Dubai: Many in the UAE’s real estate and construction sectors wondered whether Azizi Developments was taking on too much for its own good by directly handling its slate of projects. In a decision taken last year, this meant Azizi being directly responsible for the sourcing of building materials as well as keeping a tight check on project timelines.
The doubters thought this would prove a distraction, and that as a developer, Azizi was better off leaving the project details for the contractors to handle. But when prices of steel, wood and just about any commodity associated with building something started shooting higher, Azizi found itself better able to handle its sourcing and costs. In conversation with Gulf News ahead of Cityscape Global, Farhad Azizi is emphatic that developers need to have a bigger say and role on their construction needs too.
It was a year ago that Azizi Developments introduced multiple contractors and took direct control of procurement. Did that prove helpful when prices are volatile?
Our approach has changed into a much more efficient one that grants us substantially more control over quality - and costs. We now very rarely conduct new bidding processes for our projects – instead, we work with select few contractors that have proven their merits as the most reliable, skilled and innovative ones.
We have taken the reins in material sourcing, meaning that we procure everything, from steel and concrete to tiling and doors, for them, rather than letting them do it. These materials represent roughly 70-80 per cent of the development costs, and of the costs that our contracts with contractors would have had before, meaning that now, contracts signed are roughly only 20-30 per cent of the values that they used to be.
We now hire contractors solely for their expertise and skill, manpower and mobilisation, rather than for their procurement capacity. This is a win-win for both sides – not only does it mean less risk for contractors who now don’t have to take on massive financing to purchase materials from their side, but more importantly, it gives us as the developer much more control over the supply chain management and, ultimately, our quality.
This approach does, of course, entail more burden, work and risk for us as the developer, but we consider it more than worth it to ensure that our final product meets and exceeds expectations.
It does of course also prove helpful when prices are volatile, as we can leverage economies of scale by making larger material purchases for several projects at the same time and can negotiate with suppliers directly, giving us more control.
You have spread the net wide on the sourcing of key supplies. Given all the supply chain blockages of the last 20 months, was that the right strategy?
Absolutely. If our contractors would have had the headache of sourcing the required materials themselves, they would face more difficulties and we would have much less control over their timely delivery. Our direct involvement with suppliers - with our procurement team managing these processes internally - grants us more control in navigating through supply chain blockages.
Our orders, which are significantly larger than those of individual contractors would be, allowed not only for better pricing, but also for better overall terms and conditions, including the timely transportation and provision of all supplies.
With these direct handling of projects, how much of cost savings did you have? Will you be bringing more changes to your project blueprint?
We are now saving 8-10 per cent through our direct approach of sourcing materials ourselves. While our profit margins have remained the same, and our prices have stayed relatively stable, these savings are reflected in the now much higher quality that our investors and end-users receive.
We will continue with this approach, as it benefits all of our stakeholders – our contractors, investors, end-users and even suppliers – and are not planning on changing it in the near future.
Are you asking contractors for higher performance guarantees? How will you ensure those contractual terms are met?
We do not ask our contractors for higher performance guarantees because most of our projects’ risks are now with us. As per industry standards, performance guarantees are usually 10 per cent of the contract value, which is also what we still follow. However, with contracts awarded now being of significantly lower values – roughly 20-30 per cent of what they used to be – since material sourcing is now excluded from them and done by our team internally, higher performance guarantees are less needed.
In the traditional approach that we used to follow, contractors were the ones bearing more risk, having to finance materials through large loans and having to be reliant on their suppliers. Now, however, their main costs are mostly salaries and machinery, which represent less risk and denote less of a possibility for their performance to not meet our standards.
Any plans to bring forward your offplan plans?
We have just launched Riviera Beachfront in MBR City, as well as Riviera Boulevard – all six towers in our waterfront community. And we will continue to add to its features and amenities in the form of higher quality materials being purchased and community facilities being added, such as introducing the 2.7-kilometre long crystal lagoon that covers an area of over 130,026 square metres, stretching across the entirety of the Riviera community.
We have a select few other offplan launches in the pipeline, based purely on demand.
