That building was focused from the outset on the mid-income market, similar to The Greens.

Rents have come down, but we locked in contractors at a reasonable rate so the client will end up getting something.

What does your affiliation with Bahrain-based Venture Capital Bank entail?

We're managing a staff housing development for them. We also did a venture with them on The World, managing the D51 island. But it was suspended after advancing considerably, 75 per cent of the design was complete and we had also floated the main tender.

Was it because of the downturn?

We realised it wasn't the best solution for the time. We advised our clients in January last year, to unwind the project, but hold on to the designs and ownership of the island. It came as a blessing to them. I think we were one of the very few developers who refunded people their money. I know the clients were happy and will always come back to us again.

When would you recommend to restart the project?

It's a bit early, but we would revisit the plans within a couple of years. There will be a market for it in the future. Previously, people just wanted to build up the islands as much as they could and sell units. That business model will not be sustainable any more. A resort environment with a long-term investor could work. If you were to build the first hotel there today, for sure you'd be very successful. It becomes an attraction, just like people come to see Burj Khalifa, they would also be interested in visiting the first hotel built on an artificial island. The future might also be private homes — very lush, large and not crammed together.

Isn't providing infrastructure out in the sea a challenge?

The World is a very challenging project, but providing your own utilities is not a major issue. The Maldives have their own sustainable units that generate power, sewage and desalination plants. The technology already exists — it just costs money.

You have worked on other islands on The World such as the D81, D26 and 29. Are these on hold too?

We were ahead of most developers on the design front and were approached by others who owned land there, or considering buying. We helped the developer with a concept theme on the D81, but it didn't go any further. The D26 and 29 is a similar story. The investor owns the islands. We were approached by others, but didn't want to take any more work.

Why not?

We specifically chose our clients, as we didn't want to be associated with someone who ends up not having enough funding. So we make sure when we get into the design that they have, the capital structures in place. If we don't think the project will fly from the start we just tell them ‘don't waste your time'.

There was also a resort island in the pipeline somewhere off Jumeirah Beach?

Yes, it's not far off out there. It was one of the projects in the Dubai infrastructure requirements and then it got suspended for a period.

The designs are there, and hopefully it will revive in due course.

And what about the Dubai Pier, a truly fascinating idea and ideal design for a city by the sea?

There was no client for this one, but we researched and then commissioned an architect. I worked closely with Fernando Donis, an internationally renowned architect when the frenzy was going on and wanted to create something new for Dubai. The pier seemed like an excellent idea, it is very economical. We haven't got a developer who would be keen to take it on board yet. But it could be done anywhere really, including Dubai and Abu Dhabi.

It is essentially an outdoor and indoor space with food courts, shopping and a hotel. We worked with a contractor to determine the feasibility of the design. It is just like building a bridge, so there is nothing new. Yet, it looks futuristic. Lets hope the market recovers and we get someone who will be interested in building it.

Moving on to Palm Jumeirah, you were planning the Palm Palace at the end of a frond?

We commissioned London's Candy and Candy to design a house that eventually would have been sold off to a high net worth individual. The design is on hold for now. We had some interested buyers but the price wasn't right. Doing a house like that is expensive and would sell in excess of Dh100 million. We understand that currently it would not work, so we're working on a new design and will build the product. We'll break ground in a couple of months.

You also had a project in Jumeirah Lake Towers, Aeon, again the design (resembling snake skin scales) stands out. Why was that stopped?

It actually was never launched. One of our clients had a plot and the same architect for O14, RUR Architecture, was behind it. Then the JLT market kind of stopped, so I advised the client not to spend any more money, just keep the land and I think they're happy they did not start. The are waiting for the market to recover.

When will it recover, in your view?

A real estate cycle is not like the stock market, it is much slower. It has to reach the bottom first and then come back up when confidence has returned. One year is already gone, so at least another two years to go. The good thing about the crisis is that developers who don't know what development is all about, are going to be screened out. So if you know your business and you control your costs properly, you're going to survive for a while.

How does that affect your plans?

We are adapting to the market and doing a lot of boutique projects like house refurbishments on a smaller scale. For example, we have an amazing turnkey project on the interiors of a 27,000 square feet villa in Emirates Hills. We get our jobs through private networking. We have the contacts to deliver superb quality and control costs. We practice an open book policy with our clients.

What is the recipe for future development?

Some will continue with current developments while others will take a hit. When the market reaches the bottom, new investors will come. Dubai will never go away, it's got the best infrastructure, lifestyle and the ingredients for a good economy when the global economy recovers.

The real estate market is going back to the old school system where people are building to rent an apartment or villa to get a rental yield of 8 or 9 per cent. That's where the market is expected to go.

Would you recommend buying now?

Yes, if someone has the cash. There are hardly any banks to give you finance. Without finance the real estate market will struggle to recover. Even if banks gave 50 per cent financing, it would create some kind of a momentum.

We're not looking for the 99 per cent, it isn't logical. It's good that life has become more economical. Some prices are already at 2004 and 2005 levels. Most of our clients bought during 2006 up to early 2007 before the frenzy started and managed to continue the projects.

Do you think developers can blame speculators for their financial woes?

Developers claim they sold 100 per cent, but transparency was not there. A lot of issues with developers have to be resolved. But buyers also have to be flexible to a certain extent. Not every problem has to end up in court, otherwise nobody ends up with anything.