Economic crisis has made businesses more efficient
Zaya, a UAE-based boutique property developer, is looking at a number of potential sites including the ones in Dubai, Qatar and Oman in the Middle East, and India in Asia to introduce ultra high-end luxury developments, according to its chief executive.
"Apart from the $1.1 billion (Dh4bn) Nurai project, we haven't committed to any financial investments thus far because we are still in discussion stages with various potential investors after which we intend to carry out an intensive research exercise. We invest great time and resource in planning our developments to ensure they meet the lifestyle and financial expectations of our buyers," Nadia Zaal told Emirates Business in an exclusive interview.
The company aims to bring some of the world's most exclusive experiences and brands to each and every project it does as Zaal believes in the philosophy of "with every crisis comes opportunity".
According to her, the current economic situation has compelled companies to operate efficiently and effectively by creating the right products for the right market than just lean on favourable market conditions to raise profit margins. Excerpts:
You launched Nurai on May 12, 2008, and since then we have not heard of Zaya launching any projects. How are you planning your way ahead?
As a boutique property developer, we invest a huge amount of time and resources in planning our developments to ensure they meet the lifestyle and financial expectations of our buyers.
Our first Nurai home is set for completion by the end of the month – notably ahead of schedule. With construction on Nurai progressing at a vigorous pace, we are firmly on track for delivery in December 2010.
We are currently exploring a number of potential sites across the world for the new Makani concept as well as other concepts currently under development. Although no final decisions have been taken yet, our ultimate aim is to bring some of the world's most exclusive experiences and brands to each and every project we do.
What sales have you achieved on Nurai project and is warehousing a strategy that you look to adopt during this slowdown period?
Nurai's first release, which constituted 60 per cent of the development (approximately 40 units), was sold out in less than one month. At Cityscape Dubai 2008, we released a limited number of additional units, which were also sold out. Our team has the confidence and track record to apply innovation and creativity to their projects.
Our sales to date are a testament to the strength of our offering in the market. We are backed by the financial strength and experience of our joint venture partners, which makes us well placed to face the challenges of the global property market.
Zaya is a joint venture between Tasameem Real Estate and Assas, whose combined portfolio is in excess of $20bn. Tasameem has a development portfolio worth more than $15bn around the world (for example, The Hard Rock Café), while Assas is an investment holding company focused on investing in premium and luxury developments.
Are you revising payment plans for investors in light of the slowdown?
Our payment plans are linked to key construction milestones which have been carefully considered to create credibility and trust among our target clientele. We have always been dedicated to responding to the needs of our clients on a case-by-case basis should the need arise.
In addition to the initial booking fee, the key construction milestones which we link our payment plans to are: foundation, superstructure, glazing and completion.
Property prices in the UAE are declining and the luxury market seems to be worst hit. Is a diversification into affordable housing being considered?
Contrary to popular belief, ultra high-end luxury developments such as ours continue to remain attractive as they operate in their own universe governed by the fact that the availability of such property is limited and the very wealthy are largely immune to the factors dragging down the broader market.
Our focus on creating a distinctive debut development catering to a well-defined niche clientele reflects the strategy that will allow us to weather the credit crunch – particularly when combined with our geographical location. Nurai, our first development, is located just off the coast of Abu Dhabi, which continues to enjoy robust and, most importantly, sustainable economic growth rates and high wealth levels.
Yes, times are challenging, but this is not to say there are no growth prospects; it is a matter of identifying these and using them to your advantage – with every crisis comes opportunity. The present economic situation has actually forced companies to begin operating effectively and begin to invest strategically and efficiently with the aim of creating the right product for the right market rather than bank on favourable market conditions to raise profit margins. Businesses that emerge stronger from the financial situation are the ones that exercise sound judgment and identify innovative and efficient ways to meet their goals.
The financial crisis has renewed emphasis on the importance of understanding risk – be it operational risk or leverage. Our investment, expansion and operational decisions are underlined by a true understanding of the concept of risk.
We didn't bank on celebrity endorsements and favourable market conditions; we went back to the basics of creating the right product for the right people at the right location. We based our conceptualisation on in-depth insight from our target audience, we brought together a dynamic team of individuals who together managed to conceptualise, design and launch the sales of the project in one year – a process which takes two to three years in the industry. Most importantly, we have not only progressed aggressively on our construction schedule but we have accelerated the completion of our first home which is scheduled by the end of month. These factors among many other things are why we remain optimistic, even in today's economic situation. It is because what we already achieved gives us strength and hope on what we can and will achieve tomorrow.
Is it easier for Zaya to get bank finance for construction and end-users because it is a joint venture between two strong companies? Has lowering of loan-to-value (LTV) ratios by mortgage institutions affected your sales?
Zaya is financed through multiple channels, which include capital raised by the joint venture partnership, shareholder loans, a portion of presale income and construction bank loans.
The partnership is incredibly robust with a portfolio in excess of $20 billion. In addition to the financial backing it offers us, the joint venture brings us direct access to a community of high net worth individuals as well as unprecedented access to a strong pipeline of prime properties through some of the world's best land banks. The partnership also opens many doors in terms of gaining access to some of the region's most influential institutions and thinkers.
Are you scouting for land in other countries? How much does Zaya plan to invest by the end of 2010?
We are currently exploring a number of potential sites across the world including Dubai, Qatar and Oman in the Middle East, and India in Asia
Besides the $1.1bn Nurai project, we haven't committed to any financial investments thus far because we are still in discussion stages with various potential investors after which we intend to carry out an intensive research exercise which is a part of our conceptualisation process.
So are you looking to set up more joint ventures in the future?
We are always looking for strong local partners in each of our target markets as they bring in, among many things, much local knowledge and insight. With respect to investment value, this will differ from market to market depending on a number of variables including the nature of the joint ventures, the actual development concept and the nature of the market.
Do you believe there is an urgent need for the UAE to harmonise property laws so all the emirates have common real estate regulations?
The Federal National Council recently announced that the UAE Government was considering assuming a role at the federal level to co-ordinate efforts among all local real estate regulatory authorities.
Establishing common real estate regulations and uniform property laws across the UAE will streamline procedures and help investors who own projects across the emirates. Harmonising property laws will boost confidence in the real estate sector of the UAE among international investors and bring additional stability to the sector.
Common property laws across different emirates will also benefit property developers and service providers.
Abu Dhabi in particular is currently evaluating five new laws – a strata law, a law that establishes a real estate authority, a mortgage law, a development law, and an escrow law – all of which will mean increased transparency in the sector and a boost in investor confidence in the country.
As a developer, how much did you rely on off-plan sales strategy to make money? Do you still vouch for the same strategy for your future projects?
Given that the market is going through very challenging times, where prices, targets and ambitions in the industry are being dramatically altered, off-plan sales have become virtually non-existent and most end-users are focusing their attention on the finished product and the credibility of the developer.
Construction on our first development Nurai is progressing at a vigorous pace and continues to be on track and is scheduled for completion and delivery in December 2010. In fact, construction has been accelerated and the first Beachfront Estate is due to be completed in a few days.
Do you plan to issue Islamic bonds, or launch real estate funds for your expansion strategy?
We are reviewing our funding options for the upcoming projects and will be able to decide a direction on these by the year-end.
Do you believe properties in Dubai and Abu Dhabi are now selling at the so-called fair value?
According to a Jones Lang LaSalle report titled "Middle East and North Africa House View", 2009 will be a year of correction as the Dubai real estate market transitions from the previous period of strong demand driven by plentiful capital, to the new paradigm where access to finance is much more difficult and speculative demand has all but dried up.
There is also likely to be a significant shift in focus, from speculators to long-term investors and end-users that may have quite different requirements. With less "flipping" of properties, inflated property prices are expected to come down.
Recent industry findings show a 30 per cent fall in construction costs per square foot within the emirates, since the onset of the economic crisis.
Prices of other materials have also fallen with aluminium, wood and glass and diesel seeing prices decline between 15 and 45 per cent. The falling cost of labour and supervision due to recent redundancies and terminations has also contributed to the dip in construction expenditures.
In Dubai and Abu Dhabi, construction costs currently range from between Dh400 and Dh900 per square foot, depending on the location of residential buildings. The 30 per cent fall amounts to between Dh50 and Dh100 per square foot. Any change in prices is therefore likely to affect business in a positive manner by reducing construction costs for the developer. All these factors are expected to translate into a price correction in the UAE property market.
Is it the best time to buy or rent? What do you advise?
There is no hard and fast rule with respect to this issue as the variables in the real estate market are now so great that we can no longer approach this in a pragmatic manner.
Whether you rent or buy depends on many factors such as a client's income bracket, potential legislation changes, changes in economic forecasts etc. As far as we are concerned, our primary focus is on luxury high-end real estate, which we are confident will weather the turbulence in the market.
Nadia Zaal
CEO, Zaya
Zaal was previously the chief executive and driving force behind the Al Barari project, a mixed-use development targeting the premium segment of the real estate market. She has experience in project development, structuring and funding in the Gulf's energy sector, having led one of the region's largest IPOs for the Abu Dhabi National Energy Company, or Taqa.
She also sat on the board of Taweelah Asia Power Company, which closed the largest energy financing deal in the Gulf, as well as the Executive Committee overseeing the structuring and development of the Sohar Aluminium Smelter, a joint venture with Alcan.
Zaal is a graduate of the London School of Economics, University of London.
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