'The growth isn’t a bubble reminiscent of the recent past'

Sobha Group made headlines for taking on one of the biggest real estate projects in town at a time when many were still grappling with recessionary effects. The ambitious District One project in Mohammad Bin Rashid City, being developed by Sobha in a joint venture with Meydan Group, is expected to create a major impact on Dubai’s real estate market.

Spread over 45 million sq ft of prime freehold land in the heart of Dubai and just 2.9km from the iconic Burj Khalifa, District One will be one of the lowest density developments in an international city.

Sobha is also developing another mixed-use premium project, Sobha Lifestyle, near the Burj Khalifa and The Dubai Mall. Spread over 8 million sq ft, the project will feature modern, stylish villas and apartments, two schools, three hotels, retail and dining amenities, a spa and a full-service clubhouse.

But announcing big projects is one thing, delivering them on time is another. At a time when Dubai is still trying to recover fully from the downturn and fears of another property bubble continue to linger, can Sobha manoeuvre through the troubled tides and deliver its projects on time? The developer is confident it can, having nearly completed a show village featuring nine villas.

Property Weekly caught up with Sobha Group Vice-Chairman Ajay Rajendran to check on the status of the projects and the expected time of completion. He also shares his thoughts on the current market scenario, the property bubble concerns and the company’s approach towards corporate social responsibility.

The first landmark project that we are developing with Meydan Group in Mohammad Bin Rashid City is aptly named District One. This expansive development will feature luxury residences, green parklands, waterways, a high-end shopping and dining pavilion and large recreational spaces, creating one of the lowest density developments in the heart of any international city.

We have already broken ground with District One, as our show village featuring nine actual villas will be complete by the end of November. The project, with a total market value estimated at $7 billion (Dh25.7 billion), is scheduled to be delivered in four phases with phase one to be delivered in mid-2016.

Our second project is Sobha Lifestyle, a wholly owned premium, mixed-use Sobha Group development. It’s spread over 8 million sq ft and located just four minutes from Burj Khalifa and The Dubai Mall.

We will break ground on Sobha Lifestyle at the end of the year or beginning of next year. Like District One, we will deliver Sobha Lifestyle in phases and we anticipate that the delivery of the whole development will be accomplished by 2020.

How many bookings have been done so far for the two Dubai projects? Did you close big deals during Cityscape Global?

Cityscape was very successful for us and we received a lot of interest. We will shortly launch Sobha Lifestyle, before the end of the year.

For the foreseeable future, we do not have plans to launch any more residential projects in Dubai. Bearing in mind the sheer scale of the developments, we expect the two projects we are involved with to keep us more than busy during the next six to seven years.

How do you plan to fund these two projects?

I don’t think I would be able to share the details of the arrangement that we have with Meydan Group since it’s confidential.

I can, however, tell you that this project is an equal joint venture between Meydan Group and Sobha Group. The joint venture is funded through a combination of debt and equity, which is already in place, while the remainder will be through our sales efforts.

What’s your global expansion plan?

As I mentioned earlier, both developments here in Dubai will keep us busy for the next six to seven years.

What are the key factors that have been working in your favour?

First, I think there are no shortcuts to quality. Our approach to quality control and on-site supervision is critical to the overall success of all of our projects.

Secondly, we are a fully backward integrated company, which gives us the ability to manage time, information, cost and quality as that’s where it all begins and ends. In all the key trades on-site, we will have full control of all these factors, which will enable us to deliver on time. This has been critical to our success.

The launch of various mega real estate projects are often seen as the signal towards market revival. Do you reckon the arrival of such mega projects is an indication of Dubai’s full recovery?

I think it is always good to have a rational mindset in any business. All over the world the real estate business is cyclical. It is part and parcel of the industry. Dubai is no exception to this rule.

In Dubai, it is important for all stakeholders to learn from the lessons of the past. The current growth can be attributed to three factors.

One is the fall in prices between 2009 and 2011 that, in many cases, were below replacement costs. So a large part of the price increase is only to reach fair price levels. The second factor is the fundamental rise in end-user demand due to economic growth and instability in some parts of the region. The third is the supply-side growth rate that is lagging behind demand.

We also view the tightening regulations by Dubai’s Real Estate Regulatory Agency that discourage a highly speculative environment as well as ensuring increased buyer protection, as a positive step for Dubai. While every market attracts investors, it is the mindset and horizon of investors that matter.

In a nutshell, at this point in time we don’t view the current growth as a bubble reminiscent of the recent past.

There have been talks of another bubble in the making as property prices have escalated a lot in the last year. Do you consider this a genuine fear that most developers have?

Before we get into the real estate situation, it is worth outlining where Dubai stands today and its unique position in the region and the world.

It is the only international city between London and Singapore. With 90 per cent of its 2.1 million people representing almost every nation in the world, it is where the East meets the West.

Dubai has demonstrated political and regulatory stability as it continues to evolve. It is a maturing metropolis where multiple industries are contributing to the overall economic growth — particularly in trade, logistics, travel and tourism, retail and finance among others. Representing 242 shipping lines and linked via 130 airlines to over 220 destinations, it is an infrastructure success story.

Dubai International Financial Centre is also home to 18 of the top 25 global banks, six of the 10 largest insurers, six of the 10 top law firms and eight of the top asset managers in the world. The UAE has the greatest number of award-winning colleges/universities operating on foreign soil with 37.

The growth in real estate is an outcome of overall growth in the economy, which translates to business and job opportunities, resulting in prosperity.

This provides a great opportunity for credible developers with the wherewithal to deliver. We believe it will be a few years at least before there is a more stable equilibrium between demand and supply.

Speculative buying has been one of the reasons for the market boom and also the crash in the past. What’s your company policy in this regard?

With Mohammad Bin Rashid City — District One, we are building a destination in the heart of Dubai with luxury homes. Our product offering is primarily geared to attract end users as opposed to short-term speculators.

Please talk us through your hotel development plans. When are you planning to launch the first property and under which brand?

PNC Menon, founder and Chairman Emeritus of Sobha Group, has already announced to give away 50 per cent of his wealth for corporate social responsibility (CSR) activities. Please talk us through his current social activities at the ground level and how do you plan to scale this up in the coming years?

As a person, he believes that any endeavour he takes on, whether in philanthropy or business, comes down to quality and delivery. At Sobha, we believe some of our finest achievements extend to our social responsibility towards the community at large. We have a deep-felt commitment to social responsibility, however, we refrain from calling it charity.

For him, it is an obligation to give back to the society a share of what he has earned. The social initiatives we undertake have clear goals and deliverables and revolve around the creation of a totally sustainable society. Specific areas of development are education, health, employment, water, sanitation and housing, besides various social empowerment measures.

We are in the process of executing the same model as we have in Palakkad across seven panchayats in the rural districts of Bangalore in the Hoskote Taluk. We will apply the same discipline and focus towards creating a totally sustainable society.