Five Jumeirah Village
Pockets of investor interest are still there in Dubai's real estate sector. How developers and other industry stakeholders convert this will be crucial. Image Credit: Gulf News Archive

The current pandemic has brought about an unprecedented situation in our lives where many of us are having to deal with challenging situations at work and business. Global news is filled with human suffering and hardship, with hundreds of thousands facing furloughs, unemployment and reduced salaries.

As a result of this many businesses have been left counting the costs and with lower or even non-existent revenues, which have led to reduced cash flow. Global Management Consultancy (GMC) has summarised and identified these challenging factors and is able to introduce possible solutions to them.

In the real estate sector, many property developers and land owners are now under renewed pressure as the real estate market may undergo significant and increased downward pressure.

Post-handover schemes have had their day

Last year many developers came up with attractive propositions to stimulate sales in their projects with the objective that the proceeds from these sales would provide the necessary cash flow to complete their projects. This resulted in the sales component being a critical element of funding the project construction. Today, these means of inducing sales by offering post-handover payment plans to the buyers and investors are not enough, especially when it’s referred to an incomplete or under-construction project.

Today buyers and investors are savvy and among other factors look at a developer’s reputation, past performance and quality of projects delivered. As a result, many developers have had to prove their capabilities while at the same time ensuring no disruption in the progress of their projects.

Another change in the current situation is that the banks and financial institutions have further reduced their risk appetite to finance under-construction real estate projects. Developers earlier depended on bank finance, sales and partially their own equity to be able to fund their developments. With this source of funding now being depleted, it provides an opportunity to investors to fill this position while at the same time enjoy higher profits and returns than they would normally experience in other assets or investments.

With the challenges that many developers and land owners now face and will continue to face in the near term, GMC, with over 40 years of combined experience, has been able to provide alternative solutions to clients in order for them to sell and complete their projects. Our expertise has resulted in us providing the following solutions:

* Analysing projects and guiding developers on a sales and marketing plan. In tandem, advising them on how to obtain approvals from the relevant statutory authorities. In addition to this, introducing them to third-party financiers and helping them build a successful business case.

* Recommending joint-venture structures or joint development opportunities for projects that are under 40-50 per cent complete. Inter alia, provision of advisory services for the development of joint-venture structures, including documentation.

* Introducing developers to financiers to obtain last-mile funding for projects that are over 50-60 per cent complete.

Still investor magnets

Some key areas that GMC has been involved are Jumeirah Village Circle, Jumeirah Village Triangle, Al Furjan, Majan and Arjan areas. These areas have aroused interest of many investors as they provide a good infrastructure by master developers such as Nakheel and Dubai Properties. Also, these areas offer attractive rental returns to investors as they attract a higher demand from residents of the mid-tier income segment.

At present, our team is engaged with a developer that has more than 10 projects, all under construction, in which we are in discussion on behalf of the developer with investors and contractors alike.

At GMC, we see today as a time of opportunity for investors, both institutional and private, to procure projects at discounted values, which in many cases are below the sum of the cost of land and construction. Since many of the projects we have on hand are half complete, considering time is of essence, this provides an opportunity for an investor to see their returns accelerated without having to go through the process of designing and obtaining approvals.

A return of demand

With the Dubai Expo next year we foresee increased demand and a unique opportunity for investors to enter at lower and unprecedented values preserving their investment value in the years to come.

Our strength is to think through and provide various solutions such as profit-sharing or equity-sharing structures; buy-back structures with guaranteed returns; in-kind contributions; asset swaps; buyer consolidation alternatives and others with the objective of creating a win-win solution for all stakeholders. With these mechanisms in play, we have managed to successfully engineer solutions for various projects to provide inroads for developers to see their projects getting completed.

On the other hand, we’ve been able to provide advisory and help secure funding for businesses that have required working capital to continue operations and/or potentially expand.

- Rakesh Mirchandani is Managing Partner at GMC. 

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Rakesh Mirchandani, Managing Partner of GMC.