Some developers have sold at wrong prices

New real estate entrepreneurs can find it pays to be as self-reliant as possible. Tharaa Holding is less than a year old but has been busy establishing subsidiaries to support its operations. Its next move will be the acquisition of a 35-year-old construction company based in Dubai specifically to support its new real estate division, Hadara. "This deal will be concluded by the end of August," said Tariq Ramadan, Chief Executive and Chairman of Tharaa Holding. The group has interests in the wealth and asset management, creative services, web solutions and hospitality sectors. "We are also in serious discussions to create a Shariah advisory company," Ramadan told Emirates Business in an exclusive interview. "The memorandum of understanding has been signed and we believe this will be the first Shariah advisory company in the UAE. "Our target clients are high net-worth individuals and institutions and we provide them with a full suite of services. We are expecting net profits of Dh100 million for Tharaa Holding after gathering the profits from all the subsidiaries." What are Tharaa Holding's subsidiaries? RichVille is a Dubai-based real estate asset management company offering a range of advisory services covering investment, development, new project sales and marketing, leasing and property management, feasibility studies and funding advice. It was the first company we launched in Dubai and it has helped us to obtain an overall view of the market and its potential. Tharaa Capital is an international financial asset management serving high net-worth individuals and companies. Hadara is our newly launched UAE-based real estate investment and development company. Its aim is to establish worldwide operations through the development of real estate projects owned or co-developed by ourselves in various international markets. HTC Middle East is a joint venture between Tharaa Holding and HTC Korea – South Korea's first and leading hotel management company. We have only just set this up and have yet to build up a portfolio of properties. RichArt is a new-breed agency employing creativity and business knowledge to increase brand values and manage the brands of different companies. I have converted every cost-generating centre into a money-generating profit centre. How do you see the role of Hadara? We do not have a land bank – instead we will work with various landowners, investors and fund managers. There are Dh3.67 billion worth of projects in the pipeline that Hadara will be involved in. Are you worried that you have entered the market a bit late considering so much activity has already begun? Not at all. In fact the arrival of the Real Estate Regulatory Authority (Rera) means in many ways this could be the beginning for many real estate players. Developers who started a year ago have experienced a huge increase in construction costs after they sold their projects. A number of those developers are experiencing financial losses or cash flow issues right now. With Rera coming in, we think it is a good time for Hadara to enter the realty scene. What basic errors have some developers made in this market? Firstly, they have sold at the wrong prices. Secondly, while developers focused more on profitability they ignored a basic requirement of real estate development, which is to ensure sufficient cash-flow generation. Developers who were in a hurry to sell may have recorded a 100 per cent sell-out, but only on paper. When you hear of a 100 per cent sell-out it does not mean the entire sale value has come into the developer's hands. The revenue for a developer is always earned according to the payment plan offered to buyers. Furthermore, when some developers decided to start construction they realised that their cash outflows exceeded the cash inflows, since money always comes in according to the payment plan. So, in effect, even if a developer makes a Dh1m profit at the completion of the project, at a given time he may not have cash in hand to run operations on a day-to-day basis. Some have not planned properly. What advice would you give them? At Richville, we advise developers to do their cash-flow projections before they start selling. The cash-flow requirement will vary from project to project but Richville has come up with a financial model. Basically we advise developers to feed investment into a project based on the payment plan for buyers, since a developer's revenue only comes in accordance with the payment plan. The theory may sound basic, but this is the small mistake that small-time developers have been making and they are paying a big price for it. What proportion of developers would you say have not fared well? Developers registered with Rera are obviously the safe ones. They are either doing it right or they have managed to obtain funding to cover any cash-flow deficits. I would say a similar number of developers in the market have launched projects and are in difficulties. So, obviously losses as well as p